I cringe when I ask business owners how their business did for the year and they say “Well, I’ll know when my CPA does my tax return” or “Well, I have money in the checking account…” 

Seriously?   That’s pretty sad.

I was in training all day yesterday on business metrics and why you should track them.  To most people this sounds incredibly boring, but for us accountant types it was great stuff.

Business metrics are basically different calculations you can make to gauge how your business is doing.  And if things are not going well, you can dig deeper into the calculations to find the root cause and fix it.  Some are financial calculations and some are not, and they are different for every business.

For example, if you manufacture and sell one type of product, some financial metrics might be Inventory Turnover, Profit Per Unit Manufactured, Profit Per Sales Person, or Profit Per Production Run. 

Some nonfinancial metrics might be % of Waste Per Production Run, or # of Sales Calls Closed, Employee Turnover, or # of Complaints Resolved. 

Basically you can set up metrics for every area of your business, both financial and nonfinancial.  Then, you can track these metrics over time to see where you need to make improvements.

For example, if Profit Per Unit Manufactured is trending down, what’s the cause?  Are raw materials prices higher, are your production runs shorter, are there too many production staff?

By examining your business and discovering the true drivers of profitability in your business, you can begin to take it to new levels that you previously were unable to do.  

So, maybe as you begin 2014 you can start fresh and resolve to come up with the metrics important to your business, begin tracking them and understand your business like never before.  You may actually be surprised to find that some things you thought were crucial to your business are actually losing you money!

Mat Hultquist, CPA

The Hultquist Firm