Managing an organization is a complex process that requires constant analysis of the key factors that can affect the final financial results. Regardless of the area in which the company operates, be it manufacturing, trade, or services, the main values of KPIs remain the same. First of all, they include commodity turnover, margin, and profitability that show how to correlate costs and revenues successfully. Timely and competently conducted analytics allows one to evaluate the current state, foresee possible drops or cash gaps, and take measures in advance, which will help the business stay afloat and find reserves for further development. What does the effectiveness of the enterprise depend on? What are the most important methodologies, criteria, and types of indicators for assessing the organization, and how to navigate the analytical nuances inherent in this practice? Let’s get to the bottom of it all.
KPI for small business: what to pay attention to
This list includes standard evaluation criteria, such as equity capital, cash flow forecast, production volumes, and profitability, but the main factors are always two.
- Net Income.
Net income is the organization’s current book income that remains in its possession after all the associated fees have been paid – from taxes to social security contributions. By the way, if you’re wondering, how do you file taxes for both W2 and 1099 forms? you can find the answer linked in the question.
- Return on sales.
It’s the ratio of gross or net profitability on the one hand and total revenue on the other. Return on sales demonstrates how profitable the business is from the point of view of owners and investors, who usually associate any development decisions with the assessment of the company’s economic efficiency.
Evaluation of material and production resources and fixed assets
Competence in the use of assets is also evaluated based on several criteria traditionally accepted in a business environment.
- Material intensity
It’s a generalized value that demonstrates how much actual cost is incurred in the production of goods or the provision of services. As a rule, the analysis of the performance indicators of an enterprise or organization carried out as part of the study of this aspect allows you to identify potential reserves for reducing items’ costs and find ways of additional savings.
- Expenses per unit of commodity output
A methodology similar to the previous one but applied in the context of a nomenclature register containing a complete list and number of items. It demonstrates either the average values as “overall median value” or specificity by each item depending on the analysis’s purpose.
- Turnover of current assets
It’s an indicator showing how quickly an organization recovers its own money invested in purchasing raw materials for its core business. The lower the results expressed in days, the lower the amount considered as a necessary minimum for full-scale operation – provided that production volumes remain unchanged.
- Stock-intensity and productivity
Two more indicators are inherently opposed to each other. The first refers to an index that reflects how much the fixed assets account for one ruble of output. The average cost indicators of production stock assets and sold goods are compared to calculate it. Fund productivity, in turn, is calculated as the ratio of the value of the formed product to the average annual price of key production areas.
Production volumes and product quality
The more goods or services a company sells, the higher its turnover is and, consequently, the profit it generates. For a better understanding of the current situation, it is necessary to apply comprehensive monitoring of relative indicators characterizing the efficiency of the enterprise – this also applies to product quality.
A business’ determination of the retail customer price should take into account not only the total costs incurred in producing a product or service – from raw material costs to tax payments from sales – but also the entrepreneur’s desire to generate real income from the sale of each unit.
Criteria and methods for assessing the effectiveness of an organization are a set of ways to help get the correct and reliable information. A competent approach to business is the key to stability and successful development, excluding the sudden occurrence of crises.