7 Accounting KPIs to Watch when scaling your business
Before you start considering scaling your business, you need to think about strategy as successful growth is more about managing your numbers effectively and planning sustainable development. To achieve this, you need to be monitoring the right metrics and using them to develop your growth strategy.
So, what key performance indicators should you measure as your business grows?
Operating Cash Flow
Your operating cash flow is the total cash your business produced from it's operations. It indicates whether your company has sufficient cash flow to operate or if you need more funding. The operating cash flow focuses on money in and out related to your primary functions, such as inventory, services, salary, and sales.
Working Capital
Working capital measures your liquid assets that meet your short-term financial obligations; this includes short-term investments, accounts receivable, and cash on hand, which outlines how your business generates money.
Your working capital is also known as the difference between your current assets and your current liabilities; this indicates your operational effectiveness. Generally, solid working capital has a ratio between 1.2 - 2.0. Anything below 1.0 is negative working capital or operating at a debt. A ratio over 2.0 could indicate that you aren’t maximizing your surplus assets for revenue.
Cash flow forecasting
Cash flow forecasting estimates your future financial position by calculating the money you expect to flow in and out of your company, including projected income and expenses in the upcoming weeks, months, or years. This is an essential metric for a business that is preparing to scale since if a company runs out of cash, obtaining new financing can become impossible.
Return on Investment
Your ROI or Return on Investment measures your profits or losses against your investments. Typically a percentage used to compare profitability or efficiency of various assets or profits gained from marketing efforts. If your ROI is positive, you can develop a strategy for maximizing your investment options to fuel growth and profitability.
Gross Profit Margin
Gross profit margin indicates your company's financial status by determining the amount of money remaining in sales after deducting the cost of goods sold. Your gross profit margin needs to demonstrate stability. If your gross profit margin shifts due to industry changes or a pricing strategy, it can be adjusted.
Net Profit Margin
Net profit margin is the ratio of net income or profit generated as a percentage of revenue. It indicates how much of the revenue you earn is actual profit. Net profit margins can vary by company industry, but the appropriate net profit margin shows that your business is substantial; if you monitor how your net profit margin increases or decreases, you can determine if your business is prepared to scale and predict profits.
Sales Growth
Sales growth is a metric that indicates the ability of the sales team to increase revenue over a fixed period. This is a crucial KPI to determine financial projections for growth and business decisions. Sales growth should be monitored weekly or monthly to determine consistent growth or identify any issues with your teams or processes. It’s essential to address these issues before scaling to prevent any negative trends.
As you look to scale, these KPIs will provide insight into how your business is preform and if it's ready to leap. While some KPIs may provide you with more information than others, they all contribute to the bigger picture.
