Business Budgeting KPIs – Top 13 Metrics To Track
Why Budget?
Budgeting is a business’ guide and roadmap for achieving goals. It projects, manages, and provides data intelligence into the revenues and expenses of the organization. Because cash is a critical resource, it must be managed correctly. Understanding your numbers is knowing your business. You must know your business in order to make the best decisions.What Is A KPI?
A KPI (Key Performance Indicator) is a type of performance measurement used to evaluate the success or failure of a company or activity in which it engages. Often displayed as part of a flash report or dashboard, a KPI allows business owners and decision-makers to get an overview of how their business – or individual department – is performing at any given time. A KPI measures the goals of the organization against the actual, quantifiable data, during a specified period of time. Essentially, KPIs give you visibility into all the moving parts of your business at once.Why Are Budgeting KPIs Important?
1. What Gets Measured Gets Managed
Understanding your budgeting KPIs will support and influence your business objectives. KPIs are not the goals themselves. They’re the measurement of your goals and targets. Your KPIs will show you how close, or far, you are from reaching those strategic goals. These numbers instantly provide visibility into progress or the reason for not hitting targets. When you’re able to measure your goals this way, it gives you the opportunity to see where you went wrong and immediately pivot as needed to make the best decisions.2. System of Accountability
You must have a means by which to measure the success, or lack thereof, of your business. Holding employees accountable for results can be difficult. However, if everyone thinks someone else is responsible, then in all reality, no one is truly responsible. Holding people accountable for improving the KPIs which are under their control provides them, and their managers, a yardstick by which to measure their performance. This helps everyone know who is contributing what toward the company’s goals. This sense of continuous improvement allows employees to achieve way more than they might think, which is essential for workplace satisfaction and continued personal growth.3. Improve Financial Health & Maximize Profits
Since KPIs provide an immediate snapshot into the overall performance of your company, this information is a crucial component of how to stay on top of your competition in a highly competitive market. In today’s cutthroat environment, there isn’t room for accidents or luck. Data is the most powerful force by which to base all business decisions. The visibility which KPIs provide, allow you to make systematic shifts all along the way, rather than being forced to make frantic changes at the end of each month, or time period, in order to reach your goals.Which Budgeting KPIs To Measure?
To establish meaningful budgeting KPIs, you need to focus on and track these top 13 vital metrics:- Operating Cash Flow/ Budgeted Cash Balances – This is one of the most critical measurements as it provides insight into revenue, expenses, and resulting cash positions.
- Cost Of Goods (COGS) as Percentage of Sales – These are the costs directly attributed to the production of a saleable unit and determine the gross margin. The lower the COGS the better; and from a budgeting perspective, there should always be the drive to lower COGS. COGS is also important in the calculation of taxable income.
- Gross Profit Margin – Gross margin is the net sales less the cost of goods sold (COGS). The gross margin shows the amount of profit made before deducting selling, general, and administrative (SG&A) costs and is usually expressed as a percentage of sales.
- Inventory Turnover Rate – This determines how quickly inventory is being turned over (sold and replaced) within a year.
- Inventory In Days Sales – Defines the average number of days it takes to sell the inventory.
- Inventory as a Percent of Current Assets – Helps assess how inventory impacts the company’s financial performance. With disruptive supply chain issues, it’s that much more critical to manage the fluctuations in holding inventory.
- Annual Sales Growth – Helps determine whether the company is in a growth, static, or regressive state.
- Sales By Product – Helps determine how products are growing in the marketplace or whether they are stagnating due to various factors, such as market related or demographic changes. It also helps to determine the life cycle of a product and whether there’s a need for it in the marketplace.
- Current Ratio – This measurement helps determine the liquidity of a company as to how easily it’s able to pay off its current liabilities and is equal to Current Assets as compared to Current Liabilities.
- Quick Ratio – This is a company’s liquidity measurement as to how it meets its short-term obligations and is equal to Current Assets, less Inventory, divided by Current Liabilities. This measurement is expressed as a ratio, with the perfect ratio being 1:1.
- Burn Rate – This is the measurement of how fast the company is spending its supply of cash and determines how long it can operate until running out of money. It’s okay for Burn Rate to increase, as long as it’s justified by, and equal to or greater, than its growth rate.
- Salaries & Wages as a Percentage of Sales – This is an indicator of corporate employee productivity. Higher percentages could indicate lower productivity.
- EBITDA Change Year Over Year – This determines the corporate position and its overall financial health. It’s a measure of profitability before the factors of Interest, Depreciation, and Tax, and is often used as part of the calculation of a company’s value.
How To Create & Manage These Metrics
It’s critical to have real-time visibility into what is happening within your business, along with the story behind the numbers. The only way to do this is to employ an innovative technology solution which supports automation, provides smart dashboards, and is easy to use without the need of IT. Digitization provides faster metrics, more clear visibility, and streamlines communication. The right technology solution, like Synoptix, does the heavy lifting for you, making it easy for you to quickly, and on-the-fly, make the best decisions for your organization. As a leading innovator of Financial Planning & Analysis software, Synoptix provides for multiple what-if scenarios and depicts the impact throughout the system all the way to the KPI’s. For more information on how you can revolutionize the way you budget, forecast, and plan with instant visibility into the KPIs which matter most, contact the Synoptix team.Jeana has been in the software industry for 15+ years specializing in ERP reporting solutions. She has decades of experience in creative content development and marketing and enjoys exercising, traveling & spending time with her husband & twin boys.