{"id":11819,"date":"2018-10-29T06:59:23","date_gmt":"2018-10-29T05:59:23","guid":{"rendered":"https:\/\/www.invoiceberry.com\/blog\/?p=11819"},"modified":"2020-01-24T12:46:03","modified_gmt":"2020-01-24T11:46:03","slug":"important-financial-kpis","status":"publish","type":"post","link":"https:\/\/www.invoiceberry.com\/blog\/important-financial-kpis\/","title":{"rendered":"11 Important Financial KPIs For Your Business"},"content":{"rendered":"

Key Performance Indicators, or KPIs for short, are a type of performance measurement units that you can use in many ways to help your business grow. <\/span><\/p>\n

For SMBs, keeping track of the finances is a sure way to determine if you\u2019re on the right track, in terms of your success and sustainability. <\/span><\/p>\n

Once you\u2019ve developed a business plan and set clear goals you want to achieve, the next step is managing your money via some of the important financial KPIs for your business. Managing your finances is essential if you ever plan to <\/span>scale up<\/span><\/a> in the future and don\u2019t go bankrupt after a year. <\/span><\/p>\n

What makes finances so interesting is that it can be applied to all people and all types of businesses – regardless of the size, industry, and so on. No matter what, the finance part always stays the same and can determine if you\u2019re on the right trajectory as a business.<\/span><\/p>\n

This is why it\u2019s so important to keep track of your money. Often times, the data crunching and the many complicated numbers that show up in your records scare away a lot of people. <\/span><\/p>\n

While it\u2019s true that finance can be complicated – it\u2019s also an essential skill you want to be on top of when running your business. <\/b><\/p>\n

\n\t\t\t\t\t\t\t
\n\t\t\t\t\t \t\t\t\n\t\t\t\t\t \t\t\t\t
<\/div>\n\t\t\t\t\t \t\t\t<\/a>\n\t\t\t\t\t \t\t<\/div>\n \t\t\t\t\t\t\t
\n \t\t\t\t\t\t\t\tThe 6 Worst Accounting Mistakes Small Businesses Make and How to Avoid Them<\/span><\/a>\n \t\t\t\t\t\t\t\tYou know you wear many hats, and accountant is just one of them. These are the 6 worst accounting mistakes you're probably making, and how to avoid them.<\/span>\n \t\t\t\t\t\t\t\t\n \t\t\t\t\t\t\t\tREAD MORE<\/a>\n\t\t\t\t\t\t\t<\/div>\n\t\t\t\t\t\t\t
<\/div>\n\t\t\t\t\t<\/div>\n

And if you want to continue operating your business and stay sustainable, it\u2019s important you keep track of your finances. <\/span><\/p>\n

There are many important financial key performance indicators and <\/span>numbers<\/span><\/a> you want to keep track of. So, grab a piece of paper and be ready to take notes. <\/span><\/p>\n

Simply managing your finances well can make or break your business. But on the bright side, there is a lot of <\/span>accounting software<\/span><\/a> and online <\/span>information<\/span><\/a> to help you out when you\u2019re just starting. And if you\u2019re keeping track of your finances without an accountant – it\u2019s <\/span>essential<\/span><\/i> you know where the money flows. <\/span><\/p>\n

So, with that said, here\u2019s a list of the important financial KPIs you might want to be keeping track of when running your business.<\/span><\/p>\n

Follow the money and see where it leads.<\/strong><\/h2>\n

1. Gross Profit Margin KPI<\/strong><\/h2>\n

Money isn\u2019t the most important thing in the world, but it\u2019s often what everyone looks at in a business.<\/b> Net worth, profitability, profit and costs are some of the many terms you might have heard of when talking about finances.<\/span><\/p>\n

But if we\u2019re going to be talking about money, it\u2019s important we first discuss <\/span>gross profit<\/span><\/a> and what it means for your business.<\/span><\/p>\n

\"Gross-Profit-KPI-What-It-Means\"
Gross profit is an essential KPI to track regardless of your industry.<\/figcaption><\/figure>\n

Gross profit simply means the total revenue of your company, minus the cost of goods sold. And it\u2019s a simple way to measure your profitability as a business.<\/span><\/p>\n

Gross profit margin, meanwhile, tells you whether or not you\u2019re pricing your goods or services appropriately. Here\u2019s how you evaluate that:<\/span><\/p>\n

Gross Profit Margin = (revenue – cost of goods sold)\/revenue.<\/strong><\/p>\n

Unlike the gross profit KPI, the margin measures your company\u2019s production efficiency over the years.<\/span><\/p>\n

If there\u2019s one KPI you\u2019re going to keeping track of, make sure it\u2019s the gross profit margin. <\/span><\/p>\n

Cash is oxygen for startups.<\/div>\n

So, make sure your company is breathing well before you move on to the next steps.<\/span><\/p>\n

2. Net Profit Margin KPI<\/h2>\n

This is another straightforward but important KPI that is important for your business\u2019s health. <\/span><\/p>\n

The net profit margin shows your business\u2019s effectiveness by showing you how much profit you make for each dollar of sales you generate. It is calculated by the following:<\/span><\/p>\n

Net profit margin = net profit \/ revenue.<\/b><\/p>\n

If your company has a net profit margin of 50%, for example, this means you generate 50 cents of profit for each dollar of sales you make. <\/span><\/p>\n

\"Calculating-Net-Profit-Margin-KPI-As-Your-Business-Grows\"
Net profit margin is also important in achieving a positive net worth at the end of the financial period.<\/figcaption><\/figure>\n

Net profit margin is important in that it shows your firm\u2019s potential net worth based on your earnings. If you want to achieve a positive net profit at the end of the year, you should start with the net profit margin.<\/span><\/p>\n

3. Revenue growth KPI<\/h2>\n

However, if you want to grow as a business and eventually scale up, your <\/span>revenue<\/span><\/a> (note: this is different from <\/span>profit<\/b>) is something you should always be tracking. <\/span><\/p>\n

Revenue growth, as the name implies, is an increase in your company\u2019s sales, usually compared to your previous quarters\u2019 revenue performance. It helps you find out if you\u2019re on the right track as a business in terms of financial growth. And if this is not the case, you need to gain a better understanding of your important financial <\/span>numbers<\/span><\/a>.<\/span><\/p>\n

Calculating revenue growth is fairly simple, here\u2019s how you do it:<\/span><\/p>\n