Why You Need A KPI (Key Performance Indicator) Driven Financial Reporting System
One task for any startup is setting up an accounting system. You’ve done your projections, raised some capital and are ready to start recording transactions.
You set up QuickBooks and off you go.
That is a good start, but it will not help drive long term profitability!
To do that, you need to design a complete financial reporting structure, not just an accounting system. The goal is to drive better operating decisions, in real time, based on the facts that explain what your eyes and ears are telling you as you navigate your business.
Questions your financial reporting system should be able to answer:
One way to do that is to make sure your financial reporting system easily answers questions like:
• How are you performing against your initial projections, or current budget?
• Where is your cash coming from and where is it going?
• How much does it cost to acquire a customer?
• What is your gross profit by customer and product line?
• What are the costs of the item or services you sell?
• What is your GSA (general selling and administrative) expense?
• Which costs are fixed versus variable?
• Who owes you money?
• Who do you owe money to?
• Does your financial information support your growth plans and tell you when to change them?
KPI driven financial reporting system:
I call this a KPI (Key Performance Indicator) driven financial reporting system.
Designed correctly, a KPI driven financial reporting model will help you take the emotion out of business decisions by creating a fact-based decision-making culture as your company grows.
The final question is, why would you operate without one?
Lorry Rifkin
Mentor, BizStarts
Lorry Rifkin, CPA from Clarity Management, LLC has 35 plus years’ experience designing and implementing KPI driven financial reporting systems to drive profitability. Check out part 2, “How do you build a KPI Driven Financial Reporting System?” If you have any questions, please email Lorry at lrifkin@claritymgt.com or call 414-702-6845.