What KPI's are best for a Smaller Enterprise?

I like scorecards. I am a very big believer in having a one page document that any internal person can pick-up and immediately understand if an issue exists. It is in this document where KPI's live best. What I find successful is a card that includes KPI's for specific areas, i.e. Compliance, Operations; Production and Finance. Depending on the business, you may need two or three from each area. At the high end 12 KPI's per card works.

I support Regis Quinn's answer wholeheartedly. That assumes that between the operations and finance "groups" you get a good picture of the sales funnel. My other comment is that, for a small company and particularly a start-up, the financial section needs to do a great job of informing about the cash position of the company, including a rolling forecast. That may run you into a second page, but it would be worth it.

KPIs deliver a quick recap of the health of the organization. The question shouldn't be about the # of KPIs. That's dependent strictly on the level of detail that management wants. One high level KPI could be broken out, if you choose, into a half-dozen or more detailed KPIs. The needs of the senior leadership will determine whether there should be more or less detail.

The important thing is for management to have a deep understanding of what drives its success. These are the activities that management needs to keep an eye on -- and what KPIs are built for. If, for example, management is most intensely concerned with customer satisfaction, profit per sale, and worker safety it might create several KPIs that focus on these areas. These could be a combination of financial measurements and operational measurements.

For me, trying to decide how many KPIs is worrying about the implementation before you know the strategy. Talk to management to identify success drivers and their need for detail. This will determine the number of KPIs.

KPI's vary from vertical industry to vertical industry. I find, in discussion with Clients and potential new Clients, that often the metrics tracked aren't really the best indicator of the overall health of the business. We've been able to help many companies identify the right KPIs. How do we do that? The answer is by starting at the department level and identifying KPIs unique by profit or cost center. Those KPIs roll up and permit intelligent thought and discussion as to what is measured at the company level. I find that smart CEOs, COOs, & CFOs, use the profit or cost center KPIs as excellent ways to guide monthly status update meetings.

KPI for small business:

KPI’s are good tool to get a glimpse of the days weeks or months activity however I believe that a properly maintained P&L, Cash Flow and balance sheet forecasts are the wholly grail of financial accounting. The problem, it is rare to see a company prepping these reports. Why? Too hard to prepare. Therefore management does the feel good thing, a stagnant somewhat useless budget that nobody follows and some KPI’s that often times they don’t know what to do with.

From my next blog:

Cash flow and P&L forecast are the best tools available for managing the financial side of a business. They allow management the ability to control expenses, and have a long range view of the cash requirements that lie ahead. This provides management the answer to the three most important questions they need the answers to at all times: how much cash will I need? When will I need it? Where will I get it?

Remember this: When in trouble management often time hires a consultant. The first thing the consultant does is prepare P&L and cash flow forecasts. It may be too late.

What do you do with these forecasts?

On a monthly basis, compare the operations of the company with the P&L forecast on a line-by-line basis.

As management makes it’s monthly review, they will be able to locate differences between what they thought would take place vs. what actually did take place. This helps to avoid crisis management; thus management can confine activities to exceptions, items that are significantly different from what they have forecasted.

When management is not hitting targets, ask questions, and keep on asking until they get the answers that make sense as to why they didn’t meet targets. The business must run within the framework that management has provided via forecasting.

What if they can never seem to meet targets? Unlike a stagnant budget, change the forecast! A forecast is a living document which changes as conditions change. Use the forecast to establish achievable and realistic goals thus always presenting a perspective as to where the company is headed P&L wise and most importantly cash flow wise.

The forecast is used to see the financial implications of financial decisions. It tells management what the cash requirements will be in the coming months.
It is not for establishing stagnant ideals that never get met. It’s a document that is predicting the financial future. It is better to know well in advance what will take place before it happens. This gives management the time to take action and manage the future.

Remember this: A forecast should be changed only after management has exhausted all remedies to bring your actual activities (expenses or income) in line with original estimates.

These forecasts are the only tool available that will provide a reasonable prediction of what is going to take place in the future. They are powerful.

Next blog why the balance sheet is the most important of the 3.