Growing companies face many challenges and critical decisions that affect their market success. Since they generally have tighter budgets, it is crucial that managers in these organizations have a clear view of performance and results achieved in order to make well-informed and assertive decisions.
To achieve this, it's necessary to monitor key KPIs, which are key performance indicators. In short, they provide valuable information about the progress of the business and help guide strategic decision-making.
If you're unsure which indicators to track, keep reading to discover the key KPIs for growing companies and why it's important to monitor them. Check it out!
What are KPIs and why are they important?
KPI stands for Key Performance Indicator. These are metrics that allow you to evaluate a business's performance in relation to its strategic objectives.
KPIs are important because they provide a clear view of company performance, helping managers make informed decisions, identify opportunities for improvement, and define the best strategies for... leverage business.
What are the key KPIs for growing companies?
If you do a quick search for KPIs, you'll see that there are countless of them. This doesn't mean, however, that you need to track all of them to properly manage your business.
The key is to identify the performance indicators that are related to your objectives or the smooth functioning of your operations.
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They must be clear, measurable, relevant, and specific to the business. The importance of defining and monitoring the right KPIs is related to the need to have a clear view of the company's performance and to assess whether it is heading in the right direction.
Although each organization has a specific set of KPIs that make sense for its operation, there are some that apply to almost all companies, especially those that are growing. These are:
gross margin
Gross Margin is a KPI that measures the percentage of profit a company has earned after deducting the direct costs of production or service provision.
This KPI is important because it helps assess the company's efficiency in managing its costs and setting its sales prices.
To calculate the Gross Margin, simply subtract the cost of goods sold from total revenue and divide by the total revenue.
Operating margin
Operating Margin is one of the key KPIs for growing companies because it measures the percentage of profit the company made after deducting all costs, including indirect costs.
This indicator is important because it helps assess the company's efficiency in managing all its costs and expenses and helps to have a more objective view of the risk to business continuity.
In other words, a negative Operating Margin may indicate that the company is unable to cover its operating costs, revealing the need to obtain capital from third parties.
To calculate the Operating Margin, simply subtract all costs, including indirect costs, from total revenue and divide by the total revenue.
Operational Cash Flow
Operating Cash Flow is a KPI that measures the amount of money a company has generated or consumed in its operations.
This is also one of the key KPIs for growing companies because it helps assess the organization's ability to generate revenue from its operations.
To calculate Operating Cash Flow, simply subtract the money used for operating expenses from the money generated by operating activities.
>>> READ ALSO: Simplified Financial Management: reports every manager needs to have.
Current Liquidity Ratio
The Current Liquidity Ratio is an indicator that measures a company's ability to meet its short-term financial obligations.
For growing companies, this KPI is important because it helps assess the organization's financial health and ability to handle immediate financial challenges.
To calculate the Current Liquidity Ratio, simply divide current assets by current liabilities.
Budgeted vs. Actual
This KPI compares the company's budgeted results with its actual results. It allows managers to see if the company is following the established financial and budgetary plan, and to identify significant variations that need to be corrected.
As mentioned earlier, growing companies generally have tighter budgets, and therefore this is one of the most relevant KPIs for growing companies.
It is essential to meticulously track expenses and revenues in order to control investments, correct course, and adjust strategies to ensure sustainable growth.
Cash Runway/Burn Rate
These KPIs measure the amount of time the company has until its financial resources run out (Cash Runway) or the rate at which it is burning through its financial resources (Burn Rate).
They are important in helping managers assess the company's financial health and determine whether measures need to be taken to reduce costs or increase revenue.
Return on Assets (ROA)
This is one of the KPIs for growing companies that have a significant volume of assets and use them in their operations.
In short, it measures the organization's effectiveness in using its assets to generate profit. ROA is calculated by dividing the company's net profit by the total value of its assets.
A high ROA means that the company is using its assets efficiently to generate profit, while a low ROA may indicate operational efficiency problems or ineffective resource allocation.
Conclusion
Tracking the right KPIs is essential for the success of growing companies. When managers know exactly which indicators to measure and monitor, they have a clear view of the organization's performance, enabling them to make informed and strategic decisions.
In addition, KPIs also allow the company to track its performance over time and compare it to the market or to other companies in the same sector.
This helps managers identify strengths and weaknesses in their business model and understand how the company positions itself in relation to the competition. With this information in hand, it becomes possible to adjust strategies and make more informed decisions for sustainable growth.
To track and manage KPIs, many companies use integrated management systems, known as ERP (Enterprise Resource Planning).
ERP is an indispensable tool for defining and monitoring the correct KPIs, as it allows managers to concentrate all inputs in a single database, in addition to having access to information in real time and in an integrated way.
>>> READ ALSO: Why invest in an ERP system for your company?
With ERP, managers can monitor all aspects of the business, such as finance, sales, inventory, production, and human resources, and have a holistic view of the company's performance. Furthermore, the best solutions They enable the creation of customized reports and the visualization of KPIs in intuitive dashboards, making analysis and decision-making more efficient and effective.
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