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13 Financial Performance Measures Managers Should Monitor

• 05 May 2020

While you may not have a background in finance, a basic understanding of the key concepts of financial accounting can help you improve your decision-making process , as well as your chances for career success. With a better understanding of how your organization measures financial performance, you can take steps to provide additional value in your daily activities.

Finance can be intimidating for the uninitiated. To help you become more comfortable understanding and speaking about financial topics, here’s a list of the top financial metrics managers need to understand.

What Are Financial KPIs?

Financial KPIs (key performance indicators) are metrics organizations use to track, measure, and analyze the financial health of the company. These financial KPIs fall under a variety of categories, including profitability, liquidity, solvency, efficiency, and valuation.

By understanding these metrics, you can be better positioned to know how the business is performing from a financial perspective. You can then use this knowledge to adjust the goals of your department or team and contribute to critical strategic objectives.

For managers, these metrics and KPIs should be made available internally and distributed on a weekly or monthly basis in the form of email updates, dashboards, or reports. If they’re not readily distributed, you can still become familiar with the metrics via financial statement analysis.

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What Is Financial Statement Analysis?

Financial statement analysis is the process of reviewing key financial documents to gain a better understanding of how the company is performing. While there are many different types of financial statements that can be analyzed as part of this process, some of the most important, especially to managers, include the:

• Balance Sheet : A statement that lists a business’s assets, liabilities, and owners’ equity at a specific point in time.
• Income Statement : A statement that summarizes a business’s revenues, expenses, and profits over a period.
• Cash Flow Statement : A statement that captures how cash flow is affected by activities from the balance sheet and income statement, categorized into operating, investing, and financing activities.
• Annual Report : A document that describes the company’s operations and financial conditions, and typically includes the documents listed above, in addition to other insights and narrative from key figures within the company.

13 Financial Performance Measures to Monitor

The metrics below are typically found in the financial statements listed above and among the most important for managers and other key stakeholders within an organization to understand.

1. Gross Profit Margin

Gross profit margin is a profitability ratio that measures what percentage of revenue is left after subtracting the cost of goods sold. The cost of goods sold refers to the direct cost of production and does not include operating expenses, interest, or taxes. In other words, gross profit margin is a measure of profitability, specifically for a product or item line, without accounting for overheads.

Gross Profit Margin = (Revenue - Cost of Sales) / Revenue * 100

2. Net Profit Margin

Net profit margin is a profitability ratio that measures what percentage of revenue and other income is left after subtracting all costs for the business, including costs of goods sold, operating expenses, interest, and taxes. Net profit margin differs from gross profit margin as a measure of profitability for the business in general, taking into account not only the cost of goods sold, but all other related expenses.

Net Profit Margin = Net Profit / Revenue * 100

3. Working Capital

Working capital is a measure of the business’s available operating liquidity, which can be used to fund day-to-day operations.

Working Capital = Current Assets - Current Liabilities

4. Current Ratio

Current ratio is a liquidity ratio that helps you understand whether the business can pay its short-term obligations—that is, obligations due within one year— with its current assets and liabilities.

Current Ratio = Current Assets / Current Liabilities

5. Quick Ratio

The quick ratio , also known as an acid test ratio , is another type of liquidity ratio that measures a business’s ability to handle short-term obligations. The quick ratio uses only highly liquid current assets, such as cash, marketable securities, and accounts receivables, in its numerator. The assumption is that certain current assets, like inventory, are not necessarily easy to turn into cash.

Quick Ratio = (Current Assets - Inventory) / Current Liabilities

6. Leverage

Financial leverage , also known as the equity multiplier , refers to the use of debt to buy assets. If all the assets are financed by equity, the multiplier is one. As debt increases, the multiplier increases from one, demonstrating the leverage impact of the debt and, ultimately, increasing the risk of the business.

Leverage = Total Assets / Total Equity

7. Debt-to-Equity Ratio

The debt-to-equity ratio is a solvency ratio that measures how much a company finances itself using equity versus debt. This ratio provides insight into the solvency of the business by reflecting the ability of shareholder equity to cover all debt in the event of a business downturn.

Debt to Equity Ratio = Total Debt / Total Equity

8. Inventory Turnover

Inventory turnover is an efficiency ratio that measures how many times per accounting period the company sold its entire inventory. It gives insight into whether a company has excessive inventory relative to its sales levels.

Inventory Turnover = Cost of Sales / (Beginning Inventory + Ending Inventory / 2)

9. Total Asset Turnover

Total asset turnover is an efficiency ratio that measures how efficiently a company uses its assets to generate revenue. The higher the turnover ratio, the better the performance of the company.

Total Asset Turnover = Revenue / (Beginning Total Assets + Ending Total Assets / 2)

10. Return on Equity

Return on equity, more commonly displayed as ROE, is a profitability ratio measured by dividing net profit over shareholders’ equity. It indicates how well the business can utilize equity investments to earn profit for investors.

ROE = Net Profit / (Beginning Equity + Ending Equity) / 2

11. Return on Assets

Return on assets, or ROA, is another profitability ratio, similar to ROE, which is measured by dividing net profit by the company’s average assets. It’s an indicator of how well the company is managing its available resources and assets to net higher profits.

ROA = Net Profit / (Beginning Total Assets + Ending Total Assets) / 2

12. Operating Cash Flow

Operating cash flow is a measure of how much cash the business has as a result of its operations. This measure could be positive, meaning cash is available to grow operations, or negative, meaning additional financing would be required to maintain current operations. The operating cash flow is usually found on the cash flow statement and can be calculated using one of two methods: direct or indirect .

13. Seasonality

Seasonality is a measure of how the period of the year is affecting your company’s financial numbers and outcomes. If you’re in an industry that’s affected by high and low seasons, this measure will help you sort out confounding variables and see the numbers for what they truly are.

It’s important to note there’s no absolute good or bad when it comes to financial KPIs. Metrics need to be compared to prior years or competitors in the industry to see whether your company’s financial performance is improving or declining and how it’s performing relative to others.

The Bottom Line

There are many other financial KPIs you can track and monitor to understand how your company is doing and how your actions impact progress toward shared goals. The financial KPIs listed above are a great place to start if you’re unfamiliar with finance. Understanding how these metrics influence business strategy is a critical financial accounting skill for all managers to develop.

Are you looking to develop or hone your finance skills? Explore our online finance and accounting courses to develop your toolkit for making and understanding financial decisions. If you aren't sure which course is the right fit, download our free course flowchart to determine which best aligns with your goals.

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15 Financial KPIs And Metrics Every Business Should Track (+ Template)

Looking for some financial KPIs and metrics? 

Financial KPIs help CFOs and financial teams assess their company’s financial health and tell the story behind the company’s performance. However, every business manager should be able to read the financial signals and unlock strategic insights to identify opportunities for improvements that can affect the bottom line. 

This awareness gives you an opportunity to strengthen your strategic role in the business and surface insights that will drive business performance. 

But which metrics should you be focusing on? And most importantly, how should you track them to support data-driven decision-making at any given time? 

In this article, we share key financial KPIs that every business manager should know, as well as how to track them through real-time dashboards and KPI reports . 

What Are Financial KPIs?

Financial KPIs are a set of measurable values used by organizations and finance teams to measure and track their progress on specific business objectives . Monitoring these KPIs shows whether a business is achieving its financial goals. 

We've decided to kick things off with some of the most important examples of KPIs for running your business.

Those that relate to your financial performance . Whether you're a member of a finance team or not, these financial key performance indicators are critical to measure and understand the success of your business operations.

Financial KPI Examples 

Financial kpis for understanding your profitability.

These examples of KPIs are for helping you understand how well your business is performing in terms of profitability. This can help you benchmark both internally and externally as well as help you set growth targets over time.

Gross Profit Margin

Expresses your profits as a percentage of total sales revenues generated after subtracting the cost of goods sold (COGS). It gives you a high-level view of how much profit you're making.

The gross profit margin doesn't factor in all expenses and shouldn't be used for detailed decision-making. However, it’s useful for bench-marking your performance over time or comparing your profitability to another similar company.

Net Profit Margin (NPM)

NPM is the percentage of revenue remaining after operating expenses, interest, and taxes have been deducted from total revenue. It gives a more accurate understanding of profit at your company, but is less useful for making comparisons with other companies.

Financial KPIs: Monthly Recurring Revenue (MRR)

Monthly recurring revenue is a very popular financial metric for SaaS companies such as ours. This metric looks only at the revenue generated each month, which will re-occur with little to no additional investment required. For example, any customer who signs up for a recurring monthly subscription to Cascade increases our MRR.

Return on Equity (ROE)

Measures your net income against each unit of shareholder equity. In other words, ROE measures the amount of profit a company generates for each dollar of shareholder equity invested. Return on equity ratio not only provides a measure of your organization’s profitability but also its efficiency. It’s an important KPI because it provides investors with insight into how efficiently a company is using its equity to generate profits.

Financial KPIs For Understanding Your Liquidity

Being profitable is key, but if you're not able to pay your debts or stay liquid, you won't be around for long. These examples of finance KPIs will help do that.

Current Ratio

Current Ratio weighs your assets, such as accounts receivables, against your current liabilities, including accounts payable. The KPI is used to help you understand the solvency of your business.

Current Ratio formula = Current Assets / Current Liabilities

Quick Ratio

The quick ratio, also known as the acid test ratio , is a financial KPI that measures a company's ability to pay its short-term obligations using only its most liquid assets such as cash, marketable securities, and accounts receivable. The quick ratio is calculated by dividing the sum of a company's quick assets by its current liabilities. 

This KPI is essential for companies that operate in industries with volatile cash flows or cyclical demand patterns, as it can help them evaluate their ability to weather unexpected disruptions or delays in cash receipts.

Debt-To-Equity Ratio 

The debt-to-equity ratio measures a company's level of financial leverage and risk. A higher debt-to-equity ratio indicates that a company has more debt than equity, which increases its financial risk. On the other hand, a low debt-to-equity ratio indicates that a company has a strong balance sheet and a better ability to weather financial shocks. 

Investors, lenders, and management use this KPI to evaluate a company's creditworthiness and financial stability. 

Accounts Receivable Turnover

Accounts receivable turnover shows how well you collect what is owed to you by your customers. To calculate the KPI, take total earnings for a given period and divide them by average accounts receivable.

Monitoring this over time allows you to detect problems early. It will help you identify customers starting to take longer and longer to pay. You’ll soon see an impact on your own liquidity if this happens.

Runway and Burn Rate

The two KPIs work together to give you an idea of how much time you have for survival if sales were to cease completely in the worst-case scenario.

Divide the total amount of cash you have available by how much you spend each month—this is your burn rate .

Runway will tell you how much time you have before your company runs out of money. To calculate it, divide your total available cash by your burn rate.

Working Capital

Working capital measures a company's ability to meet its short-term obligations and manage its cash flow effectively. If a company's working capital is positive, it has enough liquid assets to meet its short-term liabilities. Having this information can help companies avoid financial distress such as missed payments, defaults, or bankruptcy.

Financial KPIs For Understanding Your Efficiency

If you're profitable and liquid, you've already passed some of the hardest tests in the business. Now is the time to optimize the efficiency of your business operations and look for opportunities to improve, which in turn will increase profitability and stability.

Revenue Per Employee

Employee costs usually make up the bulk of a company's expenses. Therefore,  it's often useful to measure how much revenue you are actually generating for each employee in your company.

You can then determine whether you're making an appropriate amount of revenue based on your business size.

Revenue Per Customer

This gives you an idea of how much gross revenue you make per customer. The method you use to calculate it will vary depending on your business.

As a SaaS business, we consider Life Time Value (LTV) based on what customers pay for their subscription and how long a subscription typically lasts. Another example might be a telecom company that offers services such as cable TV, internet, and phone. The company can calculate its revenue per customer by dividing its total revenue from these services by the total number of customers who subscribe to one or more of these services.

Revenue Growth Rate

This KPI helps ensure your business continues to grow at a target rate, measured by a percentage. Therefore, you would measure this monthly or on a 12-month rolling average basis.

A consistently high revenue growth rate can be a sign of a healthy and profitable company, while a declining revenue growth rate can indicate issues with the company's operations, competition, or market conditions.

Cash Conversion Cycle

Measures the time it takes to convert an investment in inventory or some other resource input into cash. This gives you an understanding of how long cash is tied up in inventory before the inventory is sold and cash is collected from customers.

Total Asset Turnover

The total asset turnover of a company shows how efficiently it uses its assets to generate revenue. In other words, the metric measures how much revenue a company generates for every dollar it owns. 

When a company has a high asset turnover ratio, it can generate more profits and grow faster than its competitors with similar asset bases. Companies with a low asset turnover ratio may be underutilizing their assets and may need to optimize their operations or divest inefficient assets. 

As an example, a ratio of .5 means that every dollar of assets generates 50 cents of sales.

Operating Cash Flow

Operating cash flow is an important financial KPI for businesses because it measures how well they generate cash from their core operations. 

With a strong operating cash flow, a company can invest in growth opportunities, repay debt, or return value to shareholders. In contrast, a company with negative operating cash flow may take steps to stay afloat by cutting costs, raising prices, or seeking external financing. 

How To Track Financial KPIs With Cascade?

Cascade is the ultimate strategy execution platform that empowers businesses to execute their strategies flawlessly. Our powerful tool comes with a range of features, including extensive KPI dashboards , real-time data integration, and analytics capabilities. 

Whether you’re an executive manager, CFO, or head of operations, Cascade provides the tools you need to make data-driven decisions and achieve your financial goals. 

👉Here’s how you can track KPIs in Cascade: 

1. Get your free financial strategy plan template

Sign up for Cascade and download your template. The template will help you define your financial goals, objectives, and KPIs to measure success. 

Here’s a preview of your template: 

✨ More related templates: 

• Financial Risk Management Plan Template
• Sales Plan Template 
• Business Development Strategy Template 
• Business Acquisition Strategy Template 
• Investment Strategy Template 
• Strategic Cost Reduction Plan Template

2. Customize your data

While the Cascade template comes pre-filled with examples, you have the power to customize your data and financial metrics to ensure they are relevant to your specific business needs.

3. Integrate Cascade with your data sources

With Cascade, you have two options to track your KPIs: manually and automatically . 

The latter option is far more efficient, as it simplifies data collection and ensures you're working with accurate and up-to-date data. 

By integrating Cascade with your favorite business tools, such as Excel, Google Sheets, or Power BI, you can easily import your KPI data and keep your team in the loop. 

No more worrying about manual data entry or inaccuracies—let Cascade take care of the hard work for you.

4. Bring in your team

Send an invite to your team members to collaborate on shared KPIs and ensure everyone is on the same page. 

With Cascade, you can assign roles and responsibilities, set up notifications, and communicate with your retail teams in one place.

5. Start tracking performance with dashboards and reports

Cascade's powerful dashboards provide real-time visibility into your KPIs and allow you to quickly identify areas that need attention. 

With customizable widgets and drag-and-drop features, you can easily visualize and analyze key metrics to improve financial performance and operational efficiency.

Need to explain the “why” behind your financial KPIs? 

Using Cascade's strategy reports , you can choose a set of data and add context to it. By providing this context, your stakeholders will be able to make informed and data-driven decisions. 

You can customize the reports to fit your specific needs and drill down into the underlying reasons behind your financial performance. 

📚 Recommended read: How To Track KPIs To Hit Your Business Goals

Get Real-Time Visibility Into Your Financial Health With Cascade 🚀

Manually tracking all of the financial KPIs spread across multiple business tools is time-consuming, tedious, and leaves a ton of room for error. The lack of real-time visibility into your financial health and the highly competitive nature of your business environment can quickly lead you to lag behind. 

Cascade offers powerful reporting tools that make it easy to take total control of your financial reporting by doing the calculations and visualizations for you. 

By centralizing your financial data in one place that updates in real-time, you’ll always have an accurate picture of your business’s financial performance. 

Automating your financial reporting with Cascade will help you focus more time and energy on strategic work that will move your business forward.  

Ready to take it for a spin? Start today with a free forever plan or book a 1:1 product tour with Cascade’s in-house strategy expert. 

Editor’s note: We've been compiling a whole bunch of KPI examples as part of our KPI examples mini-series . This post is a small supplement to that series, which provides 12 of the most common financial KPIs, and  also includes a brief description of why you may want to use each.  

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15 Key Financial Metrics & KPIs for Small Businesses

It’s critical that small-business leaders understand the financial health of their organizations, and financial metrics and key performance indicators (KPIs) inform that understanding. Small-business financial metrics shed light on the company’s current financial state and its short- and long-term outlook.

Financial metrics and KPIs help small businesses understand if they have the cash on hand to fund big capital investments—or are on the fast track to insolvency . These numbers are obviously important to business owners, but lenders and investors will also want to review them before they sign any contract with a company.

There are certain metrics that are vital to the success of a small business.

What Are Metrics?

Metrics are any quantifiable data a company may monitor to track performance and improvements across the business. While financial metrics are among the most important and widely used, businesses can use metrics to monitor the success of any aspect of their operations, like monthly website visitors or average order fulfillment times.

Once an organization starts tracking an important metric, it has a baseline against which it can compare future numbers to see how the performance of various processes or teams has changed over time. As a business grows, it often starts tracking more metrics, including ones specific to certain initiatives or departments.

What Are KPIs?

Key performance indicators, or KPIs, are metrics that are particularly important to your business. These numbers have the biggest impact on whether your company thrives and grows or struggles and shuts down. A distinguishing feature of KPIs is they usually have predetermined goals, which is not true of all metrics—a company might monitor certain metrics for years without specific targets in mind. Certain financial metrics are also KPIs since profitability and cash flow play major roles in the immediate and future viability of a business.

Small-business executives should choose their critical KPIs early on and establish a clear understanding of what numbers will indicate success, or raise warning flags. KPIs should be closely tied to key business objectives. For example, average customer account size could be a manufacturing KPI to watch if a company wants to increase revenue by 10% this year. If that manufacturer is looking to increase productivity at its plant, another KPI could be the number of products produced per day.

Defining and Choosing the Right KPIs and Metrics for Small Businesses

The metrics small-business leaders need to pay attention to vary from one company to the next, and KPIs are even more specific and depend on industry, business and financial model and goals. The leadership team should first establish business objectives for the quarter or year and work backward from there, identifying the KPIs and metrics that will help it stay on target. These discussions should include employees from all key departments to ensure goals are relevant to the entire company.

However, there are a few common financial metrics that all companies need to keep an eye on. They need to have a firm grasp of total revenue, expenses, assets and liabilities and how each shifts over time. The cost of customer acquisition and how long those customers stick around, a.k.a. churn rate, are other metrics important to many young companies. For products-based companies, tracking the efficiency of various processes and employee productivity at manufacturing plants or warehouses is often important.

While organizations need a firm grasp of what will make them successful and which industry-specific KPIs matter to them, there are metrics relevant to most businesses. Here are our Top 15 most commonly applicable metrics and KPIs:

Revenue is the amount of money a business takes in for sales of its products or services before any expenses are taken out. Revenue, also called sales or top-line income, is part of the calculation for most financial metrics. There are multiple ways to measure revenue. In accrual accounting, customer purchases made on credit count toward revenue before the business has actually received payment. In cash accounting, only money already in the company’s bank account counts toward revenue.

Revenue = Sales Price x Units Sold

Expenses are all the costs a business must cover to operate and earn revenue. With some exceptions, such as VC-backed startups, a business needs more revenue than expenses to survive. Examples of expenses are labor, equipment, and supplies. Just like with revenue, accrual accounting factors in expenses as they are incurred, even if they haven’t been paid yet, while cash accounting includes these expenses only once they’re paid.

Expenses can be grouped into two broad categories: operating expenses and nonoperating expenses. Operating expenses are a direct result of doing business, like mortgages, production costs and administrative costs. Nonoperating expenses are more indirect and include interest and other lending fees.

Expenses = Cost of Goods Sold + Salaries + Sales Commissions + Marketing Costs + Real Estate Expenses + Utilities

Net income or net profit is the money left over after subtracting all expenses and taxes from revenue. Although there are investor-backed startups that lose money, most small businesses need to bring in enough revenue to cover their expenses. If they don’t, they risk falling into debt and eventually going out of business.

Net income is also referred to as the “bottom line” because it shows up below revenue (the “top line”) on profit and loss (P&L) statements.

Net Profit = Revenue – Total Expenses

Cash is the lifeblood of small businesses—they rely on the money coming in to pay expenses. Cash flow is the amount of money moving in and out of a business over a certain timeframe. If more money is coming in than going out, a business has positive cash flow, and if it’s paying out more money than it’s receiving, it has negative cash flow.

Operating cash flow (OCF) is the amount of cash a company generates through typical operations. This metric can give a business a sense of how much cash it can spend in the immediate future and whether it should reduce spending. OCF can also reveal issues like customers taking too long to pay their bills or not paying them at all.

Operating Cash Flow = Net Income + Non-Cash Expenses – Increase in Working Capital

Working capital is the difference between current assets (cash, accounts receivable and short-term investments) and liabilities (accounts payable, payroll, taxes and debt payments). This metric helps paint a picture of a business’s financial state for the near term by looking at is available liquidity to cover immediate expenses.

Working Capital = Current Assets - Current Liabilities

Just as it sounds, budget vs. actual compares a company’s actual spend or sales in a certain area against the budgeted amounts. Although budgets and expense are related , budget vs. actual can be used to compare both revenue and expenses.

This “budget variance analysis” helps small business leaders identify areas of the business where they’re overspending that may need further attention. It also reveals areas of the business that outperformed expectations.

Budget Variance Percentage = Actual/Forecast – 1 x 100

Accounts receivable aging is a report that measures how many days it takes your customers to pay their bills. Companies often include credit terms on an invoice that say how many days the customer has to submit payment; 30 days is common.

On an accounts receivable aging report, a business typically organizes clients by due date—immediately, 1–30 days late, 31–60 days late—to see how much money is collectable from different companies and timeframes.

When accounts receivable consistently runs behind, it hurts cash flow and working capital. As more time passes, the chances of ever collecting that revenue decrease. Businesses may need to cut ties with customers that are consistently late, as these delays can cause a cash flow crunch. Companies should consider offering customers a small discount for early payment to prevent delays.

Accounts payable aging is a report similar to accounts receivable aging, except it looks at how many days it takes your business to pay its bills. Like with accounts receivable aging, a company lists its upcoming bills based on when they’re due to ensure it can meet all obligations and resolve any problems ahead of time. Revenue, cash flow and accounts receivable aging can all affect your ability to keep up with invoices from suppliers, technology vendors and other business partners.

How quickly a company pays its bills affects its creditworthiness and ability to get a loan. Companies that are able to stay on top of their financial obligations can reinvest the savings from early payments back into the business.

The break-even point (opens in new tab) is when revenue is equal to costs, meaning there is no profit or loss. Also known as margin of safety, break-even point helps a business know when it will earn more than it spends and start earning a profit. By calculating the break-even point, a software provider knows how many licenses it needs to sell, or a manufacturer understands how many products it must move to cover monthly costs.

Break-even Point = Fixed Costs/(Sales Price Per Unit – Variable Cost Per Unit)

Gross profit margin ratio shows revenue after deducting the cost of goods sold (COGS) —that is, the direct costs of making a product. This ratio, written as a percentage, reveals the gross profit for every dollar of revenue a business earns. A ratio of 60%, for instance, means the company receives 60 cents of profit for each dollar of revenue.

Gross Profit Margin Ratio = (Revenue – COGS)/Revenue x 100

Profit margin ratio is similar to the gross profit margin ratio but accounts for all expenses, like payroll and other operating costs, rather than just COGS. Although standard profit margins differ between industries, many companies target a profit margin ratio of at least 25%.

Profit Margin Ratio = (Revenue – Expenses)/Revenue

Quick ratio (opens in new tab) , also called the acid test ratio, measures whether a business can fulfill its short-term financial obligations by evaluating whether it has enough assets to pay off its current liabilities. Quick ratio is written as a decimal, with a ratio of 1.0 meaning a company has just enough assets to cover its liabilities.

Quick Ratio = (Cash + Marketable Securities + Accounts Receivable)/Current Liabilities

Average customer acquisition cost uncovers how much a company spends, on average, to add new customers during a certain period of time. This metric factors in expenses for marketing, technology, payroll and more. Customer acquisition cost is typically proportional to the price of a product or service, so it varies widely by industry—the average retailer spends $10 to acquire a customer, while the typical technology provider shells out $395.

An organization can compare customer acquisition cost to customer lifetime value to make sure its business model is sustainable. If necessary, a company can lower its customer acquisition costs by reducing marketing spend and focusing on customer retention and upsells.

Cost of Customer Acquisition = (Cost of Sales + Cost of Marketing)/New Customers Acquired

Churn rate calculates how frequently customers stop using your product or service over a given timeframe. Are a quarter of customers abandoning your service after a year or do most use it for five years? Does that churn rate make sense for your industry or business model? A high churn rate suggests a company needs to change something about its offering, better nurture its customers and/or lower its customer acquisition cost.

Churn Rate = Lost Customers/Starting Number of Customers x 100

Cash runway calculates how long a company has before it runs out of cash based on the money it currently has available and how much it spends per month. This metric helps businesses understand when they need to cut back spending or get additional funding. If your cash runway shortens over time, it’s a sign your company is spending more money than it can afford to.

Cash runway is closely tied to burn rate, which measures how much money a company spends over a certain period (usually monthly). Burn rate is frequently used by investor-backed startups that lose money in their early days.

Cash Runway = Cash Balance/Monthly Burn Rate

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How Can Financial Software Help With Setting and Tracking Financial Metrics and KPIs?

Tracking even basic metrics like revenue, expenses and income can become cumbersome with spreadsheets or other manual methods. It's difficult to keep all this information up-to-date, especially as a small company grows and its transaction volume increases, and that can lead to inaccurate information.

Manually calculating more advanced metrics, like break-even point, quick ratio and average customer acquisition cost, is even more challenging.

Financial or accounting software makes it far easier and less time-consuming to find the numbers needed for these metrics. Leading solutions can make these calculations with just a few clicks, and business stakeholders can automatically and regularly receive reports showing select metrics and KPIs.

These solutions open up countless possibilities to view and compare numbers that illuminate your business’s performance and help identify issues holding it back—all without consuming a lot of employee time or effort. There is tremendous value in real-time data, and that alone often justifies the cost of the solution.

Small businesses must set clear KPIs and track a wide variety of metrics to excel in today’s turbulent environment. Without insights, these companies have no true sense of how they’re progressing toward goals and whether they're financially healthy or digging themselves into deep holes. Corporate leaders must make it a priority to pinpoint the KPIs and metrics that matter most to their businesses, monitor them and continually adjust based on what the data tells them.

Technology, even a basic financial system, can go a long way toward helping companies track these numbers and spot changes that will have a positive or negative impact on their financial health. Small firms need metrics because they can be a deciding factor in whether or not a business makes it.

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Key Financial Metrics for Your Business Plan

Posted september 6, 2018 by noah parsons.

Digging into your business’s financials can feel a bit like eating your fruits and vegetables, but what’s good for your business’s health is good for you.

When you’re putting a business plan together, the financial plan can feel like the most intimidating part. If you’re like most business owners, you probably didn’t go to business school or have a degree in accounting. 

That’s O.K. This article will explain everything that you need to include in your financial plan so you get off to a good start.

All business plans, whether you’re just starting a business or building a plan for an existing business, should include the following:

Profit and loss statement, cash flow statement, balance sheet, sales forecast, personnel plan.

• and maybe some business ratios and/or a break-even analysis

Even if you’re in the very beginning stages of your business, these financial statements can still work for you.

The good news is that they don’t have to be difficult to create or hard to understand. With just a few educated guesses about how much you might sell and what your expenses will be, you’ll be well on your way to creating a complete financial plan.

A profit and loss statement is essentially an explanation of how your business made a profit (or incurred a loss) over a certain period of time. It’s a table that lists all of your revenue streams and all of your expenses—typically for a three-month period—and lists at the very bottom the total amount of net profit or loss.

This is a financial statement that goes by a few different names—profit and loss statement, income statement, pro forma income statement, P&L (short for “profit and loss”)—but no matter what you call it, it’s an essential report and very important to understand.

There are different formats for profit and loss statements, depending on the type of business you’re in and the structure of your business (nonprofit, LLC, C-Corp, etc.).

A typical profit and loss statement should include:

• Your revenue (also called sales) 
• Your “cost of sale” or “cost of goods sold” (COGS)—keep in mind, some types of companies, such as a services firm, may not have COGS
• Your gross margin , which is your revenue less your COGS

These three components (revenue, COGS, and gross margin) are the backbone of your business model —i.e., how you make money.

You’ll also list your operating expenses, which are the expenses associated with running your business that aren’t incurred directly by making a sale. They’re the fixed expenses that don’t fluctuate depending on the strength or weakness of your revenue in a given month—think rent, utilities, and insurance.

Your gross margin less your operating expenses will give you your operating income:

Gross Margin – Operating Expenses = Operating Income

Depending on how you classify some of your expenses, your operating income will typically be equivalent to your “earnings before interest, taxes, depreciation, and amortization” (EBITDA)—basically, how much money you made in profit before you take your accounting and tax obligations into consideration. This is also called your “profit before interest and taxes,” gross profit, and “contribution to overhead”—many names, but they all refer to the same number.

Your so-called “bottom line”—officially, your net income, which is found at the very end (or, bottom line) of your profit and loss statement—is your EBITDA less the “ITDA.” Just subtract your expenses for interest, taxes, depreciation, and amortization from your EBITDA, and you have your net income:

Operating Income – Interest, Taxes, Depreciation, and Amortization Expenses = Net Income

For further reading on profit and loss statements (a.k.a., income statements), including an example of what a profit and loss statement actually looks like, check out “ How to Read and Analyze an Income Statement.”  And if you want to start building your own, download our free Income Statement Example .

A cash flow statement (also called a “statement of cash flows”) is an explanation of how much cash your business brought in, how much cash it paid out, and what its ending cash balance was, typically per-month.

That might sound like sales, expenses, and profits, but it’s not.

Consider this: What happens when you send out an invoice to a client, but they don’t pay it by the due date ? What happens when you pay your own bills late, or early? These kinds of things aren’t reflected in your profit and loss statement, but they are explained in your cash flow statement.

Your cash flow statement is just as important as your profit and loss statement. Businesses run on cash—there are no two ways around it.

Without a thorough understanding of how much cash you have, where your cash is coming from, where it’s going, and on what schedule, you’re going to have a hard time running a healthy business. And without the cash flow statement, which lays that information out neatly for lenders and investors, you’re not going to be able to raise funds. No business plan is complete without a cash flow plan.

The cash flow statement helps you understand the difference between what your profit and loss statement reports as income—your profit—and what your actual cash position is.

It is possible to be extremely profitable and still not have enough cash to pay your expenses and keep your business afloat, and it is also possible to be unprofitable but still have enough cash on hand to keep the doors open for several months and buy yourself time to turn things around—that’s why this financial statement is so important to understand.

How cash versus accrual accounting affects the cash flow statement

There are two methods of accounting—the cash method and the accrual method.

The cash method means that you just account for your sales and expenses as they happen, without worrying about matching up the expenses that are related to a particular sale or vice versa.

The accrual method means that you account for your sales and expenses at the same time—if you got a big preorder for a new product, for example, you’d wait to account for all of your preorder sales revenue until you’d actually started manufacturing and delivering the product. Matching revenue with the related expenses is what’s referred to as “the matching principle,” and is the basis of accrual accounting.

If you use the cash method of accounting in your business, your cash flow statement isn’t going to be very different from what you see in your profit and loss statement. That might seem like it makes things simpler, but I actually advise against it. I think that the accrual method of accounting gives you the best sense of how your business operates, and that you should consider switching to it if you aren’t using it already.

For the best sense of how your business operates, you should consider switching to accrual accounting if you aren’t using it already.

Here’s why: Let’s say you operate a summer camp business. You might receive payment from a camper in March, several months before camp actually starts in July—using the accrual method, you wouldn’t recognize the revenue until you’ve performed the service, so both the revenue and the expenses for the camp would be accounted for in the month of July.

With the cash method, you would have recognized the revenue back in March, but all of the expenses in July, which would have made it look like you were profitable in all of the months leading up to the camp, but unprofitable during the month that camp actually took place.

Cash accounting can get a little unwieldy when it comes time to evaluate how profitable an event or product was, and can make it harder to really understand the ins and outs of your business operations. For the best look at how your business works, accrual accounting is the way to go.

Your balance sheet is a snapshot of your business’s financial position—at a particular moment in time, how are you doing? How much cash do you have in the bank, how much do your customers owe you, and how much do you owe your vendors?

The balance sheet is standardized, and consists of three types of accounts:

• Assets (accounts receivable, money in the bank, inventory, etc.)
• Liabilities (accounts payable, credit card balances, loan repayments, etc.)
• Equity (for most small businesses, this is just the owner’s equity, but it could include investors’ shares, retained earnings, stock proceeds, etc.)

It’s called a balance sheet because it’s an equation that needs to balance out:

Assets = Liabilities + Equity

The total of your liabilities plus your total equity always equals the total of your assets.

At the end of the accounting year, your total profit or loss adds to or subtracts from your retained earnings (a component of your equity). That makes your retained earnings your business’s cumulative profit and loss since the business’s inception.

However, if you are a sole proprietor or other pass-through tax entity, “retained earnings” doesn’t really apply to you—your retained earnings will always equal zero, as all profits and losses are passed through to the owners and not rolled over or retained like they are in a corporation.

If you’d like more help creating your balance sheet, check out our free downloadable Balance Sheet Template .

The sales forecast is exactly what it sounds like: your projections, or forecast, of what you think you will sell in a given period (typically, a year to three years). Your sales forecast is an incredibly important part of your business plan, especially when lenders or investors are involved, and should be an ongoing part of your business planning process.

Your sales forecast should be an ongoing part of your business planning process.

You should create a forecast that is consistent with the sales number you use in your profit and loss statement. In fact, in our business planning software , LivePlan, the sales forecast auto-fills the profit and loss statement.

There isn’t a one-size-fits-all kind of sales forecast—every business will have different needs. How you segment and organize your forecast depends on what kind of business you have and how thoroughly you want to track your sales.

Some helpful questions to ask yourself are:

• How many customers do you anticipate?
• How much will you charge them?
• How often will you charge them?

Your sales forecast can be as detailed as you want it to be, or you can simplify your forecast by summarizing it. However you choose to do a sales forecast, you should definitely have one.

Generally, you’ll want to break down your sales forecast into segments that are helpful to you for planning and marketing purposes. If you own a restaurant, for example, you’d probably want to separate your forecasts for dinner and lunch sales; if you own a gym, it might be helpful to differentiate between single memberships, family memberships, club shop sales, and extra services like personal training sessions. If you want to get really specific, you might even break your forecast down by product, with a separate line for every product you sell.

Along with each segment of forecasted sales, you’ll want to include that segment’s “cost of goods sold” (COGS). The difference between your forecasted revenue and your forecasted COGS is your forecasted gross margin .

The importance of the personnel plan depends largely on the type of business you have. If you are a sole proprietor with no employees, this might not be that important and could be summarized in a sentence of two. But if you are a larger business with high labor costs, you should spend the time necessary to figure out how your personnel affects your business.

Think of the personnel plan as a justification of each team member’s necessity to the business.

If you create a personnel plan, it should include a description of each member of your management team, explaining what they bring to the table in terms of training, expertise, and product or market knowledge. If you’re writing a business plan to present to lenders or investors, you could think of this as a justification of each team member’s necessity to the business, and a justification of their salary (and/or equity share, if applicable). This would fall in the company overview section of your business plan.

You can also choose to use this section to list entire departments if that is a better fit for your business and the intentions you have for your business plan . There’s no rule that says you have to list only individual members of the management team.

This is also where you would list team members or departments that you’ve budgeted for but haven’t hired yet. Describe who your ideal candidate(s) is/are, and justify your budgeted salary range(s).

Additional calculations you might find useful:

Business ratios.

If you have your profit and loss statement, your cash flow statement, and your balance sheet, you have all the numbers you need to calculate the standard business ratios . These ratios aren’t necessary to include in a business plan—especially for an internal plan—but knowing some key ratios is almost always a good idea.

You’d probably want some profitability ratios, like:

• Gross margin
• Return on sales
• Return on assets
• Return on investment

And you’d probably want some liquidity ratios, such as:

• Debt-to-equity
• Current ratio
• Working capital

Of these, the most common ratios used by business owners and requested by bankers are probably gross margin, return on investment (ROI), and debt-to-equity.

Break-even analysis

Your break-even analysis is a calculation of how much you will need to sell in order to “break-even” (i.e., how much you will need to sell in order to pay for all of your expenses).

Consider a restaurant: It has to be open, with the tables set and the menus printed and with the bartender and all of the cooks and servers working, in order to make even one sale. But if it only sold one dinner, the restaurant would be operating at a loss—even a $50 meal isn’t going to cover the night’s utility bills. So the restaurant owner might use a break-even analysis to get an idea of how many meals the restaurant needs to sell on a given night in order to cover its expenses.

In determining your break-even point, you’ll need to figure out the contribution margin of what you’re selling. In the case of a restaurant, the contribution margin will be the price of the meal less any associated costs. For example, the customer pays $50 for the meal. The food costs are $10 and the wages paid to prepare and serve the meal are $15. Your contribution margin is $25 ($50 – $10 – $15 = $25).

Using this model you can determine how high your sales revenue needs to be in order for you to break even. If your monthly fixed costs are $5,000 and you average a 50 percent contribution margin (like in our example with the restaurant), you’ll need to have sales of $10,000 in order to break even.

Your financial plan might feel overwhelming when you get started, but the truth is that this section of your business plan is absolutely essential to understand.

Even if you end up outsourcing your bookkeeping and regular financial analysis to an accounting firm, you—the business owner—should be able to read and understand these documents and make decisions based on what you learn from them. Using a business dashboard tool can help, so you’re not wading through spreadsheets to put your figures on the important details.

If you create and present financial statements that all work together to tell the story of your business, and if you can answer questions about where your numbers are coming from, your chances of securing funding from investors or lenders are much higher.

Further resources:

For more business financial concepts made simple, check out these articles on cash burn rate ,  direct costs ,  net profit ,  operating margin ,  accounts payable ,  accounts receivable ,  cash flow ,  profit and loss statement ,  balance sheet , and  expense budgeting .

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How to Write a Small Business Financial Plan

Noah Parsons

3 min. read

Updated January 3, 2024

Creating a financial plan is often the most intimidating part of writing a business plan. It’s also one of the most vital. Businesses with well-structured and accurate financial statements in place are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully put your budget and forecasts together. Here is everything you need to include in your financial plan along with optional performance metrics, specifics for funding, and free templates.

• Key components of a financial plan

A sound financial plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, then there are a few additional pieces of information that you’ll need to include as part of your financial plan.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

• Financial ratios and metrics

With all of your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios. While these metrics are entirely optional to include in your plan, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

• Financial plan templates and tools

Download and use these free financial templates and calculators to easily create your own financial plan.

Sales forecast template

Download a free detailed sales forecast spreadsheet, with built-in formulas, to easily estimate your first full year of monthly sales.

Download Template

Accurate and easy financial forecasting

Get a full financial picture of your business with LivePlan's simple financial management tools.

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See why 1.2 million entrepreneurs have written their business plans with LivePlan

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

Table of Contents

• What to include for funding

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The 5 Most Important Financial KPIs That Drive Business Strategy

Defining a strategy for your business is important—but so is measuring its success. That’s where financial metrics come in.

Part of running (and growing) a successful business is establishing the right business strategy. And part of crafting the right strategy for your business is knowing which key performance indicators (KPIs) you should use to inform that strategy—particularly when it comes to your finances.

A financial KPI can inform your business in many ways. For example, maybe you’re just getting things off the ground and rolling out your first strategic initiatives. You’ll need to measure the impact those initiatives have on your bottom line.

Maybe you’re getting ready to take your business to the next level. You’ll need financial data to help inform your plans to grow and scale. Or, let’s say you’ve had a strategy for your business in place for some time—but you’re not sure if it’s helping you achieve your goals. Digging into the numbers will help you determine whether to keep things moving forward as-is or if your strategy needs an upgrade.

So, how, exactly, can you use financial KPIs to inform your business strategy? And what are some financial KPI examples that are the most effective for driving strategic decisions?

First, Define Your Business Strategy

A business strategy is a clear, measurable plan that outlines, in detail, how to take your business from where you are now to where you want to go. You can lean on your strategy to achieve your business goals (for example, launching a new product or expanding your business to a new market), but it isn’t the same as a business goal.

If the goal is the destination, think of the strategy as the map to get there. When building a strategy, you’ll need to do the groundwork to:

• Clearly define your goals. Goals are the desired outcome—like becoming the top content marketing agency in the country.
• Clearly define your objectives. Objectives are the specific, measurable steps you’ll take to achieve your goal. If your goal is to become the top content marketing agency in the country, objectives might include hitting X dollars in revenue or closing X clients by the end of the year.

Once you can articulate your business goals and objectives, you’re ready to talk about how you’ll get there: the strategy. And what actions (also known as tactics) you’ll need to take—on a weekly, monthly, or quarterly basis—to get there.

Continuing with the content marketing agency example, that might mean pitching X potential clients each month, setting up an inbound marketing strategy to bring new leads into your business, or publishing thought leadership articles to gain more notoriety.

Related Articles

Long-Term vs. Short-Term Financial KPI Comparison

There are certain KPIs to monitor day-to-day to keep your business on track. These shorter-term KPIs, like operating cash flow , days sales outstanding, or current ratio, will give you key insights into the current financial health of your business. They can help you determine your next best step and how to keep your business moving forward in the immediate future.

But if you want your business to succeed in the long run, you’ll need to look at KPIs that inform long-term strategy. The data you uncover with these KPIs can help you:

• Determine whether you’re on track to reach your financial goals
• Evaluate the success of your strategy
• Pinpoint areas in your business that may need improvement
• Identify any opportunities and challenges
• Assess whether your customers are happy or not

Not All KPIs Are (Just) Financial

While financial metrics are important, you’ll also want to look at other KPIs. This includes KPIs that measure your team’s effectiveness (such as staff advocacy score) or customer satisfaction and loyalty (such as net promoter score). These KPIs can give you invaluable insights into your business. And though they’re not technically financial ratios, they can directly impact your revenue. So they’re also helpful from a financial standpoint.

The 5 Most Useful Financial KPIs for Business Strategy

Whatever your business goals, there are some financial key performance indicators you should be continually tracking and using to inform your business strategy. Other metrics beyond these financial KPI examples may also be helpful. But these are fundamental.

For each financial KPI, note the performance indicators that explain how to use the data. This helps you understand a good result versus something that needs improvement and how it could affect your business strategy.

1. Sales Growth Rate

Sales growth is one of the most basic barometers of success for a business. By monitoring the growth of your sales over time, you can identify which elements of your strategy are positively impacting sales and which are falling flat.

The formula to calculate sales growth rate is:

Sales Growth Rate = (Current Net Sales – Previous Net Sales / Previous Net Sales) x 100

Performance Indicators

You always want this KPI to be a positive percentage. That means your overall strategy is working. If your sales growth rate is negative, something about your strategy isn’t connecting with your customers—and it’s time to make a change.

For example, you own a restaurant and introduce one change in Q1: a new menu. If the net sales for your new menu in Q1 were $10,000—but the net sales in Q4, with your old menu, were $15,000—your sales growth rate would be -33.33%, or:

($10,000 – $15,000 / $15,000) x 100

Your new menu isn’t driving the results you’re looking for. Now you can take steps to increase sales—for example, reverting to your old menu or putting more effort and resources into promoting your new menu to customers.

2. Revenue Concentration

The best use of your time, energy, and resources are often the clients, customers, and projects that drive the most revenue for your business. That’s why revenue concentration is another must-track financial KPI for your business.

Revenue concentration helps you identify how much revenue each client or project produces for your business as a percentage of your total revenue. Using this financial KPI, you can determine the ROI for each client.

Calculating revenue concentration starts by analyzing your revenue streams . (Your FreshBooks Dashboard provides at-a-glance summaries of your income streams, making it easy to analyze them by client or service.)

Once you know how much revenue each client, project, or service is bringing into your business, you can use that data to calculate your revenue concentration. The formula to calculate revenue concentration is:

Revenue Concentration = (Revenue by Customer or Project / Total Revenue) x 100

When you know which customers, clients, or projects are driving the most revenue (and which are not), you can shape your strategy around serving the clients and/or projects that will be the most financially lucrative.

For example, you own a copywriting business, and after analyzing your revenue streams, you realize that 80% of your income comes from white papers, while only 20% comes from other projects like blog posts or website copy.

So white papers are your big money-maker. Now you have data that supports focusing more aggressively on marketing your white paper writing services to potential clients.

Or maybe, after calculating this KPI, you realize that 75% of your revenue is coming from a single client. That’s a risky situation for a business owner. If you lose that client, you also lose most of your income.

In that situation, you could adjust your business strategy to focus on diversifying your client portfolio and spreading your revenue across a wider roster of clients.

3. Net Profit Margin

Profitability is one of the most important indicators of a company’s financial health. If you want your business to succeed in the long run, you need to be generating profit.

While several different profitability ratios can be useful—including gross profit margin and operating profit margin—net profit margin is a must.

Net profit margin measures how much profit your company makes after expenses. That includes operating expenses (like rent and utilities) and non-operating expenses (like taxes and debt payments).

Strategically speaking, the net profit margin gives you the bottom-line view of how profitable you are. If your business isn’t profitable, something needs to change. The formula to calculate net profit margin is:

Net Profit Margin = (Net Income / Revenue) x 100

Simply put, if your net profit margin is positive, you’re generating profit. You can either keep doing what you’re doing or adjust your strategy to increase your profitability.

4. Accounts Receivable Turnover

If your customers are dragging their feet and paying their invoices late (or not paying them at all!), it can seriously harm your financial health.

That’s why the accounts receivable turnover (a.k.a. debtor’s ratio) is an important KPI. It measures how well your clients pay their invoices within an allotted timeframe (for example, net 30 or net 60).

The formula for calculating annual accounts receivable turnover is:

Accounts Receivable Turnover = Net Annual Credit Sales ÷ Average Accounts Receivable

The KPI requires you to know your net credit sales, which are any amounts not paid upfront in cash. So, for a project-based business, that would typically be the payment owed for the completed project minus any retainer or fees paid at the start of the project.

It also requires you to calculate your average accounts receivable. That is:

(Beginning Accounts Receivable + Ending Accounts Receivable) ÷ 2

The accounts receivable turnover ratio shows you how many times your accounts receivable turned over in the time period you’re measuring.

By calculating your accounts receivable turnover for a year and dividing 365 days by the number of times per year your AR turns over, you will see how many days on average it takes for you to receive payments.

The higher your accounts receivable turnover, the fewer past-due invoices in your accounts on average, and the better your cash flow. It can also indicate that you have an efficient process for collecting payments from clients.

Lower isn’t always better with this KPI. Maybe your business can do just fine with payments within 15 or 30 days—and giving clients time to pay may contribute to customer retention. So, as long as the average number of days it takes your clients to pay is within that period, all is well.

If your accounts receivable turnover is too low—and customers take too many days to pay—you may start facing cash flow issues. To address the problem, you may need to examine your invoice payment terms , explore different payment methods, or take other actions to get paid faster .

5. Working Capital

As a business owner, you need cash to operate. This cash is called working capital , and it helps you meet your short-term financial obligations that keep your day-to-day operations going.

Understanding your working capital ratio will help you plan your future strategic moves, like hiring new team members to scale your business or investing in new equipment. It will also alert you to when you need funding to keep your business moving forward.

Working capital is calculated by comparing the company’s current assets to its liabilities. The formula for calculating working capital is:

Working Capital = Current Assets – Current Liabilities

If you have more assets than liabilities, you have positive working capital—which means you have enough cash on hand to cover your liabilities plus additional funds left over. On the flip side, if your liabilities are more than your assets, you have negative working capital. That means you don’t have enough money on hand to cover your financial obligations.

Both positive and negative working capital can give you key insights into the state of your business and the success of your business strategy. For example, if your working capital is extremely high (your assets far outweigh your liabilities), you’re not investing enough money into your business. You might create a business strategy to use some of your working capital to expand or target new clients in that scenario.

On the other hand, if you have negative working capital, you don’t have enough capital to cover your costs. You’ll need to adjust your strategy to focus on bringing more capital into the business—perhaps by applying for a business loan or increasing prices.

Use Financial KPIs to Drive Your Business Strategy

Hopefully, you now grasp the most important financial metrics to track for your long-term financial health, how to calculate them, and what they signal about your existing business strategy.

When used correctly, these financial key performance indicators can help inform how you work to achieve your business objectives. They’ll unlock insights that could easily be overlooked otherwise and ideally help your business grow faster and more effectively.

Written by Deanna deBara , Freelance Contributor

Posted on December 21, 2022

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More Like this

Kpi meaning + 27 examples of key performance indicators.

As your organization begins to sketch out what your strategic plan might look like, it’s likely to come to your attention that you’ll need to gain consensus around what your key performance indicators will be and how they will impact your organization. If you haven’t thought much about your KPIs yet, that’s okay. We can help!

We’ve compiled a complete guide that includes an overview of what makes a good KPI, the benefits of good key performance indicators, and a list of KPI examples [organized by department and industry] for your reference as you develop your organization’s strategic plan and goals.

Video Transcript – How to Write KPIs

Hi, my name is Erica Olsen. Today’s whiteboard video is on key performance indicators, or KPIs for short. These are those things that are associated with either goals or objectives, whatever you’re calling them, those elements of your plan that are the expressions of what you want to achieve by when those quantifiable outcome-based statements.

So KPI’s answer the quantifiable piece of your goals and objectives. They come in three different flavors. So we’ll talk about that in just a minute. But before we do, putting great measures together and making sure they work well for you, you need to have these four attributes. And before I talk about those four attributes, so I just want to say the reason they need to work well for you is because KPIs are the heartbeat of your performance management process. They tell you whether you’re making progress, and ultimately, we want to make progress against our strategy. So KPIs are the thing that do that for us. So you’re going to live with them a lot. So let’s make sure they’re really good.

Okay, so the four things you need to have in order to make sure your these measures work for you.

Our number one is your measure. So the measure is the verbal expression very simply, in words, what are we measuring, which is fairly straightforward. The tricky thing is, is we need to be as expressive as we possibly can with our measures. So number of new customers, that’s fine. There’s nothing wrong with that. But a little bit advanced or a little bit more expressive, would be number of new customers this year, or number of new customers for a certain product or a certain service. So what is it is it? Yeah, so it is, so be really clear. And when it comes to measuring it on a monthly basis, you’re gonna want to be as clear as possible. So number of new customers, let’s say this year,

Number two, is our target, or target is the numeric value that we want to achieve. So a couple of things that are important about this is, the target needs to be apples to apples with when the goal date is set, or the due date is set. So we want to achieve 1000 new customers by the end of the year. So the due date in the target works hand in hand. The other thing is the measure and the target need to work hand in hand. So it’s a number. So this is a number, this is a percentage, this is a percentage, you get the idea.

Third thing, we actually run a report on this data. So where is it coming from? Be clear about what the source is. Most organizations have all sorts of data sources, fragmented systems. So making sure you identify where this data is coming from will save you a lot of time.

And then frequency. So how often are you going to be reporting on this KPI, ideally, you’re running monthly strategy reviews to report on the progress of your plan, at least monthly, in which case we’d like to see monthly KPIs. So you got to be able to pull the data monthly in order to make that happen. That’s not always possible. But let’s try to get there. Certainly some organizations are weekly and others are daily, monthly is a good place to start. So frequency. Great.

So now we know the components that we need to have in place in order to have our KPIs. Here are some different types of KPIs that you might think about as you’re putting your plan together.

So there are just straight up raw numbers, I call these widget counting, there’s nothing wrong with widget counting, they don’t necessarily tell a story. And I’ll talk about how to make this tell a story in a minute. But this is just simply widget counting number of things.

The second thing is progress. So this is really often used, it’s great. We use this, which is expressed as percent complete percent complete of the goal, percent completed a project, whatever it might be, it’s a project type measure. It’s a good measure, if if you don’t have quantifiable measures, or you can’t get the data, and you just want to track the performance of the goal as it relates to action items being completed under it.

The third type of indicator is a Change Type Indicator, like percent increase in sales, making this better would be percent increase in sales compared to last year. And the idea is 22%. So you can see how that starts to be more expressive, and work with the target. So this serves to tell a little bit more of a story than this one does, right? And if you want to actually make your widget counting measures tell more of a story like this one does, you might change something like this to read percentage of new customers acquired compared to same time last year. So that’s an example.

Okay, so now we know what we have to have in place and kind of different types of measures to get our ideas flowing. Let’s talk about one thing that you might take your measure writing to the next level and that is think about the fact that there are leading and lagging measures so are leading and lagging indicators. So percent increase in sales or sales is a lagging indicator it occurred as an outcome. If you want to make sure that you’re on track ACC, you might have a KPI in place, which is telling us whether we’re going to hit that increase such as your pipeline, maybe number of leads, or the size of your pipeline. So we don’t want to over rotate on this necessarily, but we do want to make sure we have a combination of leading and lagging measures when we’re looking at our performance on a monthly basis.

So with that, that’s all we have for today. Hopefully you have what you need to write great KPIs for your organization. Happy strategizing. And don’t forget, subscribe to our channel.

What is a Key Performance Indicator KPI — KPI Definition

Key performance indicators, also called KPIs, are the elements of your organization’s plan that express the quantitative outcomes you seek and how you will measure success. In other words, they tell you what you want to achieve and by when, and are crucial for evaluating the success of an organization. They are the qualitative, quantifiable, outcome-based statements you’ll use to measure progress and determine if you’re on track to meet your goals or objectives. Good plans use 5-7 KPIs to manage and track their progress against goals.

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KPI Meaning & Why do you need them?

Key performance indicators are intended to create a holistic picture of how your organization is performing against its intended targets, business goals, or objectives. A great key performance indicator should accomplish all the following:

• Outline and measure your organization’s most important set of outputs.
• Work as the heartbeat of your performance management process and confirm whether progress is being made against your strategy.
• Represent the key elements of your strategic plan that express what you want to achieve by when.
• Measure the quantifiable components of your goals and objectives.
• Measure the most important leading and lagging measures in your organization.

The Five Elements of a KPI

These are the heartbeat of your performance management process and must work well! They tell you whether you’re making progress or how far you are from reaching your goals. Ultimately, you want to make progress against your strategy. You’ll live with these KPIs for at least the quarter (preferably the year), so make sure they’re valuable!

Great strategies track the progress of core elements of the plan. Each key performance indicator needs to include the following elements:

• A Measure: Every KPI must have a measure. The best ones have more specific or expressive measures.
• A Target: Every KPI needs to have a target that matches your measure and the period of your goal. These are generally a numeric values you’re seeking to achieve.
• A Data Source: Each of these needs to have a clearly defined data source so there is no gray area in measuring and tracking each.
• Reporting Frequency: Different measures may have different reporting needs, but a good rule to follow is to report on them at least monthly.
• Owner: While this isn’t a mandatory aspect of your KPI statement, setting expectations of who will take care of tracking, reporting, and refining specific KPIs is helpful to your overall organizational plan.

Indicators vs. Key Performance Indicators

An indicator is a general term that describes a business’s performance metrics.

There can be several types of indicators a company may track, but not all indicators are KPIs, especially if they don’t tie into an organization’s overall strategic plan or objectives, which is a MUST!

Key Performance Indicators

On the other hand, a key performance indicator is a very specific indicator that measures an organization’s progress toward a specific company-wide goal or objective. We typically recommend you narrow down the KPIs your organization tracks to no more than 7. When you track too many goals, it can get daunting and confusing.

Pro Tip : You should only track the best and most valuable indicators that tie to your organization’s long-term strategic goals and direction.

Benefits of Good Key Performance Indicators

What benefits do key performance indicators have on your strategic plan, and on your organization as a whole? A lot of benefits, actually! They are extremely important to the success of your strategic plan as they help you track progress of your goals. Implementing them correctly is critical to success.

• Benefit #1: They provide clarity and focus to your strategic plan by measuring progress and aligning your team’s efforts to the organization’s objectives. They also show your measurable progress over time and create ways to track your organization’s continued improvement.
• Benefit #2: Key performance indicators create a way to communicate a shared understanding of success. They give your team a shared understanding of what’s important to achieve your long-term vision and create a shared language to express your progress.
• Benefit #3: They provide signposts and triggers to help you identify when to act. A good balance of leading and lagging key performance indicators allow you to see the early warning signs when things are going well, or when it’s time to act.

How to Develop KPIs

We’ve covered this extensively in our How to Identify Key Performance Indicators post. But, here’s a really quick recap:

Step 1: Identify Measures that Contribute Directly to Your Annual Organization-wide Objectives

Ensure you select measures that can be directly used to quantify your most important annual objectives.

Step 2: Evaluate the Quality of Your Core Performance Indicators

Select a balance of leading and lagging indicators (which we define later in the article) that are quantifiable and move your organization forward. Always ensure you have relevant KPIs. Having the right key performance indicators makes a world of difference!

Step 3: Assign Ownership

Every key performance indicator needs ownership! It’s just that simple.

Step 4: Monitor and Report with Consistency

Whatever you do, don’t just set and forget your goals. We see it occasionally that people will select measures and not track them, but what’s the point of that? Be consistent. We recommend selecting measures that can be reported upon at least monthly.

The 3 Common Types of KPIs to Reference as You Build Your Metrics

Key performance indicators answer the quantifiable piece of your goals and objectives . They come in three different flavors. Now that you know the components of great key performance indicators, here are some different ones that you might think about as you’re putting your plan together:

Broad Number Measures

The first type of KPI is what we like to call broad number measures. These are the ones that essentially count something. An example is counting the number of products sold or the number of visits to a webpage.

PRO TIP: There is nothing wrong with these, but they don’t tell a story. Great measures help you create a clear picture of what is going on in your organization. So, using only broad ones won’t help create a narrative.

Progress Measures

Progress key performance indicators are used to help measure the progress of outcomes . This is most commonly known as the “percent complete” KPI, which is helpful in measuring the progress of completing a goal or project. These are best when quantifiable outcomes are difficult to track, or you can’t get specific data.

PRO TIP: Progress KPIs are great, but your KPI stack needs to include some easily quantifiable measures. We recommend using a mixture of progress KPIs and other types that have clear targets and data sources.

Change Measures

The final type of KPI is a change indicator. These are used to measure the quantifiable change in a metric or measure. An example would be, “X% increase in sales.” It adds a change measure to a quantifiable target.

The more specific change measures are, the easier they are to understand. A better iteration of the example above would be “22% increase in sales over last year, which represents an xyz lift in net-new business.” More expressive measures are better.

PRO TIP: Change measures are good for helping create a clear narrative . It helps explain where you’re going instead of just a simple target.

Leading KPIs vs Lagging KPIs

Part of creating a holistic picture of your organization’s progress is looking at different types of measures, like a combination of leading and lagging indicators. Using a mixture of both allows you to monitor progress and early warning signs closely when your plan is under or over-performing (leading indicator) and you have a good hold on how that performance will impact your business down the road (lagging indicator). Here’s a deep dive on leading versus lagging indicators:

Leading Indicator

We often refer to these metrics as the measures that tell you how your business might/will perform in the future. They are the warning buoys you put out in the water to let you know when something is going well and when something isn’t.

For example, a leading KPI for an organization might be the cost to deliver a good/service. If the cost of labor increases, it will give you a leading indicator that you will see an impact on net profit or inventory cost.

Another example of a leading indicator might be how well your website is ranking or how well your advertising is performing. If your website is performing well, it might be a leading indicator that your sales team will have an increase in qualified leads and contracts signed.

Lagging Indicator

A lagging indicator refers to past developments and effects. This reflects the past outcomes of your measure. So, it lags behind the performance of your leading indicators.

An example of a lagging indicator is EBITA. It reflects your earnings for a past date. That lagging indicator may have been influenced by leading indicators like the cost of labor/materials.

Balancing Leading and Lagging Indicators

If you want to ensure that you’re on track, you might have a KPI in place telling you whether you will hit that increase, such as your lead pipeline. We don’t want to over-rotate on this, but as part of a holistic, agile plan, we recommend outlining 5-7 key performance metrics or indicators in your plan that show a mix of leading and lagging indicators. .

Having a mixture of both gives you both a look-back and a look-forward as you measure the success of your plan and business health. We also recommend identifying and committing to tracking and managing the same KPIs for about a year, with regular monthly or quarterly reporting cadence, to create consistency in data and reporting.

27 KPI Examples

Sales key performance indicators.

• Number of contracts signed per quarter
• Dollar value for new contracts signed per period
• Number of qualified leads per month
• Number of engaged qualified leads in the sales funnel
• Hours of resources spent on sales follow up
• Average time for conversion

Increase the number of contracts signed by 10% each quarter.

• Measure: Number of contracts signed per quarter
• Target: Increase number of new contracts signed by 10% each quarter
• Data Source: CRM system
• Reporting Frequency: Weekly
• *Owner: Sales Team
• Due Date: Q1, Q2, Q3, Q4

Increase the value of new contracts by $300,000 per quarter this year.

• Measure: Dollar value for new contracts signed per period
• Data Source: Hubspot Sales Funnel
• Reporting Frequency: Monthly
• *Owner: VP of Sales

Increase the close rate to 30% from 20% by the end of the year.

• Measure: Close rate – number of closed contracts/sales qualified leads
• Target: Increase close rate from 20% to 30%
• *Owner: Director of Sales
• Due Date: December 31, 2023

Increase the number of weekly engaged qualified leads in the sales from 50 to 75 by the end of FY23.

• Measure: Number of engaged qualified leads in sales funnel
• Target: 50 to 75 by end of FY2023
• Data Source: Marketing and Sales CRM
• *Owner: Head of Sales

Decrease time to conversion from 60 to 45 days by Q3 2023.

• Measure: Average time for conversion
• Target: 60 days to 45 days
• Due Date: Q3 2023

Increase number of closed contracts by 2 contracts/week in 2023.

• Measure: Number of closed contracts
• Target: Increase closed contracts a week from 4 to 6
• Data Source: Sales Pipeline
• *Owner: Sales and Marketing Team

Examples of KPIs for Financial

• Growth in revenue
• Net profit margin
• Gross profit margin
• Operational cash flow
• Current accounts receivables

Financial KPIs as SMART Annual Goals

Grow top-line revenue by 10% by the end of 2023.

• Measure: Revenue growth
• Target: 10% growt
• Data Source: Quickbooks
• *Owner: Finance and Operations Team
• Due Date: By the end 2023

Increase gross profit margin by 12% by the end of 2023.

• Measure: Percentage growth of net profit margin
• Target: 12% net profit margin increase
• Data Source: Financial statements
• *Owner: Accounting Department

Increase net profit margin from 32% to 40% by the end of 2023.

• Measure: Gross profit margin in percentage
• Target: Increase gross profit margin from 32% to 40% by the end of 2023
• Data Source: CRM and Quickbooks
• *Owner: CFO

Maintain $5M operating cash flow for FY2023.

• Measure: Dollar amount of operational cash flow
• Target: $5M average
• Data Source: P&L
• Due Date: By the end FY2023

Collect 95% of account receivables within 60 days in 2023.

• Measure: Accounts collected within 60 days
• Target: 95% in 2023
• Data Source: Finance
• Due Date: End of 2023

Examples of KPIs for Customers

• Number of customers retained
• Percentage of market share
• Net promotor score
• Average ticket/support resolution time

Customer KPIs as SMART Annual Goals

90% of current customer monthly subscriptions during FY2023.

• Measure: Number of customers retained
• Target: Retain 90% percent of monthly subscription customers in FY2023
• Data Source: CRM software
• *Owner: Director of Client Operations

Increase market share by 5% by the end of 2023.

• Measure: Percentage of market share
• Target: Increase market share from 25%-30% by the end of 2023
• Data Source: Market research reports
• Reporting Frequency: Quarterly
• *Owner: Head of Marketing

Increase NPS score by 9 points in 2023.

• Measure: Net Promoter Score
• Target: Achieve a 9-point NPS increase over FY2023
• Data Source: Customer surveys
• *Owner: COO

Achieve a weekly ticket close rate of 85% by the end of FY2023.

• Measure: Average ticket/support resolution time
• Target: Achieve a weekly ticket close rate of 85%
• Data Source: Customer support data
• *Owner: Customer Support Team

Examples of KPIs for Operations

• Order fulfillment time
• Time to market
• Employee satisfaction rating
• Employee churn rate
• Inventory turnover

Operational KPIs as SMART Annual Goals

Average 3 days maximum order fill time by the end of Q3 2023.

• Measure: Order fulfilment time
• Target: Average maximum of 3 days
• Data Source: Order management software
• *Owner: Shipping Manager

Achieve an average SaaS project time-to-market of 4 weeks per feature in 2023.

• Measure: Average time to market
• Target: 4 weeks per feature
• Data Source: Product development and launch data
• *Owner: Product Development Team

Earn a minimum score of 80% employee satisfaction survey over the next year.

• Measure: Employee satisfaction rating
• Target: Earn a minimum score of 80% employee
• Data Source: Employee satisfaction survey and feedback

Maintain a maximum of 10% employee churn rate over the next year.

• Measure: Employee churn rate
• Target: Maintain a maximum of 10% employee churn rate over the next year
• Data Source: Human resources and payroll data
• *Owner: Human Resources

Achieve a minimum ratio of 5-6 inventory turnover in 2023.

• Measure: Inventory turnover ratio
• Target: Minimum ratio of 5-6
• Data Source: Inventory management software
• *Owner: perations Department

Marketing Key Performance

• Monthly website traffic
• Number of marketing qualified leads
• Conversion rate for call-to-action content
• Keywords in top 10 search engine results
• Blog articles published this month
• E-Books published this month

Marketing KPIs as SMART Annual Goals

Achieve a minimum of 10% increase in monthly website traffic over the next year.

• Measure: Monthly website traffic
• Target: 10% increase in monthly website
• Data Source: Google analytics
• *Owner: Marketing Manager

Generate a minimum of 200 qualified leads per month in 2023.

• Measure: Number of marketing qualified leads
• Target: 200 qualified leads per month
• Data Source: Hubspot

Achieve a minimum of 10% conversion rate for on-page CTAs by end of Q3 2023.

• Measure: Conversion rate on service pages
• Target: 10%
• Due Date: End of Q3, 2023

Achieve a minimum of 20 high-intent keywords in the top 10 search engine results over the next year.

• Measure: Keywords in top 10 search engine results
• Target: 20 keywords
• Data Source: SEM Rush data
• *Owner: SEO Manager

Publish a minimum of 4 blog articles per month to earn new leads in 2023.

• Measure: Blog articles
• Target: 4 per month
• Data Source: CMS
• *Owner: Content Marketing Manager
• Due Date: December 2023

Publish at least 2 e-books per quarter in 2023 to create new marketing-qualified leads.

• Measure: E-Books published
• Target: 2 per quarter
• Data Source: Content management system

Bonus: +40 Extra KPI Examples

Supply chain example key performance indicators.

• Number of On-Time Deliveries
• Inventory Carry Rate
• Months of Supply on Hand
• Inventory-to-Sales Ratio (ISR)
• Carrying Cost of Inventory
• Inventory Turnover Rate
• Perfect Order Rate
• Inventory Accuracy

Healthcare Example Key Performance Indicators

• Bed or Room Turnover
• Average Patient Wait Time
• Average Treatment Charge
• Average Insurance Claim Cost
• Medical Error Rate
• Patient-to-Staff Ratio
• Medication Errors
• Average Emergency Room Wait Times
• Average Insurance Processing Time
• Billing Code Error Rates
• Average Hospital Stay
• Patient Satisfaction Rate

Human Resource Example Key Performance Indicators

• Organization Headcount
• Average Number of Job Vacancies
• Applications Received Per Job Vacancy
• Job Offer Acceptance Rate
• Cost Per New Hire
• Average Salary
• Average Employee Satisfaction
• Employee Turnover Rate
• New Hire Training Effectiveness

Social Media Example Key Performance Indicators

• Average Engagement
• % Growth in Following
• Traffic Conversions
• Social Interactions
• Website Traffic from Social Media
• Number of Post Shares
• Social Visitor Conversion Rates
• Issues Resolved Using Social Channel

Conclusion: Keeping a Pulse on Your Plan

With the foundational knowledge of the KPI anatomy and a few example starting points, it’s important you build out these metrics with detailed and specific data sources so you can truly evaluate if you’re achieving your goals. Remember, these will be the 5-7 core metrics you’ll live by for the next 12 months, so it’s crucial to develop effective KPIs that follow the SMART formula.

A combination of leading and lagging KPIs will paint a clear picture of your organization’s strategic performance and empower you to make agile decisions to impact your team’s success. KPI software allows your business to monitor and analyze performance trends over time by centralizing your data and using relevant data points and calculations. If you’d like more information on building better ones, check out the video above and click here to see why not all KPIs are created equal.

Our Other KPI Resources

We have several other great resources to consider as you build your organization’s Key Performance Indicators! Check out these other helpful posts and guides:

• OKRs vs. KPIs: A Downloadable Guide to Explain the Difference
• How to Identify KPIs in 4 Steps
• KPIs vs Metrics: Tips and Tricks to Performance Measures
• Guide to Establishing Weekly Health Metrics

FAQs on Key Performance Indicators

KPI stands for Key Performance Indicators. KPIs are the elements of your organization’s business or strategic plan that express what outcomes you are seeking and how you will measure their success. They express what you need to achieve by when. KPIs are always quantifiable, outcome-based statements to measure if you’re on track to meet your goals and objectives.

The 4 elements of key performance indicators are:

• A Measure – The best KPIs have more expressive measures.
• A Target – Every KPI needs to have a target that matches your measure and the time period of your goal.
• A Data Source – Every KPI needs to have a clearly defined data source.
• Reporting Frequency – A defined reporting frequency.

No, KPIs (Key Performance Indicators) are different from metrics. Metrics are quantitative measurements used to track and analyze various aspects of business performance, while KPIs are specific metrics chosen as indicators of success in achieving strategic goals.

16 Comments

HI Erica hope your are doing well, Sometime Strategy doesn’t cover all the activities through the company, like maintenance for example may be quality control …. sure they have a contribution in the overall goals achievement but there is no specific new requirement for them unless doing their job, do u think its better to develop a specific KPIs for these department? waiting your recommendation

Thanks for your strategic KPIs

Hello Erica, Could you please clarify how to set KPIs for the Strategic Planning team?

Hi Diana, check out the whitepaper above for more insight!

Hello Erica, Could you please clarify, how to set the KPIs for the Strategic PLanning team?

exampels of empowerment kpis

I found great information in this article. In any case, the characteristics that KPIs must have are: measurability, effectiveness, relevance, utility and feasibility

How to write methodology guidelines for strategy implementation / a company’s review and tracking (process and workflow) for all a company’s divisions

support on strategizing Learning & Development for Automobile dealership

Could you please to clarify how to write the KPIs for the Secretary.

Check out our guide to creating KPIs for more help here: https://onstrategyhq.com/kpi-guide-download/

That’s an amazing article.

Could you please to clarify how to write the KPIs for the office boy supervisor

Could you please clarify how to write KPIs for the editorial assistant in a start up publishing company.

Kindly advice how I would set a kpi for a mattress factory

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Top 23 Financial KPI Examples

Financial key performance indicators and metrics, ✔ see different templates & designs ✔ find & track the right finance kpis to meet your corporate objectives.

A financial KPI or metric is a measurable value that indicates a company’s financial performance and provides information about expenses, sales, profit, and cash flow, in order to optimize and achieve a business’ financial goals and objectives.

The financial sector needs to regularly track, monitor, and analyze a company’s performance to keep a healthy status and avoid monetary bottlenecks. That’s why financial metrics have a special significance in every company, and the team that deals with them, needs proper dashboard reporting to manage and optimize those processes effectively. With the help of our list, you can create a complete financial dashboard that will enable you to interact with each metric and automate most of your reporting and analysis processes. By implementing these KPIs through the power of financial business intelligence , you can make your financial data and insights better, more informative, and easier to manage.

Here is the complete list of the top 23 finance KPIs and metrics, that every financial professional needs to know:

Gross Profit Margin : How much revenue you have left after COGS?

Operating Profit Margin : How is your EBIT developing over time?

Operating Expense Ratio : How do you optimize your operating expenses?

Fixed Operating Expenses : What are the fixed costs of your operations?

Variable Operating Expenses : What are the highest variable costs?

Operating Expenses Development : How are your operating costs developing?

Net Profit Margin : How well your company increases its net profit?

Working Capital : Is your company in stable financial health?

Current Ratio : Can you pay your short-term obligations?

Quick Ratio / Acid Test : Is your company’s liquidity healthy?

Berry Ratio : Are you losing money or generating profit?

Cash Conversion Cycle : How fast can you convert resources into cash?

Accounts Payable Turnover : Are you paying expenses at a reasonable speed?

Accounts Receivable Turnover : How quickly do you collect payments?

Vendor Payment Error Rate : Are you processing your invoices productively?

Budget Variance : Is your budgeting accurate and realistic?

Actual vs Forecast Expenses : Are you meeting your expected costs?

Actual vs Forecast Income : Are you reaching your expected revenue?

Return on Assets : Do you utilize your company’s assets efficiently?

Return on Equity : How much profit do you generate for shareholders?

Economic Value Added : Do you generate true economic profit?

Employee Satisfaction : Will your team recommend you as a workplace?

Payroll Headcount Ratio : How do you utilize your labor force?

GROSS PROFIT MARGIN

This financial KPI refers to your total revenue minus the cost of goods sold (COGS) or service delivered, divided by your total sales revenue. It signifies the percentage of total sales revenue that you keep after accounting for all direct costs associated with producing your goods and is an important measure of your company’s production efficiency. Direct costs include the price of materials and labor but exclude others, such as distribution and rent. Let’s look at an example: If your gross profit margin last year was 40%, you would keep 40 cents out of every dollar earned and put it towards running your company by taking care of administration costs, marketing costs, and rent, among others.

The higher the gross profit margin you manage to acquire, the more income you retain from each dollar of your sales.

• Profit & Loss Dashboard

OPERATING PROFIT MARGIN

This financial KPI template shows the operating profit margin, also known as “earnings before interest and tax” (EBIT), as a percentage of total revenue earned. It does not include any revenue earned from the firm's investments or the effects of taxes. It is calculated by dividing operating profit by your sales revenue. The operating profit margin measures how profitable your business model is and indicates what is left over from your revenue after paying for all operational costs. This can easily be done by using financial analytics software that can automate your calculations.

The higher the operating income, the more profitable your company will be. If this number is declining, then you need to quickly identify the reasons and take action.

OPERATING EXPENSE RATIO

One of our next finance KPI examples, the operating expense ratio (OER), shows your company’s operational efficiency by comparing operational expenses (the cost associated with running your core operations) to your total revenue. The lower your company's operational expenses (OpEx) are, the more profitable your company will be. With modern KPI dashboards , you can easily analyze and track your operating costs in detail. These breakdowns are also useful when benchmarking your company against other organizations. As these numbers vary wildly by industry, when benchmarking please make sure to survey companies in a similar field. Investors are often interested in the OER to specifically examine how high your operating costs are in relation to generated revenue.

Over time, changes in your company’s OER should inform you whether or not your company is scalable. Can you increase sales without increasing operational costs?

FIXED OPERATING EXPENSES

This financial KPI shows a breakdown of fixed or indirect expenses. These are all costs that need to be mandatorily paid during a specific period and are not subjected to the company’s production level. Meaning, even if the company doesn’t produce or sell a single product or service, they still need to be paid. Examples include rent, salaries, fixed marketing costs, office supplies, and insurance, among others. Given that fixed expenses are often hard to be decreased, they often present a challenge for organizations. In that sense, it is important to keep a close eye on them to ensure they don’t go up too much, as they otherwise cut into a substantial portion of a business’s total profitability.

Use your fixed OpEx to accurately plan budgeting and implement cost-saving strategies where possible.

• Operating Expenses Dashboard

VARIABLE OPERATING EXPENSES

Moving on from fixed OpEx, we will look into variable or direct ones. These are all costs that are direct and proportional to the company’s production level. Hence, they increase as production increases and decrease when production decreases. Unlike fixed costs, which are often hard to decrease, variables are easily manageable and the first to be adjusted if a company suffers from cash flow issues. Plus, efficient variable expense analysis allows decision-makers to efficiently define product pricing based on the expected revenue they want to collect, as well as plan budgeting and other growth strategies. Examples of variable costs will vary from industry to industry but most commonly consider labor costs, raw materials, variable marketing costs, sales commissions, packaging, and utilities, to name a few.

Track your variable and fixed expenses together to get deeper insights into the profitability of your organization.

OPERATING EXPENSES DEVELOPMENT

This finance KPI shows the monthly development of fixed and variable expenses compared to the previous year's performance. As mentioned in the last expense-related examples, costs influence substantially a company’s total profitability. Therefore, closely monitoring their development and extracting trends and patterns from the analysis can help you spot improvement opportunities as well as generate cost-saving strategies to boost profitability. The column chart above shows that this business’s OpEx development is higher than the previous year. This could either mean that the company is producing more and the increases are justified, or something is going on and needs to be looked at.

The end goal should be to keep your expenses as low as possible without affecting quality and profitability.

NET PROFIT MARGIN

Net profit margin measures your profit after subtracting all operating expenses, depreciation, interest and taxes divided by the total revenue (net income x 100 / total revenue). The net profit margin is one of the most closely tracked KPIs in finance. It measures how well your company does at turning revenue into profits. As a percentage of sales, not an absolute number, it is often used to compare different companies and see which of them are most effective at converting sales into a profit.

The higher your net profit margin, the better off you are. Review any decline with a fine-toothed comb to fix any problems from decreased sales to unsatisfied customers ASAP.

WORKING CAPITAL

The top financial KPIs wouldn’t be complete without the working capital. This KPI is not a ratio or proportion, but solely the number of dollars remaining after you subtract your current liabilities from current assets, which include your cash, inventory, accounts receivable or prepaid expenses, etc., and empowers you to pay for ongoing OpEx and fund standard business operations. On the other hand, current liabilities represent all the obligations or debts that are due within 12 months. That can include accounts payable, bank operating credit, accrued expenses, taxes payable, etc. This is one of our KPI examples that illustrates a company’s operational efficiency and short-term financial health, which is important in financial reporting and analysis .

High working capital doesn’t automatically mean the company is performing extremely well. It can also mean that it is not investing the excess cash.

• Financial KPI Dashboard

CURRENT RATIO

We have included the current ratio as one of the top financial KPI templates concentrating on liquidity. It measures your ability to pay your obligations in the short-term, often within 12 months. Unlike other liquidity ratios, this one includes all current assets and liabilities. It is calculated by dividing your current assets (such as cash, accounts receivable, inventory, and prepaid expenses) by your current liabilities (accounts payable, credit card debt, bank operating credit, taxes, etc.). The goal is to have a ratio higher than 1. If it’s lower, you would be unable to pay off your obligations if they were suddenly due. This metric is a key indicator of a company’s short-term financial health and shows whether you are able to collect accounts due in a reasonable amount of time.

The higher your current ratio, the more capable you are of paying your bills in the short-term. Banks often recommend a current ratio higher than 2.

• Cash Management Dashboard

QUICK RATIO / ACID TEST

We continue our finance KPI examples with the quick ratio. This metric considers just the short-term liquidity positions (the so-called near-cash assets) that you can convert into cash quickly. It is much more conservative about the assets since it doesn’t include all of them. It is also known as the acid test ratio, as it produces instant results. This KPI also expounds on the liquidity of a company, but it should consider assets that can be easily converted into cash, usually within 90 days or so, such as accounts receivable.

The higher the ratio, the better your liquidity and financial health. Compared to the current ratio, your quick ratio will always be smaller, because it includes near-cash assets. Your goal should be to have at minimum a quick ratio of 1,0.

BERRY RATIO

Our list of the most important financial key performance indicators wouldn’t be complete without the berry ratio. This metric compares the company’s gross profit with its OpEx, and you can use it to indicate the profit in a specific time period. If the coefficient is above 1, it means that your company is making a profit above all variable expenses, while a coefficient below 1 will indicate that your company is losing money. Therefore, it would make sense to look into this metric over a timeframe in order to monitor if the performance starts to drop. In our example, we can see that the ratio is above 2, which means that the company is generating a healthy amount of profit.

Track this metric over a set timeframe and ensure your coefficient stays above 1 in order to keep generating profit against variable costs.

• CFO Dashboard

CASH CONVERSION CYCLE

The cash conversion cycle (or CCC) is a quantitative measure that helps to evaluate how efficient a company’s operations and management processes are. It basically measures how long it takes for a company to convert its inventory investments and other resources into cash flows from sales. The mathematical formula for calculating CCC = DIO (days of inventory outstanding) + DSO (days sales outstanding) – DPO (days payable outstanding). A steady or decreasing CCC is a fairly good sign, but if it starts to rise, additional analysis should be made. It also differs across industries based on the nature of business operations.

If a company efficiently manages the requirements of the market and its customers, the cash conversion cycle will have a lower value.

ACCOUNTS PAYABLE TURNOVER

Accounts payable turnover is a short-term liquidity financial metric and shows how quickly you pay off suppliers and other bills. It is derived from your total vendor purchases, divided by your average accounts payable, over a set period (total supplier purchases / avg. accounts payable). In other words, the accounts payable turnover ratio indicates how many times a company can pay off its average accounts payable balance during the course of a defined period, such as one year. For example, if your company purchases $10 million worth of goods in a year, and holds average accounts payable of $2 million, the ratio would be five. If your accounts payable turnover ratio is increasing, it means that you are paying your suppliers at a faster rate. The opposite would be the case when the turnover ratio is decreasing.

A higher ratio shows suppliers and creditors that your company pays its bills frequently and facilitates when negotiating a credit line with a supplier. On the other hand, paying your bills fast reduces your available cash.

ACCOUNTS RECEIVABLE TURNOVER

Our next KPI for finance is the accounts receivable turnover, which measures how quickly you collect your payments owed and displays a company’s effectiveness in extending credits. This KPI measures the number of times a company can collect its average accounts receivable and is calculated by dividing the amount of all supplier purchases by the average amount of accounts receivable for a given period. The faster your company can turn credit sales into cash, the higher your liquidity. A low accounts receivable turnover ratio signifies a need to revise the company’s credit policies to ensure a more timely collection of payments.

The higher the accounts receivable turnover ratio, the better and the more liquidity you have available to finance your short-term liabilities.

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VENDOR PAYMENT ERROR RATE

This is one of our financial KPI templates that focuses on the company’s diligence in issuing and paying vendor’s (creditors, suppliers) invoices. These errors may include payments made to the wrong entity, underpayments or overpayments, and fundamentally, it shows if the company has a stable accounts payable department. It is calculated with the total number of payments that contained an error divided by the total number of transactions over a period of time and expressed as a percentage. The goal is to keep this percentage as low as possible and deliver accurate and timely invoices (and payments). This will create stronger partnerships between companies.

A high percentage of the error rate clearly indicates that the controlling of procurement functions lacks efficiency. This can lead to vendor disputes.

BUDGET VARIANCE

The budget variance is one of our next financial KPI examples which expresses the difference between budgeted and actual figures for a specific accounting category. It can be favorable or unfavorable, each caused by various internal and external factors such as labor costs, poorly planned budget, natural disasters, changing business conditions, etc. The goal is to keep the revenue that comes in higher than budgeted, or costs lower than originally predicted. That would ensure a greater income than expected. On the other hand, if revenues fall short of the budgeted amounts, expenses get higher, and the variance becomes unfavorable.

Keep your budgeting and assumptions as realistic and accurate as possible to avoid unfavorable budget variances and, consequently, increase your expenses.

Actual vs Forecast Expenses

Next in our list of professional financial KPIs we have the actual vs forecast costs. As seen in the image on the left, this indicator tracks the actual value of all costs (operational, COGS, and taxes) and compares it to a forecasted amount. It is an invaluable metric to track, as overspending can significantly damage a business’s profitability in the long-term. Therefore, tracking it closely and against a forecasted amount, allows organizations to efficiently identify roadblocks as well as opportunities to optimize their cost-strategies. Additionally, using forecasting in the initial stages of cost-planning is a great way to allocate resources smartly to achieve the organization’s financial goals.

Update your forecasts regularly to adapt to changing market and organizational conditions. This way, you’ll avoid sticking to a single truth that might not be up to date.

• Actual vs Forecast Financial Dashboard

Actual vs Forecast Income

Just like our previous example, this KPI tracks the actual vs. forecasted income to understand if the initial expectations are being met or if there is something that needs to be optimized to stay on track with company goals. Forecasting income is a valuable practice as it estimates how much money the company will bring in the coming fiscal year, how much spending will be necessary, and potential margins they will keep from it. Our example on the right, is a small version of an income statement, including the subtraction of all relevant costs from the expected revenue. Here, we can see that this business has a high, negative difference in the net profit which could mean something is wrong with their planning or execution and needs to be looked into in detail to find the causes.

Just like with the forecast costs, the key to a successful revenue forecasting strategy is to not stick religiously to it. Adapt it monthly or quarterly to really reflect on the business’s current situation.

RETURN ON ASSETS (ROA)

Return on assets indicates how profitable companies are in relation to their total assets. This financial KPI is calculated by dividing your net income by the total assets, including debt and equity. The increasing ROA is a good indication since it states that either the company is earning more money with the same account of assets or it generates equal profits with fewer assets required. This KPI is important to potential investors because it gives them a solid insight into how efficiently management is using their assets to generate earnings or, in other words, how effectively they are converting investments into net income.

The higher the return on assets (ROA) the better, especially compared to other companies in the same industry.

• Financial Performance Dashboard

RETURN ON EQUITY (ROE)

Return on equity (ROE) measures how much profit your company generates for your shareholders. In other words, management often utilizes it to measure how effectively a company uses its assets to create profits. This metric can be calculated by dividing your company’s net income (minus dividends to preferred stocks) by your shareholder’s equity (excluding preferred shares). It is often used to compare the profitability of certain companies within the same industry. For example, if a tech company has a ROE of 20% compared to its peers, which have an average of 17%, an investor can conclude that the management has above average results in using the assets to create profits.

The higher the return on equity, the more value you generate for your shareholders. Keep in mind to compare the results within your industry.

ECONOMIC VALUE ADDED (EVA)

To calculate the economic value added (EVA), you need to deduct the costs of capital from the operating profit and adjust for taxes on a cash basis. This finance KPI example shows the value a company generates from funds invested in it. If the value is negative, the company is not generating value, and, on the other hand, if it’s positive, the company generates value from the funds invested. The basic formula to calculate EVA is as follows: net operating profit after taxes (NOPAT) - invested capital * weighted average cost of capital (WACC). You can see in our example an automatic calculation and immediately spot that the company generates value and has a positive EVA which is a positive sign of development.

Monitor EVA regularly so that you become aware of the company’s wealth through assets and expenses to make better managerial decisions.

EMPLOYEE SATISFACTION

We continue our financial metrics examples with the employee satisfaction levels depicted through the net promoter score (NPS) in our visual on the right. It shows how likely your employees will recommend your company as a place to work, and we have also visualized the development over the course of a year. That way, you can see which months have performed better or if you need some adjustments in your talent management processes. A quick trend overview, whether positive or negative, will enable you to immediately spot if your employees are satisfied. Consequently, you can adjust your strategies, and examine your data and people management, if you see that the satisfaction levels drop.

Use this metric to get a better overview of your people management processes, but dig deeper with other HR metrics in order to gain a complete overview.

PAYROLL HEADCOUNT RATIO

The payroll headcount ratio is a metric you can calculate by dividing HR full-time positions by the total number of employees. You can include freelancers, part-time employees, and contractors, for example, to evaluate, in the best possible manner, how well your company is utilizing its workforce. This metric shows how many people are engaged in the payroll process compared to the total number of employees. If the ratio is rising, it means you’re adding labor costs, so it might make sense to keep an eye on this metric so that you don’t experience potential financial difficulties.

Make sure your labor costs are well invested and bring positive financial gain. If you spend more than you earn, you must reconsider your employment strategies.

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How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

• December 7, 2023

13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

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Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

• Cost of goods or cost of sale
• Gross margin
• Operating expenses
• Revenue streams
• EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

• Indicates the capital need of the business
• It helps to identify the allocation of resources
• It calculates the requirement of seed money you put up, and
• How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your startup and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

• Market analysis
• Sales forecast
• Pricing strategy
• Growth assumptions
• Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

• Fixed costs
• Variable costs
• Employee costs or payroll expenses
• Operational expenses
• Marketing and advertising expenses
• Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

• The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
• The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
• The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
• Sales are cash basis – nonaccrual accounting
• Moderate ramp- up in staff over the 5 years forecast
• Barista salary in the forecast is $36,000 in 2023.
• In general, most cafes have an 85% gross profit margin
• In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

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Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

• Net profit margin
• Current ratio
• Quick ratio
• Working capital
• Return on equity
• Debt-to-equity ratio
• Return on assets
• Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

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The Complete List of Financial KPIs

We’ve pulled together all the financial KPIs you should consider for your KPI Dashboard…💹

14 min read

Table of Contents

Building a good Finance KPI Dashboard requires you to consider the most important metrics to track and understand. Finance has hundreds of potential options; we’ve grouped together some of the most common and useful ones in this list.

Example Financial KPIs

We’ll start with the Financial KPIs that are generic and tracked by most companies. These are the ones you’ll always be monitoring in some capacity…

Revenue Type: Currency

It goes without saying that your revenue is a key metric when looking at a financial KPI dashboard. It’s key for every type of business, from large corporates through to small charities.

Gross Profit Type: Currency

This is an important financial KPI measured by most companies. Gross Profit is the amount of profit after deducting the Costs of Goods Sold (COGS). They are the costs associated with creating and selling your products and services. This does not include interest, taxes or operating expenses. To calculate Gross Profit, use the formula Revenue – Cost of Goods Sold.

Gross Profit Margin Type: Percentage

Commonly used as a metric to understand the overall business performance, this KPI represents Gross Profit as a percentage. It’s calculated by (Revenue – Cost of Goods Sold) ÷ Revenue. This metric provides more insight than Gross Profit alone. Gross Profit needs to be assessed alongside Revenue to understand performance.

Net Profit Type: Currency

Net Profit is the amount of money left after all bills have been paid, so is clearly an important metric to measure for any business. The formula for calculating Net Profit is Total Revenue – Total Expenses. However, on a good KPI Dashboard you’re more likely to see Net Profit Margin (discussed below).

Net Profit Margin Type: Percentage

This is a percentage view of Net Profit and is used more often as a KPI to measure financial performance than just Net Profit alone. Similar to Gross Profit Margin, it’s calculated by Net Profit ÷ Revenue. A common comparison when assessing financial performance is to look at the Net Profit KPI vs the Gross Profit KPI from above in order to decide how your current costs are impacting profit.

EBITDA Type: Currency

EBITDA is Earnings Before Interest, Taxes, Depreciation and Amortization. It’s a very commonly measured KPI as it provides a snapshot of the operational efficiency of a business. As it’s often used in company valuations, EBITDA is an important part of any financial KPI dashboard.

Example Financial Sales Performance KPIs

Analysing revenue is an important part of any business reporting, so naturally there are a lot of KPIs that relate to this metric and the wider sales performance. Here are some examples…

Monthly Reoccurring Revenue (MRR) Type: Currency

Monthly Reoccurring Revenue is a hugely important metric for businesses where they are adding subscription-based revenue on a regular basis. Examples would include a membership society or a software-as-a-service product (SaaS). MRR is a key metric to understand the traction of the business.

Annual Reoccurring Revenue (ARR) Type: Currency

A slightly higher-level view of Monthly Reoccurring Revenue, Annual Reoccurring Revenue is the KPI to measure the reoccurring, contracted revenue each year. Like MRR, this KPI relates only to businesses that have some sort of subscription-based income.

Revenue per Employee Type: Currency

Revenue per Employee is a financial KPI often used to compare companies. It represents the amount of revenue generated per employee and is sometimes seen as a way to show how successful a business is at using their resources. It’s calculated by Revenue ÷ Number of Employees and is also known as Revenue per FTE (Full Time Employee).

Revenue per Customer Type: Currency

Similar to Revenue per Employee, this KPI looks at the average revenue produced per customer. It’s calculated by Revenue ÷ Number of Customers. Be aware that this metric could be misleading if you’ve one large customer and a high number of smaller ones. Take a look at our Complete List of Customer KPIs for more in this area.

Revenue Growth Rate Type: Percentage

This KPI would almost always be measured on an annual basis, but may also be looked at more often depending on the type of company. It refers to the growth between the historic revenue and the current revenue. You’d calculate it by (Revenue – Historic Revenue) ÷ Historic Revenue.

Churn Type: Currency or Percentage

Churn measures the amount of revenue lost over a period of time. It might be shown as the actual amount lost or a percentage of the total revenue. Clearly high churn is a risk to overall growth, so this is an important KPI to monitor.

Customer Acquisition Ratio Type: Percentage

In our Complete List of Marketing KPIs we talked about Customer Acquisition Cost and how it can be used to track the spend required to add new customers. The Customer Acquisition Ratio KPI takes that analysis a step further with the following equation: Customer Lifetime Value ÷ Customer Acquisition Cost You can read more about similar KPIs in our Customer KPIs list and Marketing KPIs list .

Days Sales in Inventory Ratio Type: Percentage

This KPI looks at the average number of days your business holds onto inventory before selling it to customers. It’s calculated by: (Average Inventory ÷ Cost of Sales) x 365.

Inventory Turnover Type: Time

Inventory Turnover is a KPI that looks at how often your inventory is replaced. This is a metric to measure the ability to generate sales. To calculate the KPI you take the Sales and divide it by the Average Inventory. The full formulate would therefore be: Sales ÷ ((Beginning Inventory + Ending Inventory) ÷ 2).

Example Financial Liquidity KPIs

These KPIs are often looked at in the context of financial stability and health. They focus on a company’s ability to cover it’s liabilities. Let’s take a look at a few examples…

Cash Ratio Type: Percentage

The Cash Ratio is a KPI used to measure the ability to pay off the company’s short term liabilities. It’s calculated by: Cash and Cash equivalents ÷ Current Liabilities.

Current Ratio Type: Percentage

The Current Ratio is a financial KPI that looks at the ability for the business to generate enough cash to pay off debts when they become due and is generally used to warn off cashflow issues. It’s calculated by Current Assets ÷ Current Liabilities.

Quick Ratio or Acid Test Type: Percentage

You may have heard about the Acid Test or Quick Ratio before, as it’s a well-known financial KPI that gives an instant view on the health of a company and short-term risk. It does this by illustrating a company’s ability to immediately pay their short term financial liabilities. This ratio is focused on the immediate state and is not looking into the future as the Current Ratio KPI does.

The formula is: (Current Assets – Inventories) ÷ Current Liabilities

Key is the exclusion of any inventories from the assets, meaning this focuses on cash that is accessible rapidly to address any liability. As such, it’s an important financial KPI that often sits within a KPI Dashboard.

Debt to Equity Ratio Type: Percentage

The Debt to Equity Ratio is a financial KPI used to measure how effective a business is at using investments for a good return. A low result suggests profits are being made, whereas a high result may act as an alarm bell. The information this metric provides is how much debt has been run in order to reach profitability.

The formula for Debt to Equity Ratio is Total liabilities ÷ Shareholder’s equity.

Debt Service Coverage Ratio Type: Percentage

The Debt Service Coverage Ratio KPI reveals how well a company can pay any debt accrued. The formula to calculate the DSC Ratio is Operating Income ÷ Total Debt.

Interest Coverage Ratio Type: Percentage

Interest Coverage Ratio looks at how a company can pay its interest expenses. Similar to the structure of the Debt Service Ratio, the formula for this KPI is Operating Income ÷ Interest Expenses.

Debt Ratio Type: Percentage

The Debt Ratio KPI looks at how much of the assets in a company are provided by its debt. This KPI is calculated by Total Liabilities ÷ Total Assets.

Operating Cash Flow Type: Currency

The Operating Cash Flow is the amount of money a business generates from operations. This KPI is important as it’s a way to measure the success of your core operations.

Operating Cash Flow Ratio Type: Percentage

The Operating Cash Flow Ratio KPI is the number of times a company can pay off current liabilities with the current generated cash. It’s used to understand the financial health of a business. To calculate this KPI use the formula Operating Cash Flow ÷ Current Liabilities.

Working Capital Type: Currency

The Working Capital is cash that is accessible immediately in the business. It’s calculated by the formula Existing Assets – Existing Liabilities. This is a particularly important KPI when looked at in the context of your liabilities. It indicates if you’re in a stable financial position and if you’re likely to be able to meet your short-term financial liabilities.

Burn Rate Type: Currency

The Burn Rate can be a scary KPI! It shows how much money the business is spending to operate and is usually done on a weekly, monthly, quarterly or annual measurement. When used in conjunction with other KPIs it can be an illustration of the financial health of the business.

Runway Type: Time

A company’s Runway is often closely related to their Burn Rate, illustrating how long the business has in the current cash position before it runs out of time and can no longer operate.

Cash Conversion Cycle / Net Operating Cycle Type: Time

The Cash Conversion Cycle (CCC) is a KPI that measures how long it takes to convert input into the business, such as inventory, into revenue.

Example Financial Efficiency KPIs

Certain financial KPIs evaluate how efficient a company is, so let’s take a look at some of these…

Budget Variance Type: Currency or Percentage

Budget Variance measures the difference between the projected budget and the actual cost. This KPI is often represented as either the amount in currency form, or as a percentage of difference. Clearly if the variance is large, either positively or negatively, questions should be raised. It might be caused by something outside of your control, such as an external impact, or it could be a lack of analysis or market understanding.

Line of Business Revenue Vs. Target Type: Currency

Line of Business Revenue (LOB) vs Target is a KPI that measures actual revenue in a budget against the projected revenue. It highlights how effective the business is at planning and executing against those plans, which in turn impacts overall performance and stability.

LOB Expenses Vs. Budget Type: Currency

Line of Business Expenses vs Budget is a KPI that looks at the actual expenses vs the projected expenses. Similar to LOB Revenue, a large variation between projection and reality will result in problems for business performance. In both cases, early action is key to ensure a high variance does not disrupt the company.

Accounts Payable Turnover Type: Time

Accounts Payable Turnover is a KPI that looks at the speed at which you pay your expenses. It’s a metric that can shed light on the health of the company and ability to pay debts, the efficiency of the finance team, and crucially the reputation the business will have with suppliers. The formula to work this metric out is Total Cost of Sales ÷ Accounts Payable. This would normally be measured and compared per time period in order to establish the trend of performance.

Accounts Receivable Turnover Type: Time

Accounts Receivable Turnover is a KPI that looks at the speed at which your business collects payments due to it. It’s an important metric to watch – if the ART becomes too large it’ll begin to impact your ability to pay your own expenses, so this KPI is often watched keenly in companies that monitor their cashflow. To calculate the KPI use the equation: Total Sales ÷ Accounts Receivable.

Current Accounts Receivable Type: Currency

This simple currency metric is the total amount owed to the company at the current point in time.

Current Accounts Payable Type: Currency

Another simple KPI, this time to look at the amount of money owed by the company.

Payment Error Rate Type: Percentage

This KPI shows the percentage of total payments that had some sort of error on them. A high rate could show a team training requirement or the need for a new financial system. Whatever the cause, high error rates will be causing inefficiencies within your company, contributing to a larger cost of running.

Finance Report Error Rate Type: Percentage

It’s not just payment errors that can cause disruption, financial reporting is another area that requires accuracy and precision This KPI covers the percentage of reports that have errors or require further analysis.

Accounts Payable Process Cost Type: Currency

There are a few variations of this KPI, but they all relate to tracking the cost of processing your payments. You’ll sometimes see this used in a measurement of a cost per invoice or measured on a quarterly or annual basis. It can be extended to the total cost of the finance function too.

Resource Utilisation Type: Percentage

Often the highest cost in a company can be the people and teams, so this KPI is used to understand the utilisation of resources. Any timesheet or chargeable per hour business, such as accountants or law firms, will find this a helpful KPI to monitor in order to see how much of the team time is spent on revenue generating tasks.

Asset Turnover Ratio Type: Percentage

The Asset Turnover Ratio is used to evaluate how good a company is at developing revenue from their assets. The formula to calculate this KPI is Net Sales ÷ Total Assets.

Example Financial Valuation KPIs

Finally, the financial KPIs that look at valuation of a business. We’ve covered Revenue, Profit and EBITDA above, so now let’s take a look at some of the more specific KPIs…

Return on Equity Type: Percentage

The Return on Equity KPI relates to how much profit is being generated for the shareholders. It looks at the net income against the net worth of the company. The formula being Net Income ÷ Shareholder’s Equity.

Return on Assets Ratio Type: Percentage

Return on Assets looks at how effectively assets are used to generate profits. The formula for this KPI is Net Income ÷ Total Assets.

Book Value Ratio Type: Percentage

The Book Value Ratio KPI looks at the value per share of a business. The equation for this KPI is Shareholder’s Equity ÷ Total Number of Shares Outstanding.

Dividend Yield Ratio Type: Percentage

With the Dividend Yield Ratio we’re measuring the number of dividends to shareholders relative to the market value. The formula is Dividend Per Share ÷ Share Price.

Earnings Per Share Ratio Type: Percentage

This KPI measures the net income earned for every share outstanding in the business. The equation is Net Income ÷ Total Shares Outstanding.

Price Earnings Ratio: Type: Percentage

With this KPI we’re comparing the share price in a company to the earning per share. The formula for this is Share Price ÷ Earnings Per Share.

So there are some common and important financial metrics to include in your financial reporting.

Remember, when setting your KPIs and building a KPI dashboard it’s important to just focus on the most important KPIs for your team and your business. Do not have too many as that will result in a lack of focus and could be detrimental to results.

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KPIs: What Are Key Performance Indicators? Types and Examples

What Are Key Performance Indicators (KPIs)?

Key performance indicators (KPIs) are quantifiable measurements used to gauge a company’s overall long-term performance. KPIs specifically help determine a company’s strategic, financial, and operational achievements, especially compared to those of other businesses within the same sector.

Key Takeaways

• Key performance indicators (KPIs) measure a company’s success vs. a set of targets, objectives, or industry peers.
• KPIs can be financial, including net profit (or the bottom line, net income), revenues minus certain expenses, or the current ratio (liquidity and cash availability).
• Customer-focused KPIs generally center on per-customer efficiency, customer satisfaction, and customer retention.
• Process-focused KPIs aim to measure and monitor operational performance across the organization.
• Businesses generally measure and track KPIs through analytics software and reporting tools.

Jiaqi Zhou / Investopedia

Understanding Key Performance Indicators (KPIs)

Also referred to as key success indicators (KSIs), KPIs vary between companies and between industries, depending on performance criteria. For example, a software company striving to attain the fastest growth in its industry may consider year-over-year (YOY) revenue growth as its chief performance indicator. Conversely, a retail chain might place more value on same-store sales as the best KPI metric for gauging growth.

At the heart of KPIs lie data collection, storage, cleaning, and synthesizing. The information may be financial or nonfinancial and may relate to any department across the company. The goal of KPIs is to communicate results succinctly to allow management to make more informed strategic decisions.

Key performance indicators (KPIs) gauge a company’s output against a set of targets, objectives, or industry peers.

Categories of KPIs

Most KPIs fall into four different categories, with each category having its own characteristics, time frame, and users.

• Strategic KPIs are usually the most high-level. These types of KPIs may indicate how a company is doing, although it doesn’t provide much information beyond a very high-level snapshot. Executives are most likely to use strategic KPIs, and examples of strategic KPIs include return on investment , profit margin , and total company revenue .
• Operational KPIs are focused on a much tighter time frame. These KPIs measure how a company is doing month over month (or even day over day) by analyzing different processes, segments, or geographical locations. These operational KPIs are often used by managing staff and to analyze questions that are derived from analyzing strategic KPIs. For example, if an executive notices that company-wide revenue has decreased, they may investigate which product lines are struggling.
• Functional KPIs hone in on specific departments or functions within a company. For example, the finance department may keep track of how many new vendors they register within their accounting information system each month, while the marketing department measures how many clicks each email distribution receives. These types of KPIs may be strategic or operational but provide the greatest value to one specific set of users.
• Leading/lagging KPIs describe the nature of the data being analyzed and whether it is signaling something to come or something that has already occurred. Consider two different KPIs: the number of overtime hours worked and the profit margin for a flagship product. The number of overtime hours worked may be a leading KPI should the company begin to notice poorer manufacturing quality. Alternatively, profit margins are a result of operations and are considered a lagging indicator.

Types of KPIs

Financial metrics and kpis.

Key performance indicators tied to the financials typically focus on revenue and profit margins. Net profit, the most tried and true of profit-based measurements, represents the amount of revenue that remains, as profit for a given period, after accounting for all of the company’s expenses, taxes, and interest payments for the same period.

Financial metrics may be drawn from a company’s financial statements. However, internal management may find it more useful to analyze different numbers that are more specific to analyzing the problems or aspects of the company that management wants to analyze. For example, a company may leverage variable costing to recalculate certain account balances for internal analysis only.

Examples of financial KPIs include:

• Liquidity ratios (i.e., current ratios , which divide current assets by current liabilities): These types of KPIs measure how well a company will manage short-term debt obligations based on the short-term assets it has on hand.
• Profitability ratios (i.e., net profit margin): These types of KPIs measure how well a company is performing in generating sales while keeping expenses low.
• Solvency ratios (i.e., total debt-to-total-assets ratio ): These types of KPIs measure the long-term financial health of a company by evaluating how well a company will be able to pay long-term debt.
• Turnover ratios (i.e., inventory turnover): These types of KPIs measure how quickly a company can perform a certain task. For example, inventory turnover measures how quickly a company can convert an item from inventory to a sale. Companies strive to increase turnover to generate faster churn of spending cash to later recover that cash through revenue.

Customer Experience Metrics and KPI

Customer -focused KPIs generally center on per-customer efficiency, customer satisfaction, and customer retention. These metrics are used by customer service teams to better understand the service that customers have been receiving.

Examples of customer-centric metrics include:

• Number of new ticket requests : This KPI counts customer service requests and measures how many new and open issues customers are having.
• Number of resolved tickets : This KPI counts the number of requests that have been successfully taken care of . By comparing the number of requests to the number of resolutions, a company can assess its success rate in getting through customer requests.
• Average resolution time : This KPI is the average amount of time needed to help a customer with an issue. Companies may choose to segment average resolution time across different requests (i.e., technical issue requests vs. new account requests).
• Average response time : This KPI is the average amount of time needed for a customer service agent to first connect with a customer after the customer has submitted a request. Though the initial agent may not have the knowledge or expertise to provide a solution, a company may value decreasing the time that a customer is waiting for any help.
• Top customer service agent : This KPI is a combination of any metric above cross-referenced by customer service representatives. For example, in addition to analyzing company-wide average response time, a company can determine the three fastest and slowest responders.
• Type of request : This KPI is a count of the different types of requests. This KPI can help a company better understand the problems a customer may have (i.e., the company’s website gave incorrect or inaccurate directions) that need to be resolved by the company.
• Customer satisfaction rating : This KPI is a vague measurement, though companies may perform surveys or post-interaction questionnaires to gather additional information on the customer’s experience.

KPIs are usually not externally required; they are simply internal measurements used by management to evaluate a company’s performance.

Process Performance Metrics and KPI

Process metrics aim to measure and monitor operational performance across the organization. These KPIs analyze how tasks are performed and whether there are process, quality, or performance issues. These types of metrics are most useful for companies with repetitive processes, such as manufacturing firms or companies in cyclical industries.

Examples of process performance metrics include:

• Production efficiency : This KPI is often measured as the production time for each stage divided by the total processing time. A company may strive to spend only 2% of its time soliciting raw materials; if it discovers it takes 5% of the total process, then the company may strive for solicitation improvements.
• Total cycle time : This KPI is the total amount of time needed to complete a process from start to finish. This may be converted to average cycle time if management wishes to analyze a process over a period of time.
• Throughput : This KPI is the number of units produced divided by the production time per unit, measuring how fast the manufacturing process is.
• Error rate : This KPI is the total number of errors divided by the total number of units produced. A company striving to reduce waste can better understand the number of items that are failing quality control testing.
• Quality rate : This KPI focuses on the positive items produced instead of the negative. By dividing the successful units completed by the total number of units produced, this percentage informs management of its success rate in meeting quality standards.

Marketing KPIs

Marketing KPIs attempt to gain a better understanding of how effective marketing and promotional campaigns have been. These metrics often measure conversation rates on how often prospective customers perform certain actions in response to a given marketing medium. Examples of marketing KPIs include:

• Website traffic : This KPI tracks the number of people who visit certain pages of a company’s website. Management can use this KPI to better understand whether online traffic is being pushed down potential sales channels and if customers are not being funneled appropriately.
• Social media traffic : This KPI tracks the views, follows, likes, retweets, shares, engagement, and other measurable interactions between customers and the company’s social media profiles.
• Conversion rate on call-to-action content : This KPI centers around focused promotional programs that ask customers to perform certain actions. For example, a specific campaign may encourage customers to act before a certain sale date ends. A company can divide the number of successful engagements by the total number of content distributions to understand what percent of customers answered the call to action.
• Blog articles published per month : This KPI simply counts the number of blog posts a company publishes in a given month.
• Click-through rates : This KPI measures the number of specific clicks that are performed on email distributions. For example, certain programs may track how many customers opened an email distribution, clicked on a link, and followed through with a sale.

A company may desire operational excellence; in this case, it may want to track how its internal technology (IT) department is operating. These KPIs may encourage a better understanding of employee satisfaction or whether the IT department is being adequately staffed. Examples of IT KPIs include:

• Total system downtime : This KPI measures the amount of time that various systems must be taken offline for system updates or repairs. While systems are down, customers may be unable to place orders or employees may be unable to perform certain duties (i.e., when the accounting information system is down).
• Number of tickets/resolutions : This KPI is similar to customer service KPIs. However, these tickets and resolutions relate to internal staff requests such as hardware or software needs, network problems, or other internal technology problems.
• Number of developed features : This KPI measures internal product development by quantifying the number of product changes.
• Count of critical bugs : This KPI counts the number of critical problems within systems or programs. A company will need to have its own internal standards for what constitutes a minor vs. major bug.
• Back-up frequency : This KPI counts how often critical data is duplicated and stored in a safe location. In accordance with record retention requirements, management may set different targets for different bits of information.

The ultimate goal of a company is to generate revenue through sales. Though revenue is often measured through financial KPIs, sales KPIs take a more granular approach by leveraging nonfinancial data to better understand the sales process. Examples of sales KPIs include:

• Customer lifetime value (CLV) : This KPI represents the total amount of money that a customer is expected to spend on your products over the entire business relationship.
• Customer acquisition cost (CAC) : This KPI represents the total sales and marketing cost required to land a new customer. By comparing CAC to CLV, businesses can measure the effectiveness of their customer acquisition efforts.
• Average dollar value for new contracts : This KPI measures the average size of new agreements. A company may have a desired threshold for landing larger or smaller customers.
• Average conversion time : This KPI measures the amount of time from first contacting a prospective client to securing a signed contract to perform business.
• Number of engaged leads : This KPI counts how many potential leads have been contacted or met with. This metric can be further divided into mediums such as visits, emails, phone calls, or other contacts with customers.

Management may tie bonuses to KPIs. For salespeople, their commission rate may depend on whether they meet expected conversion rates or engage in an appropriate number of leads.

Human Resource and Staffing KPIs

Companies may also find it beneficial to analyze KPIs specific to their employees. Ranging from turnover to retention to satisfaction, a company may have a wealth of information already available about its staff. Examples of human resource or staffing KPIs include:

• Absenteeism rate : This KPI is a count of how many dates per year or specific period employees are calling in sick or missing shifts. This KPI may be a leading indicator for disengaged or unhappy employees.
• Number of overtime hours worked : This KPI tracks the number of overtime hours worked to gauge whether employees are potentially facing burnout or if staffing levels are appropriate.
• Employee satisfaction : This KPI often requires a company-wide survey to gauge how employees are feeling about various aspects of the company. To get the best value from this KPI, companies should consider hosting the same survey every year to track changes from one year to the next regarding the exact same questions.
• Employee turnover rate : This KPI measures how often and quickly employees are leaving their positions. Companies can further break down this KPI across departments or teams to determine why some positions may be leaving faster than others.
• Number of applicants : This KPI keeps count of how many applications are submitted to open job positions. This KPI helps assess whether job listings are adequately reaching a wide enough audience to capture interest and lure strong candidates.

Examples of KPIs

Let’s take a look at electric vehicle maker Tesla ( TSLA ) for a few examples of KPIs in real life. These numbers are from its fourth quarter (Q4) 2021 earnings release.

Vehicle Production

During the quarter, Tesla produced a record 305,840 vehicles and delivered 308,650 vehicles. Production is a big deal for the company because it has consistently been criticized for being bad at ramping up. Increased manufacturing scale means more market share and profits for Tesla.

Automotive Gross Margin

For the quarter, Tesla’s automotive gross margin expanded to 30.6%. Gross margin is one of the best measures of profitability for Tesla because it isolates its vehicle production costs. Tesla managed to expand its gross margin in Q4 even as sales of lower-priced models outpaced its higher-margin models.

Free Cash Flow

Tesla’s free cash flow clocked in at $2.8 billion during the quarter. That represented a vast improvement from the $1.9 billion free cash flow in the prior year. Tesla’s level of free cash flow production suggested that the company was reaching a scale of profitability without the help of regulatory credits.

Companies can use KPIs across three broad levels:

First, company-wide KPIs focus on the overall business health and performance. These types of KPIs are useful for informing management of how things are going. However, they are often not granular enough to make decisions. Company-wide KPIs often kick off conversations on why certain departments are performing well or poorly.

At this point, companies often begin digging into department-level KPIs. These are more specific than company-wide KPIs. Department-level KPIs are often more informative as to why specific outcomes are occurring. Many of the examples mentioned above are department-level KPIs, as they focus on a very niche aspect of a company.

If a company chooses to dig even deeper, it may engage with project-level or subdepartment-level KPIs. These KPIs are often specifically requested by management as they may require very specific data sets that may not be readily available. For example, management may want to ask very specific questions to a control group about a potential product rollout .

When preparing KPI reports, start by showing the highest level of data (i.e., company-wide revenue). Next, be prepared to show lower levels of data (i.e., revenue by department, then revenue by department and product).

With companies seemingly collecting more data every day, it can become overwhelming to sort through the information and determine what KPIs are most useful and impactful for decision-making. When beginning the process of pulling together KPI dashboards or reports, consider the following steps:

• Discuss goals and intentions with business partners . KPIs are only as useful as the users make them. Before pulling together any KPI reports, understand what you or your business partner are attempting to achieve.
• Draft SMART KPI requirements . KPIs should have restrictions and be tied to SMART (specific, measurable, attainable, realistic, and time-bound) metrics. Vague, hard-to-ascertain, and unrealistic KPIs serve little to no value. Instead, focus on what information you have that is available and meeting the SMART acronym requirements.
• Be adaptable . As you pull together KPI reports, be prepared for new business problems to appear and for further attention to be given to other areas. As business and customer needs change, KPIs should also adapt with certain numbers, metrics, and goals changing in line with operational evolutions.
• Avoid overwhelming users . It may be tempting to overload report users with as many KPIs as you can fit on a report. At a certain point, KPIs start to become difficult to comprehend, and it may become more difficult to determine which metrics are important to focus on.

Advantages of KPIs

A company may wish to analyze KPIs for several reasons. KPIs help inform management of specific problems; the data-driven approach provides quantifiable information useful in strategic planning and ensuring operational excellence.

KPIs help hold employees accountable. Instead of relying on feelings or emotions, KPIs are statistically supported and cannot discriminate across employees. When used appropriately, KPIs may help encourage employees as they realize their numbers are being closely monitored.

KPIs are also the bridge that connects actual business operations and goals. A company may set targets, but without the ability to track progress toward those goals, there is little to no purpose in those plans. Instead, KPIs allow companies to set objectives, and then monitor progress toward those objectives.

Limitations of KPIs

There are some downsides to consider when working with KPIs. There may be a long time frame required for KPIs to provide meaningful data. For example, a company may need to collect annual data from employees for years to better understand trends in satisfaction rates over long periods of time.

KPIs require constant monitoring and close follow-up to be useful. A KPI report that is prepared but never analyzed serves no purpose. In addition, KPIs that are not continuously monitored for accuracy and reasonableness do not encourage beneficial decision making.

KPIs open up the possibility for managers to “game” KPIs. Instead of focusing on actually improving processes or results, managers may feel incentivized to focus on improving KPIs tied to performance bonuses . In addition, quality may decrease if managers are hyper-focused on productivity KPIs, and employees may feel pushed too hard to meet specific KPI measurements that may simply not be reasonable.

Informs management of how a company is performing in countless ways

Helps hold employees accountable for their actions (or lack of)

Can motivate employees who feel positively challenged to meet targets

Allows a company to set goals and measure progress toward those objectives

Results in potential time commitment to consistently gather data over long periods of time

Requires ongoing monitoring for accuracy and reasonableness in data

May encourage managers to focus on KPIs instead of broader strategies

May discourage employees if KPI targets are unreasonable

What Does KPI Mean?

KPI is an abbreviation for key performance indicator: data that has been collected, analyzed, and summarized to help decision-making. KPIs may be a single calculation or value that summarizes a period of activity, such as “450 sales in October.” By themselves, KPIs do not add any value to a company. However, a company can use this information to make more informed decisions about business operations and strategies.

What Is an example of a KPI?

One of the most basic examples of a KPI is revenue per client (RPC). For example, if you generate $100,000 in revenue annually and have 100 clients, then your RPC is $1,000. A company can use this KPI to track its RPC over time.

What Are 5 of the Most Common KPIs?

KPIs vary from business to business, and some KPIs are more suitable for certain companies compared to others. In general, five of the most commonly used KPIs are:

• Revenue growth
• Revenue per client
• Profit margin
• Client retention rate
• Customer satisfaction

How Do You Measure KPIs?

It depends on the actual KPI being measured. Generally speaking, businesses measure and track KPIs through business analytics software and reporting tools. This includes everything from the collection of data via reliable sources, the safe storage of information, the cleaning of data to standardize its format for analysis, and the actual number crunching. Finally, KPIs are often reported using visualization or reporting software.

What Makes a KPI Good?

A good KPI provides objective and clear information on progress toward an end goal. It tracks and measures factors such as efficiency, quality, timeliness, and performance while providing a way to measure performance over time. The ultimate goal of a KPI is to help management make more informed decisions.

KPIs offer an effective way to measure and track a company’s performance on a variety of different metrics. By understanding exactly what KPIs are and how to implement them properly, managers are better able to optimize the business for long-term success.

Tesla Investor Relations. “ Q4 and FY 2021 Update ,” Page 7.

Tesla Investor Relations. “ Q4 and FY 2021 Update ,” Page 4.

Tesla Investor Relations. “ Q4 and FY 2021 Update ,” Page 5.

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What are key financial indicators in business, introduction.

Are you a business owner looking to scale up and maximize profits? Or maybe you’re an investor seeking to make sound financial decisions. Whatever your situation may be, understanding key financial indicators is essential for making informed choices that can drive success. In this blog post, we’ll explore the definition of financial indicators, their importance in measuring business performance and growth, and how to use them effectively. So sit back, relax, and get ready to discover the secrets behind achieving procurement goals through solid financial analysis!

What is a Financial Indicator?

A financial indicator is a measure used to evaluate the overall health and performance of a business. These indicators are used by investors, analysts, and managers to assess the profitability, efficiency, liquidity, and stability of a company. Financial indicators can be expressed in various forms such as ratios , percentages or absolute numbers.

One of the most important aspects of financial indicators is that they provide insight into how well a company is utilizing its resources. For example, an indicator like return on investment (ROI) helps investors understand how much profit a company has generated with each dollar invested.

Another key aspect of financial indicators is their ability to help identify potential risks within a business . By analyzing trends in key financial metrics over time – such as revenue growth rates or debt-to-equity ratios – businesses can identify when they may be at risk for future challenges.

Understanding financial indicators is essential for any business looking to make informed decisions about its finances . By tracking and analyzing these metrics regularly, companies can gain valuable insights into their operations and take steps to improve their bottom line .

Key Financial Indicators

Key financial indicators are used to evaluate a company’s performance and overall financial health. These indicators provide valuable insights into the profitability, liquidity, and solvency of a business. Some of the most crucial financial indicators include revenue growth, gross profit margin , net profit margin, debt-to-equity ratio, current ratio and return on investment.

Revenue growth is an essential indicator that measures how much the company’s sales have increased or decreased over a given period. This metric can be expressed as either a percentage or dollar amount. Gross Profit Margin shows how much money was left after accounting for all costs related to production goods sold; this metric reflects the efficiency with which a business uses its resources.

Net Profit Margin assesses how successful management has been in controlling operating expenses to generate profits from sales; it also indicates whether there may be cost-cutting opportunities available for future periods. Debt-to-Equity Ratio represents total liabilities divided by shareholder equity – it demonstrates how leveraged a company is.

The Current Ratio helps investors determine if the business will meet its obligations based on its short-term assets such as inventory and accounts receivable versus liabilities like accounts payable due within one year. Return on Investment (ROI) measures profitability against capital investments made by shareholders or lenders in any given fiscal period .

These financial metrics play an integral role in evaluating businesses since they allow investors to identify key trends and risks associated with their investments while also assisting management teams make informed decisions about where they should allocate resources moving forward using data-driven analysis only

How to Use Financial Indicators

Using financial indicators is crucial for the success of any business . However, it’s important to understand how to use them effectively.

Firstly, identify which key financial indicators are relevant to your business and industry. For example, if you’re in procurement, metrics such as cost of goods sold (COGS) and inventory turnover ratio would be important.

Next, set benchmarks or goals for each indicator based on past performance or industry standards . This will help you track progress and make necessary adjustments.

Regularly monitor these indicators through accurate record-keeping and analysis. Use software tools or hire professionals if needed.

Use this data to make informed decisions about budgeting, pricing strategies , investments and more. Don’t hesitate to adjust course if the data suggests it’s necessary.

Using financial indicators is a powerful tool that can help businesses achieve their goals by making data-driven decisions.

By utilizing financial indicators, businesses are able to better analyze their performance and identify areas for improvement . These key metrics provide valuable insights into a company’s financial health, allowing for informed decision making and strategic planning .

From revenue growth to profit margins , these indicators offer a snapshot of business success. However, it is important to recognize that no one metric can paint the complete picture. By looking at multiple factors in conjunction with each other, businesses can gain a more comprehensive understanding of their financial situation.

In order to effectively use financial indicators, it is crucial to have accurate and up-to-date data. This requires regular tracking and analysis of the relevant metrics .

Ultimately, by leveraging key financial indicators properly through effective procurement strategies or otherwise; businesses can improve their bottom line while ensuring long-term success.

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Sample Financial Advisor Business Plan

Writing a business plan is a crucial step in starting a financial advisor business. Not only does it provide structure and guidance for the future, but it also helps to create funding opportunities and attract potential investors. For aspiring financial advisors, having access to a sample financial advisor business plan can be especially helpful in providing direction and gaining insight into how to draft their own financial advisor business plan.

Download our Ultimate Financial Advisor Business Plan Template

Having a thorough business plan in place is critical for any successful financial advisor venture. It will serve as the foundation for your operations, setting out the goals and objectives that will help guide your decisions and actions. A well-written business plan can give you clarity on realistic financial projections and help you secure financing from lenders or investors. A financial advisor business plan example can be a great resource to draw upon when creating your own plan, making sure that all the key components are included in your document.

The financial advisor business plan sample below will give you an idea of what one should look like. It is not as comprehensive and successful in raising capital for your financial advisor as Growthink’s Ultimate Financial Advisor Business Plan Template , but it can help you write a financial advisor business plan of your own.

Example – WealthWise Planning

Table of contents, executive summary, company overview, industry analysis, customer analysis, competitive analysis, marketing plan, operations plan, management team, financial plan.

At WealthWise Planning, we are a new Financial Advisor based in Detroit, MI, dedicated to filling a significant gap in the local market by providing high-quality financial advice and services. Our offerings include Financial Planning, Investment Management, Retirement Planning, Estate Planning, and Tax Advisory, all tailored to meet the unique financial goals and situations of our clients. Our holistic approach ensures comprehensive care for our clients’ financial health, guiding them towards financial security and prosperity. Strategically located in the heart of Detroit, our deep understanding of the local economic environment positions us as the go-to financial advisor in the area.

We are uniquely positioned for success, thanks to the invaluable experience of our founder in running a successful financial advisory business, and our commitment to offering superior financial planning services. Our team’s expertise and dedication to client well-being are at the core of our operations. Since our founding on January 5, 2024, we have achieved significant milestones, including designing our logo, developing our company name, and securing an excellent location for our operations. These accomplishments demonstrate our dedication to becoming the leading financial advisor in Detroit, MI.

The Financial Advisor industry in the United States, with a market size of over $66 billion in 2020 and an average annual growth rate of 5.7% over the past decade, is poised for continued expansion. With a projected market size of over $80 billion by 2025, driven by an aging population, increased financial market complexity, and the rise of digital financial advice platforms, the industry’s future looks promising. WealthWise Planning, serving Detroit, MI, is well-placed to capitalize on these trends by offering tailored financial solutions and personalized advice, aiming to establish itself as a trusted partner for individuals seeking to achieve their financial goals.

WealthWise Planning targets a diverse customer base in Detroit, MI, including young professionals, retirees, small business owners, and families. Our services are designed to address the unique financial needs of these groups, from managing burgeoning finances and preserving wealth to navigating business growth and securing financial futures for families. By providing personalized financial advice and planning strategies, we aim to become a trusted advisor for long-term financial well-being in our community.

WealthWise Planning’s main competitors include Zhang Financial, known for its wealth management and transparent fee structure; Bloom Advisors, which offers personalized financial planning; and Peak Wealth Management, specializing in wealth management and estate planning. Our competitive advantage lies in our personalized approach to financial planning and our commitment to leveraging the latest technology to enhance service delivery and client experience. This, combined with our dedication to client satisfaction, positions WealthWise Planning as a leader in the financial advisory landscape.

WealthWise Planning offers a suite of financial services designed to cater to various needs, with transparent pricing and a client-centric approach. Our comprehensive services include Financial Planning, Investment Management, Retirement Planning, Estate Planning, and Tax Advisory. Our promotional strategy encompasses online marketing, SEO, PPC advertising, social media marketing, email marketing, community outreach, networking, and leveraging client testimonials. By utilizing a multifaceted promotional approach, we aim to stand out in Detroit, MI, and build a solid client base, ensuring we reach potential clients effectively and build lasting relationships.

To ensure WealthWise Planning’s success, our key operational processes include detailed CRM activities, comprehensive financial analysis and planning, market research, compliance and regulatory reporting, professional development, client portfolio management, client meetings and reviews, operational efficiency improvements, risk management, and targeted marketing for client acquisition. Upcoming milestones include launching our business, developing a comprehensive marketing strategy, building a robust client onboarding process, establishing strategic partnerships, hiring additional staff, implementing advanced financial planning tools, and achieving specific revenue targets. These efforts will establish us as a successful, reputable financial advisor in Detroit, MI.

Under the leadership of Aiden Scott, our President, WealthWise Planning boasts a management team with the experience and expertise necessary for success. Scott’s background in financial advisory services, strategic foresight, and leadership skills, along with his deep understanding of the financial industry, are instrumental in guiding our company towards its goals. His expertise ensures that WealthWise Planning remains at the forefront of delivering exceptional financial advisory services.

WealthWise Planning is a new Financial Advisor serving customers in Detroit, MI. As a local financial advisor, we understand the financial landscape and challenges that our community faces. Currently, there are no high-quality local financial advisors in the area, which positions us to fill a significant gap in the market and serve our community with unparalleled financial services.

At WealthWise Planning, our offerings are designed to cater to a broad spectrum of financial needs. Our products and services include Financial Planning, Investment Management, Retirement Planning, Estate Planning, and Tax Advisory. These services are tailored to meet the unique financial goals and situations of our clients in Detroit, MI. Our holistic approach ensures that every aspect of our clients’ financial health is addressed, setting them on a path to financial security and prosperity.

Located in the heart of Detroit, MI, WealthWise Planning is strategically positioned to serve our local community. Our deep understanding of the local economic environment enhances our ability to provide targeted and effective financial advice, making us the go-to financial advisor in Detroit.

WealthWise Planning is uniquely qualified to succeed for several reasons. Our founder brings invaluable experience from previously running a successful financial advisor business. This experience, combined with our commitment to offering better financial planning services than our competition, sets us apart and ensures our success. Our team’s expertise and dedication to our clients’ financial well-being are at the core of everything we do.

Founded on 2024-01-05, WealthWise Planning has quickly made strides in establishing itself as a trusted financial advisor. We are a Limited Liability Company, which reflects our professionalism and commitment to operating with the highest standards of integrity and transparency. To date, our accomplishments include designing our logo, developing our company name, and finding a great location for our operations. These steps mark the beginning of our journey to becoming the leading financial advisor in Detroit, MI, and a testament to our dedication to serving our community.

The Financial Advisor industry in the United States is a booming sector, with a market size of over $66 billion in 2020. This industry has been steadily growing over the past decade, with an average annual growth rate of 5.7%. The increasing demand for financial advice and services, coupled with the growing number of individuals seeking help with their investments, has contributed to the expansion of this market.

Looking ahead, the Financial Advisor industry is expected to continue its growth trajectory, with market analysts projecting a market size of over $80 billion by 2025. This anticipated growth is driven by several factors, including an aging population seeking retirement planning services, increased complexity in financial markets, and the rise of digital platforms offering financial advice. As more individuals recognize the importance of professional financial guidance, the market for Financial Advisors is poised for further expansion.

These trends in the Financial Advisor industry bode well for WealthWise Planning, a new Financial Advisor serving customers in Detroit, MI. With the increasing demand for financial advice and services, WealthWise Planning has a significant opportunity to carve out a niche in this growing market. By providing tailored financial solutions and personalized advice to clients, WealthWise Planning can capitalize on the expanding market and establish itself as a trusted partner for individuals seeking to achieve their financial goals.

Below is a description of our target customers and their core needs.

Target Customers

Local residents will form the primary customer base for WealthWise Planning. This demographic is diverse, encompassing young professionals eager to manage their burgeoning finances and retirees focused on preserving their wealth. WealthWise Planning will tailor its services to meet the unique needs of these local individuals, providing personalized financial advice and planning strategies.

Small business owners in Detroit are another significant segment that WealthWise Planning will target. These entrepreneurs require specialized financial guidance to navigate the complexities of business growth, tax planning, and asset management. WealthWise Planning will offer custom solutions that address the specific challenges faced by these business owners, helping them to achieve financial stability and growth.

In addition to these groups, WealthWise Planning will also cater to families seeking to secure their financial future. These services will include college savings plans, retirement planning, and wealth transfer strategies. By addressing the financial concerns that are most relevant to families in Detroit, WealthWise Planning will establish itself as a trusted advisor for long-term financial well-being.

Customer Needs

WealthWise Planning offers high-quality financial advisory services that cater to the diverse needs of residents seeking to enhance their financial well-being. Customers can expect personalized financial strategies that align with their goals, whether they’re saving for a home, investing for retirement, or managing debt. This level of customization ensures that every financial plan is as unique as the individual’s circumstances, addressing a crucial need for tailored financial guidance.

In addition to personalized financial planning, WealthWise Planning understands the importance of financial education and empowerment. Customers have access to resources and tools that help demystify complex financial concepts and decisions. This empowers them to make informed choices about their financial futures, fostering a sense of confidence and control over their financial destiny.

Furthermore, WealthWise Planning prioritizes accessibility and convenience, recognizing that time is a valuable asset for its customers. By offering flexible consultation schedules and leveraging technology for virtual meetings, clients can easily integrate financial planning into their busy lives. This approach addresses the need for professional financial advice that is both accessible and adaptable to the modern lifestyle of Detroit residents.

WealthWise Planning’s competitors include the following companies.

Zhang Financial

Zhang Financial offers a wide range of services including wealth management, financial planning, and investment advisory services. They cater to high-net-worth individuals and families, providing bespoke solutions tailored to their clients’ unique financial situations. Their price points are typically based on a percentage of assets under management, aligning the firm’s interests with those of their clients.

Zhang Financial is known for its transparent fee structure and has been recognized for its commitment to providing fiduciary advice. The firm operates in multiple locations, with a strong presence in Michigan, which allows them to serve a broad geographic area. They target affluent clients seeking comprehensive financial planning and investment management services.

One of Zhang Financial’s key strengths is their team of highly qualified professionals, including Certified Financial Planners (CFPs) and Chartered Financial Analysts (CFAs), who bring a depth of expertise to their client engagements. However, their focus on high-net-worth individuals may limit accessibility for potential clients with lower levels of investable assets.

Bloom Advisors

Bloom Advisors offers financial planning, retirement planning, and investment management services. They focus on creating personalized financial plans that address the unique needs of each client, emphasizing long-term relationships. Their pricing model is based on a combination of a flat fee for financial planning and a percentage of assets under management for investment services.

Located in Michigan, Bloom Advisors serves a diverse clientele, including families, professionals, and retirees. They are particularly noted for their comprehensive approach to retirement planning. Their market segment includes individuals and families looking for personalized financial guidance and strategies.

Bloom Advisors’ strength lies in their personalized service and holistic approach to financial planning. However, their weakness may be perceived in terms of scalability, as the highly personalized nature of their services could limit their capacity to grow their client base rapidly.

Peak Wealth Management

Peak Wealth Management specializes in wealth management, financial planning, and estate planning services. They aim to help clients grow and protect their wealth through customized investment strategies and comprehensive financial planning. Pricing at Peak Wealth Management typically involves a fee based on the percentage of assets under management, along with possible flat fees for specific planning services.

With a presence in Michigan, Peak Wealth Management targets a broad range of clients, including individuals, families, and business owners. Their services are designed to cater to a wide spectrum of financial needs, from young professionals to retirees. This allows them to serve a diverse customer base within the region.

The firm’s key strength is its integrated approach to wealth management, combining investment management with financial planning to provide a holistic service offering. A potential weakness could be the challenge of differentiating their services in a crowded market, where many firms offer similar wealth management solutions.

Competitive Advantages

At WealthWise Planning, we pride ourselves on delivering superior financial planning services that set us apart from our competitors. Our team of experienced professionals employs a personalized approach to financial planning, ensuring that each client’s unique needs and goals are meticulously addressed. We understand that financial planning is not a one-size-fits-all service, which is why we tailor our strategies to fit the individual circumstances of our clients. This bespoke service model enables us to provide more accurate, relevant, and effective financial advice, making a significant difference in our clients’ financial well-being and future security.

Furthermore, our competitive advantage extends beyond just the quality of our financial planning services. We are deeply committed to leveraging the latest technology to enhance our service delivery and client experience. From advanced financial modeling tools to seamless digital communication platforms, we ensure that our clients have access to cutting-edge resources. This technological edge not only improves the efficiency and effectiveness of our financial planning solutions but also provides our clients with a level of convenience and accessibility that is rare in the financial advisory sector. Coupled with our unwavering commitment to client satisfaction, WealthWise Planning stands as a beacon of excellence in the financial advisory landscape, ready to guide our clients towards achieving their financial dreams with confidence and clarity.

Our marketing plan, included below, details our products/services, pricing and promotions plan.

Products and Services

Understanding the financial landscape can be daunting for many. This is why WealthWise Planning steps in to offer comprehensive financial services designed to meet a variety of needs. From crafting personalized financial plans to managing investments, WealthWise Planning ensures that its clients are well-prepared for the future, regardless of their current financial situation. Below is a detailed overview of the products and services offered, along with their average selling prices, enabling clients to make informed decisions.

Financial Planning is one of the cornerstone services offered. It encompasses a thorough analysis of the client’s current financial status and the development of strategies to meet future goals. Clients can expect to pay an average of $2,500 for a comprehensive financial plan. This service is tailored to provide a roadmap that covers savings, budgeting, and strategic investment recommendations.

Investment Management is another critical service provided. WealthWise Planning adopts a proactive approach to portfolio management, ensuring that clients’ investments align with their risk tolerance and financial objectives. The cost for this service typically averages 1% of the assets under management (AUM) annually. This fee structure ensures that the firm’s interests are directly aligned with the client’s success.

Retirement Planning is crucial for anyone looking to secure their financial future post-employment. WealthWise Planning helps clients navigate the complex world of retirement savings, pension plans, and Social Security benefits. Clients can expect to pay an average of $1,500 for a retirement plan, which is a small price for the peace of mind and security it brings in one’s golden years.

Estate Planning is also offered, ensuring that clients’ financial affairs are in order, and their legacies are preserved according to their wishes. The service includes guidance on wills, trusts, and estate taxes, among other elements. The average cost for estate planning services is around $3,000, depending on the complexity of the client’s estate and goals.

Tax Advisory services round out WealthWise Planning’s offerings, providing clients with strategies to minimize tax liabilities and ensure compliance with tax laws. This service, priced at an average of $500 annually, is invaluable for both individual and corporate clients looking to optimize their tax situations.

In summary, WealthWise Planning offers a suite of financial services designed to cater to various needs, from financial planning and investment management to retirement, estate planning, and tax advisory. With transparent pricing and a client-centric approach, WealthWise Planning is committed to helping its clients achieve financial well-being and security.

Promotions Plan

Attracting customers in the dynamic financial advisory market requires a multifaceted promotional approach. WealthWise Planning embraces a variety of methods to ensure it stands out in Detroit, MI, and builds a solid client base. Online marketing forms the cornerstone of their promotional strategy, leveraging the power of digital platforms to reach potential clients effectively.

One key aspect of online marketing is search engine optimization (SEO). WealthWise Planning will optimize its website with relevant keywords to ensure it ranks high in search results related to financial advice in Detroit. This strategy will increase visibility and attract organic traffic to their site. Alongside SEO, they will engage in pay-per-click (PPC) advertising, targeting individuals searching for financial planning services. PPC campaigns will allow WealthWise Planning to appear at the top of search results, offering immediate visibility.

Social media marketing is another pillar of their promotional efforts. WealthWise Planning will establish a strong presence on platforms such as LinkedIn, Facebook, and Instagram. By sharing informative content, financial tips, and insights into the financial planning process, they will build a relationship with their audience and establish themselves as thought leaders in the industry. Social media ads, tailored to target demographics in Detroit, will further enhance their visibility and attract potential clients.

Email marketing will also play a crucial role in WealthWise Planning’s promotional strategy. By collecting email addresses through their website and social media channels, they will send out newsletters, financial advice, and updates about their services. This direct form of communication will keep WealthWise Planning top of mind among potential clients and encourage engagement with their services.

Beyond online marketing, WealthWise Planning will engage in community outreach and networking. Hosting financial planning workshops and seminars in Detroit will allow them to demonstrate their expertise and engage directly with potential clients. They will also form partnerships with local businesses and organizations to expand their reach and establish a referral network. These face-to-face interactions will complement their online efforts, creating a comprehensive promotional strategy that builds trust and credibility in the community.

Finally, WealthWise Planning will leverage client testimonials and case studies to showcase their success stories and the value they provide. Sharing these testimonials on their website and social media channels will help build confidence among potential clients, illustrating the positive impact of their financial advisory services.

By integrating online marketing with community engagement and direct communication, WealthWise Planning positions itself to attract a diverse client base in Detroit. Their comprehensive approach ensures they not only reach potential clients but also build lasting relationships that foster trust and credibility in the financial advisory space.

Our Operations Plan details:

• The key day-to-day processes that our business performs to serve our customers
• The key business milestones that our company expects to accomplish as we grow

Key Operational Processes

To ensure the success of WealthWise Planning, there are several key day-to-day operational processes that we will perform.

• Customer Relationship Management (CRM) Activities: We will maintain detailed records of all interactions with clients, including calls, meetings, and emails. This ensures personalized and timely communication, fostering strong relationships.
• Financial Analysis and Planning: We will conduct comprehensive financial analysis for each client, considering their income, expenses, investments, and financial goals. This allows us to provide tailored financial advice and planning services.
• Market Research: We will continuously monitor financial markets and economic indicators to stay informed about trends and opportunities that can impact our clients’ investment strategies.
• Compliance and Regulatory Reporting: We will ensure that all operations comply with financial regulations and laws. This includes preparing and submitting required reports to regulatory bodies in a timely manner.
• Professional Development: We will invest in ongoing education and training for our advisors to keep them abreast of the latest financial planning strategies, tools, and regulatory changes.
• Client Portfolio Management: We will actively manage client portfolios, making adjustments as needed based on market conditions and client objectives. This includes buying and selling assets, rebalancing portfolios, and ensuring diversification.
• Client Meetings and Reviews: We will schedule regular meetings with clients to review their financial plans, discuss any changes in their financial situation, and adjust their investment strategies accordingly.
• Operational Efficiency: We will continuously seek ways to improve operational efficiency, including automating routine tasks, optimizing internal processes, and utilizing technology to enhance service delivery.
• Risk Management: We will implement strategies to identify, assess, and mitigate risks that could impact our clients’ investments or the operation of WealthWise Planning. This includes ensuring cybersecurity measures are in place to protect client information.
• Marketing and Client Acquisition: We will execute targeted marketing campaigns to attract new clients and retain existing ones. This will include digital marketing, community engagement, and networking events.

WealthWise Planning expects to complete the following milestones in the coming months in order to ensure its success:

• Launch our Financial Advisor Business : This initial step involves setting up the legal structure of the business, securing an office space in Detroit, MI, and ensuring all regulatory and compliance measures are met to operate as a financial advisor within the state. This includes obtaining necessary licenses and registrations with state and federal financial regulatory bodies.
• Develop and Implement a Comprehensive Marketing Strategy : Create a multi-channel marketing strategy that includes digital marketing (SEO, social media, email marketing), local advertising, and community engagement to build brand awareness and attract initial clients.
• Build a Robust Client Onboarding Process : Design and implement a streamlined onboarding process that ensures a smooth and professional experience for new clients. This includes client intake forms, assessment of financial goals and risk tolerance, and initial financial planning and advisement sessions.
• Establish Strategic Partnerships with Local Businesses and Communities : Form partnerships with local businesses, community organizations, and professionals (such as accountants and lawyers) to build referral networks and increase client base through trusted sources.
• Hire and Train Additional Financial Advisors and Support Staff : As the client base grows, recruit, hire, and train additional qualified financial advisors and support staff to maintain high service quality and client satisfaction. Focus on team members with strong expertise and excellent client service skills.
• Implement Cutting-Edge Financial Planning Software and Tools : Invest in advanced financial planning software and tools to enhance service delivery, improve client experience, and increase operational efficiency. Ensure staff are trained on these technologies.
• Achieve $5,000/Month in Revenue : This milestone signifies the business’s initial traction and market acceptance. It involves acquiring enough clients and managing enough assets to generate this level of recurring revenue.
• Develop and Launch a Client Retention and Expansion Program : Create programs aimed at retaining existing clients and encouraging referrals, such as regular financial education workshops, personalized financial health reports, and client appreciation events.
• Get to $15,000/Month in Revenue : This critical milestone indicates that WealthWise Planning has successfully scaled its client base and service offerings to a sustainable level. Achieving this target requires consistent marketing efforts, excellent client service, and a focus on expanding services to meet client needs. By systematically achieving these milestones, WealthWise Planning aims to establish itself as a successful and reputable financial advisor in Detroit, MI, positioning itself for long-term growth and success in the financial services industry.

WealthWise Planning management team, which includes the following members, has the experience and expertise to successfully execute on our business plan:

Aiden Scott, President

Aiden Scott brings to WealthWise Planning not only his title of President but also a rich background in financial advisory services. Having successfully led a financial advisory firm in the past, Scott has demonstrated a keen ability to navigate the complex landscape of financial planning and investment management. His track record speaks volumes about his strategic foresight, leadership skills, and his deep understanding of the financial industry. Under his stewardship, WealthWise Planning is poised to benefit from Scott’s experience in creating value for clients and steering the company towards lasting success. His expertise is instrumental in shaping the strategic direction of WealthWise Planning, ensuring that the firm remains at the forefront of delivering exceptional financial advisory services.

To achieve our growth goals, WealthWise Planning requires $182,000 in funding. This funding will be allocated towards capital investments such as location buildout, furniture, equipment, and non-capital investments including working capital, initial rent, staff salaries, marketing, supplies, and insurance. These investments are critical for establishing our operations in Detroit, MI, and positioning WealthWise Planning for long-term success and sustainability in the financial services industry.

Financial Statements

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Income Statement

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Cash Flow Statement

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Financial Advisor Business Plan Example PDF

Download our Financial Advisor Business Plan PDF here. This is a free financial advisor business plan example to help you get started on your own financial advisor plan.  

How to Finish Your Financial Advisor Business Plan in 1 Day!

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It is not just important but necessary to regularly check your business’s financial health. You define certain key performance indicators (KPIs) to measure performance and take corrective actions in business strategy wherever required. It gives you a holistic view of your business operations.

Our expert team of accountants has enlisted such indicators to assess financial performance in various areas of your organization. It will help you analyze and grow your business exponentially.

All  Finance and Accounting Outsourcing  companies keep this indicator in their mind and assess the performance of an organization.

How is financial performance measured?

Here are the indicators to assess financial performance in various areas of your organization

Gross profit margin

This factor tells you whether the price of your product/goods is fundamentally right or not. Gross profit margin is basically the overall profit you gain without covering up all the fixed operations costs. Hence, better margins equal better profits.

Here’s the simple formula to calculate Gross profit margin:

Gross profit margin = (revenue – the cost of goods sold)/Revenue

Sounds like the primary reason for your business. Doesn’t it? This is what you have ultimately after paying all your bills. Simply put, deduct your total expenses from the total revenue to calculate your net profit.

Let’s assume, your total billing is $2, 00,000 and your monthly rent, employee salaries, and other fixed cost expense collectively add up to $1, 20,000. Your net profit is $80,000.

Debt asset ratio

The Debt asset ratio is your assets financed with debt. It is, in other words, telling you the financial leverage used in your business.

The higher ratio indicates financial risk, so as a business owner, you should have the proper mix of shareholders’ funds and debt wisely. This is a critical KPI to determine the credibility of your business in the eyes of investors as well as customers.

Working capital

It is the capital; a business needs to run its day-to-day activities. Working capital is basically the liquidity available for ongoing business operations.

Working capital = Current assets – Current liabilities

The optimum level of working capital helps in attaining better operational efficiency. This indicator suggests you keep enough positive difference between current assets (accounts receivable, cash, etc.) and current liabilities (accounts payable, provisions etc.) for smooth business operations.

Here you can read  How Does Accounts Receivable Management Help Optimize The Working Capital?

Operating cash flow

It is essentially the amount of cash that your business produces through your regular business operations such as Sales, purchases etc. It is important that your business operations generate sufficient cash flow to be more financially independent.

Operating Cash Flow (OCF) = Operating Income (revenue – the cost of sales) + Depreciation – Taxes +/- Change in Working Capital

Positive cash flow indicates a promising future and negative cash flow signifies raising additional capital or debt in your business.

Return on equity

Return on equity (ROE) is the measurement of a company’s profitability. It represents the rate of returns, stockholders receive from their investments. It indicates the financial performance of a company in relation to shareholders’ money.

ROE = Net Income or Profits/Shareholder’s Equity

A good ROE brings trust among shareholders and attracts other investors.

Debt to equity ratio

The debt to equity ratio is an important KPI to determine the financial accountability of your business. It is calculated looking at your total liabilities against equity.

Debt to equity = Total liabilities/Total equity

It gives you a better understanding of your capital structure. It is basically the financial leverage ratio to measure your company’s ability to meet short and long term obligations.

Quick ratio

As the name suggests, the Quick ratio is the fastest way of assessing a company’s financial position. It is the company’s current ability to pay off liabilities and debts with readily available liquid assets.

It is also known as the “Acid test”. It shows the financial performance and flexibility of your company.

Inventory turnover

There is a non-stop inventory flow in and out of your warehouses. Inventory turnover represents the number of times, your company sells and replaces inventory in a specific time period.

Inventory turnover = Cost of inventory sold/Average inventory value

It ensures that you don’t have excessive inventory compared to your sales. It gives you vital details of your sales and production planning for better efficiency of operations.

Accounts payable turnover

Accounts payable turnover is the rate at which your business pays to its suppliers. This is an interesting KPI to figure out and prepare cash flow as well as find flow planning.

Accounts payable turnover = Total suppliers purchases/Average accounts payable

If the ratio declines, it indicates a decrease in payment frequency to suppliers which is a negative sign of financial position. Delay in payments could deprive you of vendors’ early payment discounts.

Accounts receivable turnover

Accounts receivable turnover indicates the rate at which your business collects due payments. This KPI ensures that you receive funds in a timely manner which is extremely crucial for your business. This KPI helps in cash flow planning, determining credit policy, and sales discount policy.

Accounts receivable turnover = Sales/Average accounts receivable

It evaluates your credit policy, a high turnover suggests an aggressive collection policy and a low turnover suggests inadequate inflow of funds.

Conclusion:

Evaluating financial performance is an essential part of any business. It will significantly contribute to your long-term success. We hope these 11 financial KPIs help you measure your business growth as well as prepare budgets and business strategy. For any financial queries or consultation,  CapActix  would be happy to assist. Write to us at  [email protected] .  or call us at + 1 201-778-0509.

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written By :

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