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What KPI's are best for a Smaller Enterprise?

small business kpisI've seen many questions ask "What types of KPI's do you use in xxxx".

In a recent article in Forbes it stated that Amazon had over 500 KPI's.  

While that probably included departmental and product line KPI's used by marketing and production managers, not finance, what would be the range of KPI's you would find in a somewhat smaller enterprise?

Answers

Topic Expert
Regis Quirin
Title: Director of Finance
Company: Gibney Anthony & Flaherty LLP
LinkedIn Profile
(Director of Finance, Gibney Anthony & Flaherty LLP) |

I like scorecards. I am a very big believer in having a one page document that any internal person can pick-up and immediately understand if an issue exists. It is in this document where KPI's live best. What I find successful is a card that includes KPI's for specific areas, i.e. Compliance, Operations; Production and Finance. Depending on the business, you may need two or three from each area. At the high end 12 KPI's per card works.

Thomas Phillips
Title: President
Company: Effective Agreements
(President, Effective Agreements) |

I support Regis Quinn's answer wholeheartedly. That assumes that between the operations and finance "groups" you get a good picture of the sales funnel. My other comment is that, for a small company and particularly a start-up, the financial section needs to do a great job of informing about the cash position of the company, including a rolling forecast. That may run you into a second page, but it would be worth it.

Charles Schrock
Title: SVP
Company: Inland Bank and Trust
(SVP, Inland Bank and Trust) |

KPIs deliver a quick recap of the health of the organization. The question shouldn't be about the # of KPIs. That's dependent strictly on the level of detail that management wants. One high level KPI could be broken out, if you choose, into a half-dozen or more detailed KPIs. The needs of the senior leadership will determine whether there should be more or less detail.

The important thing is for management to have a deep understanding of what drives its success. These are the activities that management needs to keep an eye on -- and what KPIs are built for. If, for example, management is most intensely concerned with customer satisfaction, profit per sale, and worker safety it might create several KPIs that focus on these areas. These could be a combination of financial measurements and operational measurements.

For me, trying to decide how many KPIs is worrying about the implementation before you know the strategy. Talk to management to identify success drivers and their need for detail. This will determine the number of KPIs.

Amelia Wright
Title: Director of Finance
Company: The Right Accounting Solutions, Inc.
(Director of Finance, The Right Accounting Solutions, Inc.) |

Perhaps a better question to ask is WHAT KPIs ARE small businesses tracking today? For example, we track the number of months funding remaining, Actual Consultant Utilization compared to Target Utilization, and Win Rate for pipeline opportunities. This helps us understand how our consultants are being leveraged, if we are in jeopardy of layoffs if BD isn't closing deals, etc.

Charles hit the nail on the head. The first step is to understand the business objectives defined by senior management. The next step is figuring out how to place measurements around those objectives for meaningful insights to aid in informed business decisions.

Quality over quantity!

Anonymous
(Partner) |

I second what Amelia says about understanding the business objectives. KPIs should measure whether objectives and strategies are working or not. This also helps drive focus and discussion around the strategies that have been chosen- are they the right ones and are we on track?

The second point that is sometimes overlooked is the ownership of the metrics. There needs to be a functional champion that talks to the metric, identifies the actions to improve the metrics, and had buy-in to the metric. Otherwise, it just becomes a set of numbers that no one does anything about. Sometimes, during the ownership discussion, it is better to have a simple, easy to get metric that everyone understands than to go after something that only Finance can get and/or understand.

David Grant
Title: Consultant
Company: In-Between
(Consultant, In-Between) |

Amelia makes a really important point. KPI's need to be more than a finer-grained view of business objectives. They need to be tied to actual drivers of performance. Too many businesses use KPIs as a form of interim reporting of high level goals, when what is really useful is monitoring actionable activities within the short-term control of responsible managers.

Jeffrey McCandless
Title: Managing Partner
Company: Stone Harbour Partners
(Managing Partner, Stone Harbour Partners) |

KPI's vary from vertical industry to vertical industry. I find, in discussion with Clients and potential new Clients, that often the metrics tracked aren't really the best indicator of the overall health of the business. We've been able to help many companies identify the right KPIs. How do we do that? The answer is by starting at the department level and identifying KPIs unique by profit or cost center. Those KPIs roll up and permit intelligent thought and discussion as to what is measured at the company level. I find that smart CEOs, COOs, & CFOs, use the profit or cost center KPIs as excellent ways to guide monthly status update meetings.

Harvey Goldstein CPA
Title: CEO
Company: GPS
(CEO, GPS) |

KPI for small business:

KPI’s are good tool to get a glimpse of the days weeks or months activity however I believe that a properly maintained P&L, Cash Flow and balance sheet forecasts are the wholly grail of financial accounting. The problem, it is rare to see a company prepping these reports. Why? Too hard to prepare. Therefore management does the feel good thing, a stagnant somewhat useless budget that nobody follows and some KPI’s that often times they don’t know what to do with.

From my next blog:

Cash flow and P&L forecast are the best tools available for managing the financial side of a business. They allow management the ability to control expenses, and have a long range view of the cash requirements that lie ahead. This provides management the answer to the three most important questions they need the answers to at all times: how much cash will I need? When will I need it? Where will I get it?

Remember this: When in trouble management often time hires a consultant. The first thing the consultant does is prepare P&L and cash flow forecasts. It may be too late.

What do you do with these forecasts?

On a monthly basis, compare the operations of the company with the P&L forecast on a line-by-line basis.

As management makes it’s monthly review, they will be able to locate differences between what they thought would take place vs. what actually did take place. This helps to avoid crisis management; thus management can confine activities to exceptions, items that are significantly different from what they have forecasted.

When management is not hitting targets, ask questions, and keep on asking until they get the answers that make sense as to why they didn’t meet targets. The business must run within the framework that management has provided via forecasting.

What if they can never seem to meet targets? Unlike a stagnant budget, change the forecast! A forecast is a living document which changes as conditions change. Use the forecast to establish achievable and realistic goals thus always presenting a perspective as to where the company is headed P&L wise and most importantly cash flow wise.

The forecast is used to see the financial implications of financial decisions. It tells management what the cash requirements will be in the coming months.
It is not for establishing stagnant ideals that never get met. It’s a document that is predicting the financial future. It is better to know well in advance what will take place before it happens. This gives management the time to take action and manage the future.

Remember this: A forecast should be changed only after management has exhausted all remedies to bring your actual activities (expenses or income) in line with original estimates.

These forecasts are the only tool available that will provide a reasonable prediction of what is going to take place in the future. They are powerful.

Next blog why the balance sheet is the most important of the 3.

Robert Herford
Title: Owner Operator
Company: R D Herford Consultant in Corporate Stra..
LinkedIn Profile
(Owner Operator, R D Herford Consultant in Corporate Strategy and F) |

I favor a weekly mini income statement compared to budget targets of sales, gross profit, and contribution to fixed costs and profit. Add cash with AR and AP balances. plus comments on unusual expenditures. If Sales normally have a backlog I track that also.. I have used this approach since the mid 1970"s with small business clients to great effect. I call it the Broad Axe report as it will not actually add up to the monthly income statement but it comes close. Also, areas of waste can be highlighted like overtime premium, purchase price variances and unexpected repair expenses in the comments. These few figures direct the operators efforts toward what is off course very quickly. I t must never be more than a readable 8 1/2 X 11 single sheet.

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