Finance: Make goals for your business

Have a goal in your business. Photo / Thinkstock

Whether you are in farming, photography or accounting, key performance indicators (KPIs) are used to measure performance, productivity, and profitability.

Having KPIs means you need to have set some goals for your business and they help you to identify what is critical to your business success.

If you haven't set any goals at all, then you can start with something basic - this might be something such as making a profit of $80,000 a year.

From there you can break it down into smaller components. For example, needing a monthly average income of $6,667.

Then you can compare where you're at and drill into those key aspects of your business on an operational level to establish performance indicators to help reach your goal.

The key is: don't set too many standards. Some standard KPIs you may be familiar with include gross profit percentage, which is found by dividing your gross profit by your sales, and labour productivity, which measures chargeable versus non-chargeable labour.

That might not make much sense, so here's an example.

A client and I established that to achieve a 10 per cent increase in profitability in her business, labour productivity for employees needed to increase to at least 75 per cent a person.

They needed to achieve an average gross profit of 80 per cent.

This dependent on several things happening: client bookings needed to increase by 10 per cent; staff needed to know how to sell products to customers; and prices needed to change.

Staff were given sales and product knowledge training and commissioned incentives to hit sales targets.

They were able to increase productivity by ensuring appointment re-bookings took place after each consultation.

These numbers were reported each month through their management software, which also allows them to see future bookings and plan marketing and promotions.

Each year we review and refine our KPIs depending on what areas we want to focus on.

Remember for some industries it's not all about revenue and margins

Customer satisfaction or staff retention might be a KPI that might also be critical to drive your productivity, revenue and long term growth.

For systemised reporting of KPIs you should ditch the pen and paper. Computers and software are here to serve you and make the reporting easier.