Why do some business owners with no formal financial training succeed in business while others, even with strong training fail? A key is KPI – Key Performance Indicators.

The success of some businesses shows that understanding financial statements is only one component to successfully managing a business. Financial reports prepared for tax or compliance purposes are not designed to provide the complete information necessary to successfully manage a business. If you are only using your balance sheet and profit and loss statements to manage your business you are probably a day late and a dollar short. Not only are these statements not timely enough for proper management but they do not necessarily contain the proper information needed to successfully manage your specific business.

All successful businesses have management information systems in place that provide the management with data that is both relevant and timely. The systems should tell you exactly what is happening in your business and do so quickly enough so that you can respond as needed, when needed. In business the information that needs to be monitored on a continual basis is called 'Key Performance Indicators' or 'KPIs'.

The power of KPIs comes from a simple concept: What you can measure you can manage. KPIs mean you know where you stand at any given moment and can adapt or change your strategy to improve your results right there and then. So, instead of waiting for financial statements or tax returns to discover that your productivity was down or your marketing pieces and sales processes aren’t delivering what you need to achieve your revenue goals – you know day by day or week by week and can adapt as you go. This means dramatically better results.

Your Key Performance Indicators should be determined as part of your business planning process. For example, if an action plan is to increase your number of customers by X amount then you better be monitoring your number of customers. If you know that a certain product line results in a higher profit margin and you are trying to increase the profit of that line then your systems need to be set up to measure sales and expenses by product lines. Your KPIs need to be tailored to your business and should track those things that clearly tell you at a glance how you business is doing.

Conversely, if you're not measuring your KPIs how will you know if your business is on track at any given moment? And if you don't know the answer to that question it's unlikely you'll achieve your goals in the long run. The business world is constantly evolving and changing and to achieve your goals requires constant monitoring and adjustments to your course.