Financial and Operational KPIs To Track: Inclusive Insights for Modern Accountants
The key to a company’s financial success lies in its capacity to monitor and control its key financial indicators (KPIs). Accounting services can help companies of all sizes to do this by providing them with the necessary data and insights. KPIs serve a great purpose in helping accountants and financial specialists to achieve strategic business goals.
In the same way, financial KPIs provide valuable insights into a company’s financial success, but net profit isn’t the be-all and end-all.
There are other riveting metrics to track, such as the promptness of invoice payments and the profit per client or department, which can give a more comprehensive picture of the company’s financial health – such as operational KPIs.
So, diving deeper and discovering what makes your company’s financials truly thrive is essential for making informed business decisions and ensuring long-term financial stability.
Additionally, tracking KPIs can help identify areas for improvement, such as reducing expenses or increasing revenue streams. Regular monitoring and adjusting KPIs can lead to more effective budgeting, forecasting, and decision making. KPIs are a crucial component of effective financial management, providing key insights and enabling companies to stay on track and achieve their financial goals.
As a modern accountant, it’s crucial to comprehensively understand the financial metrics relevant to your business and industry.
To help you stay ahead of the game, here are ten key finance KPIs designed by Wolters Kluwer Tax & Accounting UK that we believe you should be tracking in 2023 and beyond.
Top 10 Key Performance Indicators (KPIs) That All Finance Professionals Should Track
Running a business with effective measures in place would ultimately lead to success and growth. For financial professionals, tracking Key Performance Indicators (KPIs) is essential to understanding a company’s financial health and making informed decisions.
Here are the top 10 KPIs that every financial professional should track:
Top 5 Financial KPIs to Track:
- Breaking Down Recurring Revenue vs. Transactional Sales for Your Clients
- Client Lifetime Value (CLV)
- Client Profitability Score (CPS)
- Average Number of Days an Invoice is Open
- Sales Growth Rate
1 – Breaking Down Recurring Revenue vs. Transactional Sales for Your Clients
Have you ever wondered which business model brings in the most revenue for your company? This financial KPI sheds light on that by comparing two models- transactional and recurring. A transactional model calculates earnings based on the number of hours worked and hourly rate, whereas a recurring model is built on a subscription-based approach. Use this KPI to gauge your business’s financial stability and make informed growth decisions.
2 – Client Lifetime Value (CLV)
Discover the true value of your clients with the client lifetime value metric. This innovative approach takes into account the expected duration of the client-business relationship and the expected financial value. While calculating CLV can be challenging, it gives a more accurate picture of your business’s success. Don’t assume that all clients are equal in terms of cost, use segmentation to uncover the true value of each client for your business.
3 – Client Profitability Score (CPS)
Stop treating all clients as equals and start measuring their true value to your business with the client profitability score. This formula evaluates the difference between the income generated and the costs incurred for a specific client over a specific period. Use this score to determine which clients are truly profitable for your business and allocate resources accordingly.
4 – Average Number of Days an Invoice is Open
Get paid faster and improve your cash flow by keeping track of the average number of days an invoice remains open. The quicker a client pays, the better for your business. Based on the results, consider implementing additional checks, rewards, or automated reminders to encourage timely payment. Keep your cash flow running smoothly and watch your business thrive.
5 – Sales Growth Rate
Profit generation is at the heart of any commercial organization’s success. Keep an eye on your company’s performance by tracking its revenue growth percentage, or “top line.” Compare the current quarter’s percentage to the last quarter or the same quarter from the previous year. This simple financial metric gives you a good picture of your company’s success and allows you to benchmark it against the competition.
By plotting the average number of days an invoice remains open against different moments in the billing process, you can gain valuable insights into your cash flow. Whether it’s before the reminder, after the reminder, after the last reminder, or once the invoice has been forwarded to a collection agency, the faster a client pays, the better for your business. Use this information to make data-driven decisions and keep your cash flow running smoothly.
Productivity is a measure of the work input required to achieve a desired outcome. With these operational KPIs, you can measure the efficiency and effectiveness of business operations.
Top 5 Operational KPIs to Track:
- Employee-to-Client Ratio
- Billable versus Non-billable Hours per Employee
- Average Consultancy Hours Per Employee
- Average Consultancy Hours Per Client
- Average Processing Time Per Invoice or Receipt
6 – Employee-to-Client Ratio
Evaluating the number of clients assigned to each employee helps determine the efficiency of your team. If your employees feel overwhelmed with their workload, it may indicate the need for additional assistance. However, if the employee-client ratio is reasonable and manageable, there may be no immediate need for changes.
7 – Billable versus Non-billable Hours per Employee
This KPI provides a clear measure of productivity. By comparing the time employees spend on billable tasks (directly serving clients) versus non-billable tasks (such as administrative work), you can assess their time commitment and overall productivity. A healthy balance between billable and non-billable hours is essential for maximizing efficiency.
8 – Average Consultancy Hours Per Employee
This quantifies the number of hours an employee dedicates to advising clients. It offers insights into both productivity and billable hours generated by each employee. Analyzing this KPI can also reveal the potential for billing more advisory hours.
9 – Average Consultancy Hours Per Client
While the previous KPI focuses on individual employee productivity, this indicator assesses a client’s demand for advice. By tracking the number of consultancy hours provided to each client, you can identify opportunities for upselling and detect any sudden fluctuations that may indicate potential issues.
10 – Average Processing Time Per Invoice or Receipt
The speed at which your employees process invoices and receipts reflects their skills and productivity. By tracking the time taken to handle these financial documents, you can identify any bottlenecks or inefficiencies in the process. Streamlining invoice and receipt processing improves overall productivity and ensures timely financial transactions.
Data is key to tracking KPIs for diverse industries. Utilizing data will enhance your growth prospects. Read this business intelligence blog to learn how to turn data into actionable insights.
Financial KPIs and operational KPIs: How they’re connected?
However, they measure different things. Financial KPIs measure the company’s financial health, while operational KPIs measure the efficiency of its operations.
To put this simply, financial KPIs are typically long-term measures, such as profit margin, return on investment, and cash flow. Operational KPIs are typically short-term measures, such as cycle time, defect rate, and customer satisfaction.
Despite their differences, financial and operational KPIs are connected. Financial KPIs are ultimately driven by operational KPIs. For example, a company’s profit margin is driven by its cycle time, defect rate, and customer satisfaction.
This means that if a company wants to improve its financial performance, it needs to focus on improving its operational performance. Tracking both financial and operational KPIs can help companies get a complete picture of their performance and make informed decisions about how to improve it.
The Key Differences Between Financial & Operational KPIs:
|KPI Type||What it Measures||Timeframe||Examples|
|Financial KPI||Financial health of the company||Long-term||Profit margin, return on investment (ROI), cash flow|
|Operational KPI||Efficiency of the company's operations||Short-term||Cycle time, defect rate, customer satisfaction, employee productivity, cost per unit|
In summary, tracking KPIs is crucial for you to understand their clients’ financial health and make informed decisions. Measuring both financial and operational KPIs can give you a comprehensive view of your company’s overall performance. Making data-driven decisions based on these metrics can lead to enhanced efficiency, better resource allocation, and increased overall productivity within your organization. Also, by monitoring these 10 KPIs, you can stay ahead of the competition and grow your business.