Keeping your business on track

Jeremy Tauri.

Is your business on track? How can you be sure?

If you don't use key performance indicators (KPIs) for your business maybe it's time you started looking at how they can help quickly snapshot business health.

KPI are metrics used to benchmark against a business' objective. Some misconceptions of KPIs are that they are just for large organisations with big teams. In reality, they are useful for smaller organisations too and some of the most common KPIs you may already use in your business - think Gross Profit percentage if you're in retail.

Picking the right KPIs for your business and creating a scorecard to review regularly lets you see the trends at a glance and allows you to look at what parts of your business you may need to review or change. I

For the financial KPIs below you will need to have your financial statements handy.

The Current Ratio - Divide your current assets by your current liabilities. This measures business liquidity or its ability to pay its current bills. If your result is 2 then you have $2 of current assets for every dollar of current liability. If your result is under one then you will not have enough money coming in to pay your bills.

Gross profit percentage - If you're in retail then this one is useful. First work out your gross profit by subtracting your purchases from your sales. Then divide the gross profit by the sales figure. This result will tell you for every dollar of sales how much is left.

Net profit percentage - Divide your net profit by your sales and it will tell you for every dollar coming in how much is left out of the dollar profit.

Wages as a percentage of sales - Divide wages by sales. This is useful to work out how much of your dollar in is spent on wages.

There are many more useful rations but try these to get you started.

- Jeremy Tauri is an associate at Plus Chartered Accountants.