5 Financial Metrics and KPIs to Help Your Business Grow

As a business owner with a keen interest in growing your firm, it is important to set goals and milestones and measure the outcome of your efforts against them. Financial metrics and key performance indicators help you with just that.



As your local accountant in Northern Beaches and greater Sydney, MYM accounting & business consultancy can tell you that there are many different metrics and indicators that you need to follow to see where your company stands. This helps not only with measuring growth but also helps in setting further goals and developing business plans. It is important to understand these metrics to know which ones to apply to your current accounting system.


  1. Cash Flow 

One critical part of your business is cash flow. Whether established or in their initial stages, all businesses need cash to operate their day-to-day activities. Therefore, you need to understand the amount of cash that your business generates and how much you should allocate for expenses, investments, and growth initiatives.

If you are not generating sufficient cash and making capital investments, your business will not be able to pay its short-term creditors and for its day-to-day expenses, which will grind your operations to a halt. It is important to de-risk the cash flow decisions and set aside sufficient cash for daily operations and then make investments that your business can afford.

 

  1. Revenue 

You must understand the seasonality of your revenue in terms of the months when your product or service sells more and where the sales are lower. For instance, ice-cream sales are likely to be higher in the summer, whereas tax consultancy services may see a rise near financial year-end dates.

As your local accountant in Northern Beaches and greater Sydney, we can assist you in identifying the trends in your sales and come up with a forecast or a budget. By analyzing the seasonality in your sales, we can produce a revenue matrix.

The revenue matrix is the different pricing structures you have based on different variables. For instance, in the airline industry revenue for different seats varies based on class, time of booking, luggage options, refundable or non-refundable options, and so forth. This matrix will allow you to understand how different pricing structures are impacting your sales.

 

  1. Net Income

Net income is calculated by subtracting your expenses from your gross profits. To calculate net income, you should subtract the cost of goods sold and expenses from revenue figures, which is why you must work out the cost of your sales as well as the overheads that you are incurring. It can be simple if you have one main product without any variants, but when you have multiple product lines and services that you offer, you should make sure that you measure the performance of each of the products and their variants. Knowing this will help you set an appropriate net income metric.

 

  1. Inventory Turnover 

Inventory figures are constantly changing as your business operates. Materials for production move from storage to processing to finished goods continuously as your day-to-day operations are conducted. Inventory turnover is a metric that allows you to understand the inventory that is being sold in a certain period.

As your local accountant in Northern Beaches and greater Sydney, we can help you manage your inventory and provide you with the insight needed to make cost-efficient decisions.

The inventory turnover metric helps in understanding your sales team’s strengths and also helps in understanding the efficiency of your production process. Using this KPI and working to improve it will have you working on the identification of obsolete and slow-moving stock, which is great for your business to grow in the long run.

 

  1. Working Capital

Working capital is calculated by subtracting current liabilities from current assets. This metric helps in calculating the liquid assets available to your business, in most cases, these assets are cash and other items that can be quickly exchanged for cash. Working capital shows how far your available current assets can pay for current liabilities. Working capital improvement means that there are sufficient current assets for paying liabilities. An excessive amount of current assets might be indicative of mismanaging current assets, where they are not being put to profitable use, while a low amount means that the business is in danger of bankruptcy. Accountants can help you to figure out the right number and maximize returns.

It is important to consider cash flow, revenue, net income, inventory turnover, and working capital metrics and key performance indicators of your firm to help your business grow as these metrics measure the main aspects of your operations. 

Disclaimer: This is generic Information & post; content about the services can be changed from time to time as per your requirements and contract. To get the latest and updated information, contact us today or visit our website.

Location: Northern Beaches Council, NSW, Australia

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