A business is only as good as the numbers that drive its success; that’s why it’s important to know how your company measures up. This article will teach you what metrics matter, where to find them and how they can help you grow.
The “want to grow” is a question that many people ask themselves. The “what metrics do you track on a regular basis interview question” is a good way to find out if your company has the right metrics in place.
This article is based on an interview with Sabrina Parsons, CEO of Palo Alto Software, conducted in October 2014.
Tracking metrics and figures is a pain for many small company owners, particularly those who have converted a hobby or passion into a business.
If you’re not an accountant and don’t have a business experience or a natural passion for numbers, you can find yourself “doing business” on the fly and avoiding those “awful figures” until tax season.
While this may be the quickest way to get you up and running, it’s also a method that might be damaging to your company’s long-term development and even survival.
According to a research conducted by the Small Business Association, 28 percent of firms fail owing to issues with the company’s financial structure, such as insufficient accounting records.
You might get into problems if you don’t maintain accurate records of the money coming in and out of your company.
Not only will having a clear picture of how your business is doing and what you should be tracking on a daily basis help you sleep better at night, but it will also allow you to take a proactive rather than reactive approach to managing your business, which means you’ll have more time to troubleshoot before things go wrong and, of course, more time to plan for success.
A straightforward starting point
[pullquote] [pullquote] [pullquote] [pullquote] [ The most basic financial measures are the most crucial to monitor. [/pullquote]
Prior to doing anything else, Sabrina Parsons, CEO of Palo Alto Software, suggests that you get familiar with your main financial data. This will contain measures such as cash flow and financial statement data.
Here are a few questions you may want to start asking:
- How much do you earn in a single day? Is it really a week? Is it really a month?
- Do you make more on certain days of the week?
- Can you calculate your break-even point and set a daily income goal for yourself?
The goal is to get so comfortable with the figures that you can say, “Oh, I need to earn $1,000 more this week,” day by day or week by week. What options do I have? Is there any way I can get clients to pay their bills more quickly?”
Why are metrics used to manage?
The reason we place so much emphasis on monitoring business metrics at Palo Alto Software is that it makes decision-making considerably simpler.
This information should assist you in determining how much income you need to generate every day, when to postpone sales, and whether or not you need to charge a late fee to clients who pay bills late.
At the absolute least, every company owner should understand their main financial indicators, such as cash flow, break even point, and cash on hand, as well as other fundamental metrics such as days to pay, costs, and so on.
These are some of the financial measures you should get acquainted with:
A screen shot showing a section of Dashboard, LivePlan’s business management dashboard.
Sabrina cautions companies, though, that the goal isn’t to monitor everything:
“You don’t want to be paralyzed by analytical paralysis or go metric crazy. Keep in mind that you won’t be able to handle a hundred separate metrics. So, keep an eye on the most crucial ones—financials—and, as you gain experience, go on to more advanced metrics like email marketing analytics like click through rate, open rate, and unsubscribes.
Then you may go on to measures that assist you understand what your customers are doing, such as metrics for repeat and new customers, metrics for how much it costs to acquire a new customer or service an existing customer, and metrics for shopping cart data.”
When you’re ready, start moving beyond financial KPIs (Key Performance Indicators).
Sabrina recommends monitoring and addressing these financial variables for three to six months before moving on to others. And, if you do decide to add more metrics, limit yourself to just a handful at a time. Begin with people who can provide the greatest value to the company.
Keep track of the items that will enable you to act.
Many company owners don’t check their metrics since they don’t understand how they might benefit from them.
This is why we advise beginning with the most basic financial measures. This will assist you in determining how to proceed depending on the information provided by the numbers.
If you send out invoices, for example, knowing how long it takes to be paid in real time and comparing it to industry standards should give you an indication of whether you’re on schedule. You may also take action based on this information if you aren’t. You may start phoning customers and demanding that they pay, or you could impose a late payment charge.
On measures like cash flow or break-even point, almost everyone can take action.
You might be in a lot of trouble if you don’t comprehend something as basic as cash flow.
“60 percent of small enterprises that collapse were lucrative,” Sabrina explains. They had just run out of cash. They were unable to pay their debts. And, according to anecdotal evidence, nine times out of ten, a company’s doors shut due to a lack of funds. They could have made a difference if they had money.”
This is a concern for service firms since they do not accept cash instantly. Instead, they send out invoices and wait for payment. It’s crucial to understand how this delay impacts you. If you don’t, you risk going out of business, particularly if you need to pay employees and don’t have any cash on hand.
Keeping track of the cash flow statistic (accounts payable) will provide you with a figure that you can compare to other firms in your industry to determine where you stand.
How to keep track of your main financial parameters quickly and easily:
1. Make use of an accounting program.
If you don’t have an accounting system yet, this is a fantastic place to start, even if it’s simply to make sure you’re on top of the data you’ll need to pay taxes.
Too many individuals either don’t monitor their figures or depend on Word or Excel to do so, which means they have to run a manual report or spend time producing a new graph or chart every time they want to understand what’s going on in their firm.
This is when an accounting software program comes in handy. And, of course, if something is simpler, you’ll be far more inclined to keep up with it.
Freshbooks is a good option if you’re a service firm and just need to invoice customers. Otherwise, Xero or QuickBooks are terrific places to start if you run a more involved firm.
2. Make use of a management dashboard for your company.
You may use a service like LivePlan to make monitoring your business’s main financial metrics even simpler after you’ve gotten into the habit of doing so (or even to get into the habit of doing so).
Accounting software differs from LivePlan in that the latter gives you a wide and quick picture of how things are progressing.
Every report in an accounting system must be performed independently, and comparisons may only be made between two periods. For instance, compare July-September to predicted statistics or July-September to the preceding year.
You frequently just get to compare “the numbers” or tabular data in accounting software. You’d have to export it to Excel if you wanted a graph.
LivePlan, on the other hand, features a dashboard that shows 14 reports instantaneously and also enables you to dive down into any data and see a report that compares several time periods. For example, compare current profits against last year’s results and predicted earnings in one table.
As shown on the LivePlan Dashboard, a screenshot of the income breakdown.
Furthermore, these reports may be converted into visuals, so if you’re not a “numbers person” or want to see visuals of your company trends, you can examine the report as a graph or chart.
“A lot of people are terrified of statistics, so these visualizations are vital,” Sabrina Parsons says.
Part of the difficulty with merely utilizing accounting software is that you have to recognize what is significant, in addition to only being able to compare between a few periods.
You don’t have to specify a specific measure using software like LivePlan. On your dashboard, it automatically shows all of the statistics you need to see so you can get a rapid snapshot of how your company is performing. You may go further into any of the charts by clicking on them. If you’ve linked LivePlan to your accounting software, you can drill down even further to get the specific data that demonstrate why income is up or down.
The goal here isn’t to persuade you to buy anything; rather, it’s to persuade you that if you make monitoring your important financial indicators as simple as possible, you’ll be able to make quick, informed choices and take a proactive approach to managing your company.
“The more you monitor, the more you track,” Sabrina advises all company owners. The more data you see and understand how valuable it is when it comes to making judgments, the simpler it will be to make them. The hardest thing is getting started.”
You may also find the following materials useful:
What metrics do you keep an eye on?
Every firm is unique, and as a result, various metrics will need to be tracked.
Do you think it’s a good idea to start with basic financial metrics? Which metrics do you believe are critical to monitor?
Have you seen any changes in the metrics you measure over time?
Watch This Video-
Want to grow your business? Know your metrics. Track your metrics. Reference: know your metrics.
- google analytics
- website metrics tracker
- what is metrics
- what are examples of metrics
- content performance metrics