Key Performance Metrics: Understanding What Matters in Your Business

Hi there. Welcome to Better Business Insights. I'm Liz Jarvis and today we're going to talk about what do we measure? It might sound dumb, like a dumb question, but there are no dumb questions in accounting. I encourage Business Owners to just get in there, get curious, ask anything. And if you're asking your Accountant and they put you down, find a new one.
Sometimes Business Owners think they measure their success of their business by the amount of money in the bank. But that's not the whole story because we don't…… maybe we put a whole lot of money in before we started the business, and that money is still there. Maybe we have a lot of customers that owe us money.
Maybe we have a lot of bills, unpaid. Maybe we invested all the money we had in something very important, like stock or a truck to do our deliveries or something like that. So, we don't just measure cash. We also don't just measure sales, because you might have that six figure business or that seven figure business.
That is not the measure that we use to see if you're doing well. Profit. Profit is the measure that we need to look at regularly, very regularly. Now, there's net profit and there's gross profit, but we're talking net profit before tax. Some things can confuse that profit. These days, we can immediately write off our computers, our…. in fact, at the moment, we're in 2020, you can write off any business asset up to $150,000, straight away. You don't want that sitting on your profit and loss statement, showing that you've potentially lost money. We pop that on our balance sheet and gradually pass the cost of that, over into our profit and loss statement.
So, measuring in our businesses is very, very important. And the success of your business is measured by your profit. And don't kid yourself if you're not making profit and you just think you’ve got to keep at it a bit longer. Depending on what business you're in and what industry you're in, sometimes you do have to not make a profit for a few years.
If you're in a volume game, something like fashion then you probably can't make profit until the volume of sales that you get, the number of pieces that you sell, gets to a level where it can cover your overheads. So, these things are just an illustration of how important it is to choose the right things to measure.
When you're interpreting your financial information, which I encourage you to do on a very regular basis, you need to have an understanding of which measures, which measurements are the right ones for you. Now we can have a look at that with you, if you like.
Our services are on top of the ones that your Accountants offer. So, if you'd like to know more about what you should measure in your own business, or whether or not you're really making a profit or how big that profit is, reach out to us. Ask a question in the chat or book in for a free Discovery Call with us.
Hope to see you on the next Better Business Insights. Have a fantastic day.

The success of business is not measured by sales or turnover. It is measured by Profit. Sometimes the profit isn't clear either - Liz unpacks some of the things to consider when working out your true profit to see if your business is successful - by your definition!

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