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There is an old saying ‘If you aim at nothing, you will hit the target with amazing accuracy!’

We would all like a ‘silver bullet’ in our business that creates that wonderful profit we seek.  The reality is that there isn’t one!  There are lots of things that take up the attention of owners/managers in the effort to create a profitable and sustainable business.  There are however a small number of key things that can have a big impact on any business’s bottom line.

The  drivers to financial performance are ‘Key Performance Indicators’ or ‘KPIs’

Ask yourself - how do you currently track, monitor and drive the financial performance of your business?  If you don’t currently use KPIs, you could be in for a real boost to your profit by focusing on this vital area of business management.

What are some of the ‘Key Drivers’ to financial performance?  Here are some examples:

• Sales Company – Volume of Sales, Gross Margin %
• Manufacturing – No of Machine Hours Sold, Labour Sales $/machine hour, material margin%
• Contractors – No of Billable Hours, $ per billable hour, utilization %

Key Drivers vary from industry to industry, but ask yourself this question – If I was away from my business for a while, what are the five or six things I would want to know about the performance of my business?  We are not talking here about the bottom line results but what impacts the bottom line results or more importantly the ‘top line’.

To see the value of managing KPIs it is worth calculating how much more profit you could make by improving them.  This is called ‘Sensitivity Analysis’

Here is an example of Sensitivity Analysis based on a manufacturing business with net profit of $80,000

This example illustrates that the most valuable impact is on ‘number of hours sold’, so this is the KPI that should receive maximum attention.