April Focus: Why are Key Performance Indicators so important?

Can you operate your business and not do KPI Key Performance Indicators?

Yes,  but  you would be working with blinders on.

April we will discuss, “Why we need KPIs?”  May we will discuss, “What should be included in KPIs?”   June we will discuss, “How do you set up simple KPIs?”

Why are KPIs so important?

KPIs tell the business owner the “reality” of their business.  It is very difficult to know the truth about your business when you are busy and happy with what you are doing.  Let’s say you run a bakery.  Your customers are happy.  You are happy and there is cash in your checking account.  You don’t know if the cash is coming from sales or the line of credit.  You have this nifty deal with the bank that when your checking account needs money it just sweeps (takes) borrows cash from the Line of Credit.   The line of credit is slowly growing.  You are paying your employees and you are taking home your weekly draw so things must be good. All of sudden, at least it feels that way, you are maxed out on your line of credit. If you had your KPIs set up properly, it would have told you your profits were not meeting your expectations and you need to make changes.

Remember Line of Credit is for temporary needs only to cover seasonal needs.

Your expenses including your draw should come from profits of your business.  Your company should always show a profit unless it is a start-up company where future growth will pay for start-up cost.

If you want to be in control of your business, you can get that control through your KPIs.  I develop personalized KPIs with my clients called “Green Lights”.  This allows you to react and make changes quickly instead of waiting until it is too late.

Comparing Sales and Cost to your Budget would show you were not meeting expectations. Next month we will discuss, “What key indicators you should be looking at?”

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