KPIs Help Businesses in Good Times and Bad
KPIs Help Businesses in Good Times and Bad by Michael Klees, CPA
Published in Pennsylvania Business Central, June 12, 2009
When the economy begins to improve, look to Pennsylvania’s small businesses to lead the way. They can be the engines that drive economic growth in the Commonwealth, if recent history is any indication.
Statistics released this spring by the U.S. Small Business Administration show that small companies created all of the net new jobs in the Commonwealth from 2004 to 2005, the latest data available. Firms with more than 500 employees in the state reported nearly 41,000 jobs lost during that same period.
Although many companies are struggling through the current economic downturn, they can take positive steps now to regain or secure their footing.
Companies that use key performance indicators (KPIs) to chart their course are going to have an easier time of it than those who don’t. KPIs are quantifiable measures of business performance. Sometimes there are industry standards which can be used as a starting point. What a company chooses to monitor is usually based on the type of business and what drives its success.
A manufacturing plant will track its ability to produce and sell products against their goals. They look at the number of products produced per worker, per hour in addition to monitoring safety, quality and other indicators.
A restaurant can easily pull data from the hostess sheet to track customer trends such as number of tables occupied, by how many people, for how long, and during what time of day. Other indicators include monitoring overall food consumption and waste, and turnover of supplies and equipment.
Some companies can measure sales by tracking total dollars, dollars per salesperson, number of calls and contacts made. Measures can also be placed on inventory and other components of the business.
Selecting six to eight indicators is a manageable number for most small businesses. It’s better to start small than to become overwhelmed by too much information. Comparing the data that has been collected over time shows performance strengths, weaknesses and trends.
A measurement program can be started at any time. Sometimes it’s easier to implement when business is slow and there’s more time to develop it. When times are good, sometimes business owners aren’t as focused on examining inefficiencies and finding better ways to do things.
Implementing and tracking KPIs will help a company to foresee and plan for both positive and negative changes before they happen. This allows management to make the decisions that will aid it in navigating hard times, as well as planning for growth.
Small businesses are influential in driving the economy, but they unfortunately also have a high failure rate. Sometimes owners have a great idea and the expertise to create the product or service. But after a while, they don’t always understand how to keep it profitable. Setting up and keeping track of key performance indicators can help them stay on course.
Michael Klees, CPA, is a partner with Lewis Barlett Klees, PC, one of central PA’s leading accounting and business development firms, with offices in Bloomsburg, Lewisburg and Milton. They offer auditing, accounting, tax, and management advisory services to government, non-for-profit agencies, and private businesses, in addition to tax preparation for individuals. Free tax and business tips are available at www.lewisbarlettklees.com.
