Measuring success in accounting is about more than just crunching the numbers. It’s about getting the right data and analysis to propel your company forward. And while there are numerous ways to measure your performance and success in accounting, choosing the best possible KPIs is what will fuel your company’s growth. Amongst the many reports and metrics available in finance, it is vital to look at what’s most important to achieving your business’s goals.
So how can finance leaders measure success in accounting? Here are a few KPIs that we consider a good starting point as well as those that will make an impact on your organization.
Why Financial Metrics Are Important When Measuring Success in Accounting
Just like you wouldn’t take your doctor’s word that you look healthy without data to back up the claim, you shouldn’t rely solely on hearsay when it comes to your company’s financial state. Financial metrics help accounting executives get a broad understanding of how much cash they have on hand and how the budget is looking at any given time. These metrics also serve as a baseline for tracking month over month (MoM) or year over year (YoY). So how does continually tracking metrics keep your business finances healthy?
It allows you to monitor your company’s financial health.
It allows you to track performance over time.
It indicates when to make adjustments.
It gives you the right information to solve problems and pursue new opportunities.
It allows you to detect patterns.
Determining the Most Useful Key Performance Indicators (KPIs)
The metrics finance and accounting leaders need to pay close attention to vary from one company to the next. A startup might focus solely on burn rate, whereas a midsize company might watch for gross margin. Moreover, not all metrics are created equal. Some are so quintessential to the success of a business and a driving force behind growth that they’re dubbed key KPIs (which we elaborate in the next section). So how do you determine the most valuable KPIs?
Is it measurable? Your KPI should be based on a focused goal that produces results.
Is it effective? Does the KPI do what it’s supposed to do? An effective KPI should impact its intending goal.
Is it relevant? Your KPI should align with your goal. If your goal is to decrease invoice turnaround time, then your KPI should support that goal.
Is it useful? Does your KPI benefit your accounting team?
Is it available? Your KPI should be easily accessible. If it takes weeks to determine a KPI, then it’s not a good KPI to use.
What Top Accounting KPIs Should You Focus On?
We’ve discussed why metrics are significant, how to uncover the most notable KPIs, and now we’re shifting our focus to the question most leaders are begging to ask, ‘What KPIs should I tap into?’ We’ve identified a few key KPIs that will give you a complete view of your company.
Gross profit margin - (net sales-cost of goods sold/net sales x 100%) This measures the profitability and efficiency of the company’s business.
Net profit margin - (net income/revenue x 100%) This shows how much of a profit a company makes after all expenses have been accounted for.
Working capital - (current assets-current liabilities) This compares the company’s current assets with its current liabilities, expressed in a dollar amount.
Gross burn rate - (company cash/monthly operating expenses) This measures the rate at which a company uses up its available cash to cover operating expenses.
Current accounts receivable (AR) ratio - (total accounts receivable-past due accounts receivable/total accounts receivable) This shows the extent to which the company’s customers pay invoices on time.
Current accounts payable (AP) ratio - (total accounts payable-past due accounts receivable/total accounts receivable) This shows the extent to which the company pays its bills on time.
Hiring an Outsourcing Firm to Oversee Your Financial Metrics and Help You Measure Success in Accounting
If your team is already overwhelmed by the day-in-day-out tasks that consume their work plate, analyzing data might be the furthest thing from their minds. In fact, it might not even be a blip on their radar. Moreover, they might not even utilize metrics to meet their objectives. If you and your team fall into one of the above categories, you’ve probably searched every web page for answers on how to offload this responsibility. The reality is, there’s only one method that will not only meet your needs but exceed them: outsourcing. Outsourcing is the only solution that will help you measure success in accounting. Furthermore, here at Personiv, we’ve helped businesses like yours take a more hands-on approach towards driving growth. Get in touch with one of our experts to explore how you can create an unrivaled accounting department.
In the meantime, read how one company partnered with Personiv to increase efficiency in their accounting department in our latest solution brief, A Case Study: Outsourced Accounting Efficiency in Logistics.