In any business department, it’s essential to set goals and track performance to ensure that you, your staff, your software and your business as a whole are at the best they can be. You also need to identify performance problems that may arise and implement solutions to fix them. This is especially important in accounting, as your business’s financial standing is paramount to your success.
Tracking accounting KPIs, or key performance indicators, is a great way to stay on top of your finances. However, if you aren’t experienced with setting these goals for accounting, it might be difficult to tell which KPIs are the most important to measure.
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In this article, we’ll give you an overview of which accounting KPIs you shouldn’t ignore — as well as take a look at how accounting software can help you make the most of your insights.
What Are Accounting KPIs?
Accounting KPIs are quantitative measures and metrics that indicate how a business is doing financially. While the specific KPIs a business chooses to focus on may vary, KPIs are universally useful to help optimize your operations and identify which areas need the most attention.
Measuring KPIs is generally much simpler with the help of accounting software. You can set which KPIs to track, plot them on graphs to view and compare performance over time, share visualizations with other departments and stakeholders to support operational changes, and make changes as you exceed certain indicators to reach even greater heights.
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Key KPIs To Track
What benefits one business may not benefit another, and not every business is going to find success with the same KPIs. Different company sizes, business models, fields and markets all come with different accounting needs.
While the following accounting KPIs aren’t necessarily universal for every accounting department, they’re useful for most, and should help provide a good starting point for you to figure out what works best for your performance monitoring strategy.
Monthly Revenue
How much is your business making per month? This is one of the easiest accounting KPIs to track, but comes with pros and cons. It’s a generic metric, not necessarily accounting for the context of a good or bad market, and isn’t very informative about where slowdowns may occur. However, if you’re only just starting out with accounting KPIs, monthly revenue is an easy start when examining the bigger picture.
Budget vs. Expenses
If you want to drill down to the specifics of your business’s performance, comparing your budget to your expenses each month is a good place to start. Consistently spending more than your company has budgeted may mean that you may need to re-evaluate your suppliers or other expenses to help bring the discrepancies down to zero, or ideally into the negative.
Average Days Delinquent
Monitoring the average number of days you’re late making payments from your accounts payable department — which is, hopefully, few to zero — can give insight into where your accounting department is underperforming. If you’re consistently late reconciling short-term debts, it may be time to evaluate your accountants and restructure the department so you don’t continue to fall short on balancing your books.
Customer Retention
Converting customers is usually reserved for the marketing department, but when it comes to retention, good customer service and accurate billing are key to ensure repeat purchases or continued subscriptions. Setting a retention goal each month allows you to see how your customer-facing departments and billing processes might be improved if you’re falling short of your own expectations.
Working Capital
A business needs to have enough money on hand to reconcile its accounts payable department each month, and by measuring your working capital (assets minus liabilities), you can identify where you may be paying too much or making too little money to cover these debts. The higher this number, the more you’ll have on hand to invest back into your business.
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How Software Can Help
Technology is an integral part of business operations, and, thanks to the core features of modern accounting software, it’s easier than ever to set financial goals and track your progress. Here are a few common accounting software features that can assist you in keeping track of KPIs.
Automated Data Entry
As transactions, transfers and payments occur, linking accounting software to other business modules enables you to log data without having to manually enter it in. Accounting software also copies this data between spreadsheets and databases, making it simple to calculate financial progress and check different metrics against the KPI goals you’ve set for yourself and your business.
Visualization and Reporting
Accounting KPIs are much easier to track when they’re plotted on a graph over time. Using accounting software to visualize different financial metrics from month to month can help you see when you may be falling short of your goals more clearly, especially if certain quarters or seasons are slower.
You can also use these tools to generate, format and send useful reports to other members of your organization and keep them informed on how to improve metrics.
Accounts Payable and Receivable
Keeping your books balanced, debts paid and incoming payments collected on time ensures your business performs at the best of its ability. Using accounting software to handle your general ledger, as well as accounts payable and receivable, means your data remains up-to-date and your discrepancies are reconciled as quickly as possible for accurate KPI tracking.
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Next Steps
Accounting KPIs are an essential element of ensuring your business is performing at optimal levels of productivity and profitability. By setting goals and incorporating data-driven insights into your accounting process, you’ll be well on your way to identifying where your business excels and where it falls short, and able to make the appropriate adjustments.
Using the right software for your business’s accounting needs goes a long way towards optimizing this process, especially if you integrate it with your existing system to get the most comprehensive picture.
If you need help with this process, you’ve come to the right place. Our accounting software buyer’s guide provides an overview of what to look for and expect in a solid accounting software. And if you’re ready for more personalized guidance, our free comparison report can help you compare top products to get your software search underway.
What accounting KPIs are most useful for your business? How do you track them? Let us know in the comments!