The best way for any growing business to reach its goals is to keep a close eye on key performance indicators and accounting metrics. These metrics are known as KPIs and are used to target, measure, and predict progress towards a company’s financial goals. But what are the top accounting metrics you should be monitoring?
Top Accounting Metrics You Should Be Monitoring
Different types of businesses use different types of KPIs and monitor accounting activity differently. As a small business or franchisee, it is important for you to keep an eye on the most influential KPIs for your monetary success. Let’s develop a deeper understanding of KPIs and the top accounting metrics you should be monitoring for continued growth and success in 2022.
Key Performance Indicators are some of the most essential measuring tools that you should be using as a business manager. KPIs act as metrics that tell you how your business is performing by highlighting what’s working – and what isn’t. When setting up a reliable bookkeeping and accounting department for your company, it is critical to identify and measure KPIs to keep a proper record of transactions, cash flows, and other expenses.
When captured (and tracked) correctly, KPIs can be the make or break factor of your company’s entire financial health. If you want a healthy future of increased accounting and a bigger bottom line, you must learn the most important KPIs to keep your eyes on.
Why Use Accounting Metrics for Your Business?
The more you start to understand the different factors affecting your financial performance, the easier it will be to create actionable goals to help you overcome obstacles, smooth out the accounting process, and increase overall cash flow moving forward.
KPIs can help you:
- Avoid taking the wrong risks
- Properly manage and file commercial taxes
- Identify and get rid of problematic areas in your spending
- Keep thoughtful and organized records of transactions
- Prevent bankruptcy and other major losses
Don’t make any major business decisions without first analyzing your key performance indicators. Below, our Indevia pros have highlighted some of the top metrics for you to always keep a sharp eye on.
The 5 Most Important KPIs to Measure in 2022
Any new or returning business owner needs to hone in on whatever metrics will best assist them in growing a bigger bottom line. If you’re looking for more financial stability in 2022 and beyond, you should start by measuring these essential financial metrics and performance indicators.
The health of your AP/AR department is a huge part of your company’s health. Accounts payable deals with any outstanding invoices and bills that need to be paid. Keep track of short-term debts and learn what types of payments can be delayed while others have to be paid on time. In some cases, you may even earn discounts for your financial vigilance.
Like Accounts Payable, Accounts Receivable is an indispensable part of your company’s financial operations. AR keeps track of everything your customers and vendors owe you, how much money you should be getting in, and when you should expect to be paid. Staying on top of this metric can be a healthy decision that prevents you from running out of cash or getting duped by a customer who refuses to pay on time.
Gross Profit Margin
Your GPR measures how profitable your business actually is. It also does a good job of measuring your financial efficiency. The gross profit of your business divided by its net sales determines the percentage of your gross profit margin. This can help you determine how much money you actually made on the sale of your products, giving you a good indication of whether or not you need to increase or decrease your prices.
Return On Sales Margin/Operating Income
Your ROS analyzes the profit percentage made from every dollar you make throughout the life of your business. The amount generated by your ROS determines your operating income or operating cash flow, which is all the money you can use to manage and propel your company. The way ROS is measured as a metric is by looking at it as a measure of the efficiency of your business in turning out profits from revenue.
Working capital, or liquidity, is something essential to measure – but it must be measured alongside other vital metrics. Working capital measures your usable assets against your liabilities and gives you a result in dollars. These are the dollars you can use to manage all of your company’s expenses. Working capital is an important ratio to keep steady as too little could result in bankruptcy. At the same time, too much could indicate you are not optimizing resources to the best of your ability.
Keep Track of Important Accounting Metrics with the Right Bookkeeping Tools
Indevia offers superior accounting tools and automated bookkeeping software to help you track the most important financial metrics for your company. Failing to measure KPIs could result in the loss of revenue, a decreased cash flow, and eventual bankruptcy. Keep track of your company’s important financial goals and utilize the best measurement tools by getting set up with Indevia Accounting today.