As a small business owner, turning a profit is the most obvious way to see if your business is doing well, but it’s by no means the only way. Enter business metrics — numbers that give you information about how a certain part of your business is doing.
When you run a small business for a number of years, you start to rely on some metrics and business KPIs — or key performance indicators — checking in on them around once a quarter. But there are actually a few business KPIs that you should be checking on every week. Here are five examples.
Cash on Hand
This is not your bank balance. Your bank balance reflects cash at a certain point of time in your bank account and may not take into consideration outstanding payments you have in process or deposits that haven’t yet cleared. It’s not an accurate reflection of your cash. The better KPI for cash is your book balance. Assuming you or your accountant is current on recording all transactions, the cash balance reflected in your accounting system should take into consideration all the activities that have occurred through the current day. Always, always, always make sure you know your cash on hand.
Accounts Receivable Over 30 Days
Business owners are mostly glass-half-full people. We pay our bills on time and we expect our customers to do the same. Unfortunately, the world doesn’t always work that way. Sometimes customers delay — or don’t pay — and, depending on how significant the amount, an overdue receivable can turn into a big cash flow headache. A job is done when payment is made. Are you fully aware of who owes you money, how much and if it’s overdue? It’s not a pleasant business KPI to track, but it’s critical for your cash flow.
Revenues to Date
I realize that most of these business metrics are sales driven, but I’m of the belief that most business problems can be mitigated when there are sales. Go ahead, argue with that! In the meantime, I’ll be checking my revenues so far this year — and so should you. I want to make sure they’re coming in according to plan. I want to convince myself that I’m hitting my quotas for the month. I want to know if any of my salespeople are falling behind or if a large shipment didn’t go out the door as I was expecting. Track revenues at least once a week. Nothing happens in a business without sales.
A backlog is a business metric representing orders that you’ve received that haven’t yet been fulfilled, whether shipped or a service performed. They’re a contract to perform work in the future and, although your backlog is never guaranteed, it should at least give you a good sense of where cash should be coming from over the next few months. Freelancers frequently make the mistake of spending all their time on a current project and ignoring their backlog, so when the job is done there’s no more work to do. Whether you’re a solopreneur or a corporate enterprise, you should be looking at this business metric weekly.
A pipeline sale is a quote or a proposal that may turn into a sale. Smart managers track this business KPI closely. Why? Because they know, from experience, that a certain percentage of quotes and proposals will ultimately be converted into orders and contracts. We watch this business metric closely in my company because I know that for every $100 in pipeline sales we have on the forecast, $60 will more than likely turn into an actual sale. It’s not an exact science but it will tell you a lot about the future. If your pipeline sales start significantly trailing off, you should be raising the red flag.
One final thing: for all the business metrics above, make sure to compare your current numbers with the same numbers from a corresponding prior period. If you’re showing cash of $5,000 today, what was it at the end of the year? If your revenues are $1 million year-to-date, what were they at this point last year? You can’t really have a good KPI without a benchmark to measure it against.
My recommendation? Create a weekly “Flash Report.” If you have an assistant or a willing accountant, ask them to email these five key metrics to you every Monday morning. Know them well. That way you’ll truly have your finger on the pulse of your company.