By Linda RoperSeptember 14, 2022
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CFOs are tasked with the difficult job of managing their company's finances. But it's not just about keeping your employees happy and making sure your month-end reports are accurate; it's also about understanding how to use the data you're collecting to make decisions that will help your business grow.
KPIs are a key part of this process. They can tell you how each department is performing and whether or not they need additional resources or training. They can also help you identify areas where your company is doing well, so that you can double down on those strengths while working on areas that need improvement.
But what exactly are KPIs, how do they work, and how do they benefit your business from a financial standpoint? To assist you, we've put together an easy-to-follow guide to KPIs for Finance teams in 2022.
Table of Contents
- What is a KPI?
- What are the Company-Wide Benefits of Measuring KPIs?
- KPIs for Finance Departments: What Should You Be Measuring?
- 1. Financial KPIs
- 2. Operational KPIs
- 3. Strategic KPIs
- Measuring KPIs for Your Finance Team? Here’s How ExpenseIn Can Help
What is a KPI?
A KPI, or Key Performance Indicator, is a metric 'used to gauge a company’s overall long-term performance'. It's a way to keep track of how you're doing against your goals.
KPIs should be specific—for example, if you have a goal of increasing sales by 5% this year, then your KPI might be "sales growth" or "monthly sales." They should also be measurable, attainable, relevant, and last but not least, time-bound, which means that you set a timeframe for your KPI, i.e. the end of the quarter.
KPIs are typically used by executives and managers to set targets and track progress toward those goals. They help companies identify strengths and weaknesses so they can make decisions about how best to use their resources.
When it comes to KPIs, the finance meaning of the term simply refers to any metrics which directly have an impact on the company’s bottom line.
What are the Company-Wide Benefits of Measuring KPIs?
KPIs are a great way to measure the success of any organisation, no matter what industry it belongs to.
Companies can use KPIs to:
Identify areas where the business is struggling or underperforming.
Help employees to know if they're doing their jobs well or if they need to adjust their performance.
Spot trends in sales and revenue that will help executives plan for future growth or decline.
Measure the effectiveness of new marketing initiatives so successful ones can be replicated.
Help create a culture of accountability within a company by clearly defining expectations for everyone involved.
Give a company an idea of what's working well so that when there is a change in leadership or management style, there's already a system in place for success.
Provide current analytics that arm executives and team members with the necessary data to make better informed decisions.
KPIs for Finance Departments: What Should You Be Measuring?
The answer to this question depends on the industry and goals of your company. For example, if you work within the Finance department of an ecommerce company that sells products online, you might want to measure revenue per customer or lifetime value. If you're working for a manufacturing company, you might want to track inventory levels and order fulfilment time.
KPI Examples for Finance Managers
If you're a Finance Manager, you may be wondering what kind of KPIs you should be tracking. There are a lot of things that your company can measure, but they all fall into three overarching categories:
1. Financial KPIs
2. Operational KPIs
3. Strategic KPIs
1. Financial KPIs
These are KPIs that measure the health of your company's finances. They include things like net income, gross profit margin, and inventory turnover ratio.
2. Operational KPIs
These KPIs track how well your business is functioning on a day-to-day basis. These metrics will help you determine if there are problems with processes or if employees are performing poorly at their jobs.
Some examples include sales orders per employee per month, percentage of sales orders completed on time, number of customer complaints received during the past week/month/quarter/year and number of warranty claims filed during the past week/month/quarter/year.
3. Strategic KPIs
These are KPIs that gauge how well you're meeting your long-term goals for growth and profitability within your industry as a whole (or even just within your company). Some examples include market share growth over time, average annual revenue growth rate over time, and percentage increase in number of customers served by each employee over time.
KPI Examples for Finance Staff
Even if you’re not a Finance Manager, yet you work within a Finance department, then you may still find yourself having to track useful KPIs across your company. While a Finance team member often won’t have as many metrics to track as those in a managerial position, they may still need to keep a close eye on the following:
Revenue per employee: a measure of productivity.
Profit margin: a measure of how profitable your business is.
Average days to collect accounts receivable: a measure of how quickly customers pay their bills.
Accounts receivable turnover ratio: a measure of how many times your company collects on its accounts receivable in a year.
Bad debt percentage: a measure of how well your company collects on its accounts receivable, but it focuses specifically on the accounts that are not collectible.
Measuring KPIs for Your Finance Team? Here’s How ExpenseIn Can Help
Despite the emergence of automated solutions that can manage repetitive daily activities and measure KPIs, many businesses still use manual procedures and spreadsheets to keep track of their performance indicators.
There are many advantages to using cloud-based financial management software to monitor your KPIs and performance metrics. Not only does it save your Finance department valuable hours each week, but it also reduces the likelihood of human error, while giving you access to real-time financial data.
ExpenseIn is one such financial KPI dashboard which lets you track, analyse, and report on your company’s expenses. It allows you to automatically keep on top of your expense related KPIs, meaning Finance departments can spend less time crunching expenses and more time on other important tasks.
