As your business grows you will probably want your accountant to move beyond just crunching the numbers and keeping HMRC happy, into a management accounting role.
Management accountants act as business consultants, since the insights they gain from the financial data can inform decisions throughout the business, helping companies to (among many other things) reduce costs, set budgets and improve cashflow.
One question they will almost certainly ask you is about your Key Performance Indicators or KPIs – the most important measurements of ‘success’ in your business. Do you know what these are? You may instinctively know without ever having written them down or recorded the data for them, but your accountant will be keen to get a firm grasp of these important indicators.
KPIs vary between businesses but many are common to all, the most obvious being financial measurements like turnover, net profit, expenses as a percentage of sales, or average debtor days. Business owners are always clear on which way they want these numbers to go (up, up, down and down in this case!) but if you don’t know what they are and don’t measure them, there’s no real way to show they’re going the right way, or to work out which business processes are having the most impact on them.
As well as financial KPI’s you should look at other measurements across your whole organisation, such as:
Customer KPIs – eg: number of new customers per month, churn rates, satisfaction ratings
Staff KPIs – eg: revenue per employee, salary costs as percentage of sales, absenteeism rates
Process KPIs – eg: employee productivity, product quality, lead conversion rate
There will likely be a number of KPIs that are unique to your business or business sector, such as the amount of cheese produced per litre of milk, or the percentage of raw material wasted in the widget-making process. Obviously these will have a financial impact too, so improving these KPI figures will have a positive impact on your bottom line.
When thinking of KPIs it’s important that they have 6 characteristics, namely
Timely – the data must be available in time to respond to it and take remedial action
Relevant – the data must be directly related to the business goals
Attributable – the indicator must be something which is a result of the business’s process, not something out of its control such as weather or economic conditions
Comparable – the data must be consistently available so that new data can be compared to older figures
Verifiable – the measurement should be ‘hard’ data and not subject to debate by department managers
Well-defined – make sure everyone knows what you’re measuring and why
If you need inspiration when thinking of KPIs a useful source of ideas and information is http://kpilibrary.com/.
Having clear KPIs will give a clear snapshot of your business and allow your management accountant to help you improve processes and profitability across the board.
For experienced management accountants in the Aldershot and Farnborough areas contact The Financial Management Centre.