Performance indicators in small businesd

Measuring performance of any kind means a target, plan or standard must be in place to measure against. Any business, large or small needs some kind of a plan. In the accounting world plans equals budgets – yes those annoying things! A budget is plan expressed in money terms. Usually budgets for incomes and expenditures are set for a year and each month the business performance is measured against the budget. This is common practice in many businesses but how useful the comparison of results versus budget is depends on how good the budget was in the first place. Should a business complement measuring against budgets with other types of performance indicators? Yes is the answer. Larger businesses use many indicators of performance other than comparing to budgets or profits. For example, a key performance indicator for an airline is”bums on seats”. This is something that can be measured by flight, day etc and related to the costs of running the airline. Could a small business do something similar? Sure it can. Here’s an example for a business I know. This business automates entrances gates for residential and business customers. It offers both installation and maintenance services. As a small business, the owner does not have the time (or staff) to do detailed plans and compare these to actual performance. But, he does know the costs of running the business. So he equates costs to a number of service calls or installations needed per week. For example he knows he needs to do 5 service call to cover wages. One installation and 5 service calls covers all costs and makes a profit.This is a little easier to track and relates the work done to performance in terms of covering costs. It might not be 100% accurate, but it’s a good guide. So what performance indicator would you use for your business?



About martinjquinn

I am an accounting academic, accountant and author based near Dublin, Ireland.

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