While scaling a business can definitely include taking on more employees and increasing sales, it’s about so much more than that alone.
To navigate sustainable growth and success, your business needs a financial foundation that’s solid. Not having a clear picture of your financial health can quickly cause issues with cashflow, promote general inefficiencies and in a worst case scenario, even lead to the business failing.
Fortunately, with help from Miami accountants, you can give your business the best chance of successfully scaling, by tracking the right key performance indicators (KPIs) and metrics.
Here are 7 of the most vital accounting KPIs for successful scaling:
- OCF – Operating Cash Flow
Measuring the total amount of cash a business has generated through its core operations, OCF can help company’s determine if their business needs extra funding to sustain itself, or whether regular operations are enough.
Businesses that are able to maintain a healthy OCF are typically able to avoid mistakes commonly made when budgeting, and can support initiatives for growth, such as new hires and market expansion, with enough working capital.
- Working capital
This is the difference between a business’s existing assets, and any existing liabilities. Measuring a company’s ability to fund everyday operations and meet obligations that are short-term, some key parts of working capital are:
- Accounts receivable
- Accounts payable
- Cash in hand
- Inventory
Generally considered to be healthy, is a ratio of between 1.5 and 2; any lower and a business will likely struggle to cover the cost of any short-term liabilities, which can quickly lead to issues with liquidity. On the other hand, a ratio of above 2.0, may mean that effective growth can’t be achieved due to poor utilization of assets.
- Cash flow forecasting
By predicting what money flows in and out of a company over a set period, cash flow forecasting makes an estimate of its financial position in the future, and uses such important metrics as:
- Upcoming expenses
- Seasonal fluctuations
- Expected revenue
- Investment activities
Having a sound cash flow forecast can help prepare you for the types of investments typically required for scaling, such as marketing, infrastructure, personnel and technology, prevent liquidity issues, and help you make decisions for the financial future of the business that are strategic.
- Return on Investment – ROI
Measuring how profitable an investment might be in relation to how much it costs; ROI is crucial for making sure that resource allocation for business initiatives like launching a new product or marketing campaign, are carried out effectively. Low or negative ROIs could be an indicator of inefficiencies that you’ll need to address before expansion.
- Gross Profit Margin
After direct costs such as goods sold or sales are deducted from a company’s revenue, gross profit margin is the percentage that remains, and is a good indicator of a business’s efficiency when producing goods or services.
Having a stable gross profit margin, or one that increases, suggests that profitability should be sustainable during periods of growth.
- Net Profit Margin
Once expenses like taxes, operating costs and interest are deducted from a company’s revenue, the percentage that remains is known as the net profit margin.
Having a net profit margin that’s strong on a consistent basis, indicates that a business is stable from a financial perspective, and that long-term growth is sustainable.
- Sales Growth
This KPI measures the increase or decrease of revenue over a certain period, and can help company’s determine if their sales and marketing strategies are paying off in terms of the businesses sustainable growth.
Working with an accounting firm in Fort Lauderdale can give you access to data regarding sales growth that’s accurate and up-to-date, and can help you make decisions that are better informed.
As an indication of whether a business is in a good position to scale, sales growth is hugely significant, with a steady increase showing strong demand, and decreasing or stagnant sales suggesting issues may need to be resolved.
KPI tracking is crucial for helping businesses make better financial decisions when scaling, and having professional help can simplify the entire process.
