Financial Reporting KPIs To Drive Your Organization’s Stability & Success
What Is A KPI?A KPI 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 of the moving parts of your business at once.
Why Are Financial Reporting KPIs Important?Without proper insights into your business, it’s as if you are trying to drive a car without a steering wheel. You must have visibility into the financial health of your organization to make the best decisions. Financial Reporting KPIs are important because they keep the business objectives and financials at the forefront of all decision making.
Top 3 Reasons Key Performance Indicators for Financials Are Essential
What Gets Measured Gets ManagedUnderstanding your financial reporting KPIs will support and influence your business objectives. Now 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.
System of AccountabilityYou 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. When your organization’s culture supports and motivates all of those from within, it’s destined to do better than one which doesn’t. In this way, tracking KPIs can be about acknowledging employees’ hard work and securing their feelings of accountability and responsibility. When people feel like their role matters, they’re more likely to push themselves and receive personal satisfaction for a job well done. 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.
Improve Financial Health & Maximize ProfitsSince 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 Financial KPIs To Measure?Although there’s plenty of metrics that drive a business toward success, it’s difficult to know which are most important unless they are being tracked. If you aren’t watching a metric, how can you tell if it improves or deteriorates? Determining your key business drivers, or performance indicators, and tracking their progress, will make sure nothing slips through the cracks. To establish meaningful KPIs, you need to focus on the vital measurements which mean the most to your specific organization. Most importantly, your KPIs should directly relate to the corporate objectives. You’ll also want to ensure you include KPIs which measure how well you meet and exceed customer expectations. It’s recommended that each department create 3 targets of which to measure. When selecting KPIs, be sure to consider the following:
- Just measuring alone is not the solution – the solution is in the corrective actions you take based on the measurements.
- Tracking a KPI allows you to view your performance over time, guide you for how best to optimize your overall supply chain, and identify problem areas that need to be corrected.
- KPIs should have an owner who is responsible for achieving every set metric.
- All measurements need to encourage and support the necessary process changes to achieve the desired targets.
Specific Financial Reporting KPIs to Measure:
- Net Profit/Gross Profit Margin
- Revenue Growth
- Working Capital
- Cost of Goods Sold (COGS)
- Budgeting expenses vs. Actual expenses
- Cash Flow, and EBITRDA (Earnings Before Interest, Taxes, Depreciation, & Amortization)
- Current Accounts Payable and Current Accounts Receivable are also very useful
How To Manage a KPI?It’s important to be able to see and understand what is happening in real-time in your business, along with the story behind your numbers. You can’t do this without having smart financial dashboards as part of an integrated performance management software solution. Smart dashboards provide you faster metrics and more clear visibility. Take a deeper dive into how dashboards help you best manage your KPIs, and what to look for in a software solution.
For a more detailed look into the financial reporting KPIs you need to drive your organization’s success, join our free virtual Summit on October 15th & 16th.Register Today
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.