Finance & Cash Flow

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Key Accounting Information
Managing Cash Flow
Record Keeping and Paying Tax

Performance Indicators

To assess the performance of your business, you should develop a set of key performance indicators (KPI's). KPI's are metrics used to help a business define and measure progress towards achieving its objectives and success factors. They are quantifiable measures that can be expressed in either financial or non-financial terms and reflect the nature of your business.

Examples of key performance indicators include:

  • unit sales
  • return on investment
  • market share percentagePerformance indicators
  • product quality

Critical success factors are criteria that must be met in order for the business to achieve its goals and objectives as set out in its strategic plan. The can easily be used to determine whether or not a business is performing to its expectations.

Examples of critical success factors include:

  • decrease expenses by 10% by end of 2009
  • reduce staff turnover by 20% by 2010
  • introduce a new product into the market by May 2009
  • improve unit sales by 500 units per year on a particular product by 2012

Ratio analysis is an effective way to assess the financial performance of a business. It involves calculating and analysing a series of financial ratios based on financial statements. When combined with trend analysis (reviewing the pattern or trend of measures over time), ratio analysis provides powerful insights into the financial strength of the business.

Three of the most useful financial ratios are:

The keys to effective ratio analysis are to:

  • Use simple ratios that are quick and easy to extract
  • Review ratios frequently regularly to keep your finger on the pulse.

A business' break-even point is another factor that can be used to assess performance. The break-even point is the sales (in dollar value) that a business must make in order to cover its expenses and spending. The break-even point is where profit equals zero, so any amount above this point is profit and any amount below it is a loss.

You can find more information about assessing your business' performance in the 'Performance Indicators' chapter.