Key Performance Indicators Can Help Your Business Succeed

Key Performance Indicators (KPIs) are tools that are used to help people  analyse their business’ performance on a regular basis. 

It would be a good idea for your business to select the key performance indicators that relate to your business (through budgets and previous financial results) and then have the key performance indicators calculated daily, weekly, monthly, quarterly and annually as required.  This would enable the actual key performance indicators to be compared back to budget estimates to give management an indication of how the business is performing. 

Here are some key performance indicators that would apply to most businesses:

•   Gross profit percentage

•   Labour to turnover percentage

•   Key expenses such as rent - to sales expressed as a percentage

•   Conversion rate (actual sales to prospects entering the store)

•   Average sale

•  Average sale per customer

•   Sales per square metre

• Productive time %

•  Yield % (for a processing business)

•  Write Off/On % (professional firms)

•  Debtors’ days outstanding

•  Stock on hand – number of days sales

•  Stock turnover

•  Creditors’ days outstanding

•  Shrinkage percentage (retail stores)

•   Net profit on sales %

• Individual department sales to total sales

 
 Let us know if you would like to discuss Key Performance Indicators and how they might help your business.
 
 www.business-advice.co.nz                          39

Cashflow Is KING!

Many businesses are finding conditions very difficult at present.  Not because they are unable to make sales, but because they are experiencing severe cashflow problems.  Some commentators are forecasting that around 12% of small businesses are at risk of failing because of poor cashflow control.  If you are giving credit to customers, now is a good time to fully review your credit management systems (if you haven't already done so).

One of the best systems you can introduce is to prepare a short-term cashflow forecast each week, whereby you analyse your anticipated cashflow performance over the next 4 to 5 weeks.  If this analysis indicates that you are going to have a problem, then now is the time to rectify the situation by contacting debtors and trying to ensure that payments are made, having discussions with suppliers to slow down payments or presenting a case to your bank for a temporary overdraft facility. 

Many businesses are considering alternative methods of getting payment including establishing direct debit facility, confirming payment terms to all customers and then being proactive on the due date for payment.  If a customer has not paid, contact them immediately to encourage prompt payment.

It is a good time to review your systems to ensure that invoices are being dispatched promptly as soon as goods or services are provided.  Are the invoices in accordance with the customer's requirements? (Otherwise the invoice will be delayed in its processing, which will delay payment).  Are you preparing a debtors' aged analysis each month and is the analysis being used to chase up any customer who has an amount outstanding for more than your stipulated payment time?  If so, these people should be immediately contacted and arrangements made with them for payment. 

If you would like more information to assist you in the short-term management of your cashflow position or any other advice on cashflow management, please contact us.

www.business-advice.co.nz                     39

Staff Affect Your Bottom Line!

Be aware that staff attitudes are the prime contributor to bottom line profitability.

No matter how good your business’ products or services are, or the manuals that have been developed, or even the names of customers that are on your customer database, without a well motivated, trained and inspired staff, your business will never achieve its ultimate bottom line profitability result.

As a manager, you are responsible for bringing out the best in the people your business employs and to create an environment whereby they can work in a highly creative and productive manner, to enhance their own well-being, the well-being of their work colleagues and families and ultimately the overall well-being of the business.

Ways of effectively managing your staff would include:

§  Using systems to ensure that the best possible candidate is offered employment in the business

§  Implementing an induction system to ensure that new employees are made to feel part of the overall team and to understand the team's and the business’ goals and aspirations

§  Setting targets or objectives.  Have weekly job meetings to review progress and to encourage input from all employees

§  Monitoring results throughout the period.  Be aware of and record other factors such as teamwork and attitude toward customers

§  Performing regular appraisals or reviews by setting aside regular times (e.g. fortnightly) for a brief discussion with each employee.  Let them know where they are under-performing and performing well.  Conduct a formal appraisal at least every six months

§  Consider development activities and training requirements to overcome inadequate performance or to further improve good performance

Planning is the key to ensure staff performance.  Employees must understand and have documented job descriptions and objectives.  A good employer knows that communication with staff is vital and that the empowerment of work teams to achieve productivity targets within the business are essential if the business is going to survive and prosper.  Regular staff appraisals can help to achieve the desired outcome.

Staff Appraisals

The way you conduct the performance appraisal is critical to its success:

§  Ensure there are no interruptions

§  Give the employee your full attention

§  Establish rapport

§  Seek agreement on past performance

§  Remain calm and build on their strengths

§  Identify and agree areas for improvement

It is important to close the interview on a positive note and leave the way open for future discussions. Performance appraisals can be a daunting process for both managers and employees.  Planning and effective communication during the interview is the key.

www.astillhawke.co.nz                    36