Edmonton Business Plan | Should KPIs Be Used With Financial Statements
The most successful entrepreneurs understand not just what they should be doing in their business, but they also understand the importance of what they should not be doing says Edmonton business plan. The author of the book good to great, Jim Collins has said the same thing in his book ìThe good-to-great companies did not focus principally on what to do to become great; they focused equally on what not to do and what to stop doing. î One way that business owners can ensure they are taking on this principle in their business, is by utilizing key performance indicators alongside their financial statements to create a financial statement ratio analysis that can give an entrepreneur significantly more information about their business then looking at the financial statements alone.
The information that a business owner can get from their financial statements is extremely good, but they are only financial. A business owner will be able to see the profitability of their business by looking at margins, expenses, reviewing their revenue this year as compared to other years says Edmonton business plan. They are even able to predict cash flow in their business and take notes if they are projecting a cash flow shortage in their business. However, as good as financial statements are and they are extremely important for entrepreneurs to review if a business, looking at financial statements can only get a business owner so far.
The reason why it is only possible to get a certain amount of information from the financial statements says Edmonton business plan is because it is only possible for business owners to see the finances of their business, it is much harder for them to look at their financials and make decisions on their business. An example of this is if the business owner reviews the financial statements to discover that they are not making enough revenue in their business and they have cash flow problems. No amount of analyzing their finances are going to be able to help them increase revenue. There is a cash shortage, business owners need to figure out how to fix that.
Edmonton’s business plan says this is where key performance indicators come in. Simply looking at the finances of the business is going to tell business owners what they need to do to increase their finances, avoid cash flow shortages in a variety of other things. However key performance indicators can help entrepreneurs figure out what the changes they need to make in their business to affect their financial statement. An example of this is if a business owner sees from their financial statements that they are running out of money, they should look at the key performance indicators based around revenue generation and decide on which one they want to increase or start doing more of. Examples of key performance indicators on revenue generation are the number of Google reviews a business has, how much money they are spending on advertising and the number of leads that are coming into the business.
Some of the most successful entrepreneurs in the world are extremely proactive in their business, not just reviewing their financial statements to figure out what the finances are of their business says Edmonton business plan, but also reviewing something called key performance indicators that can help business owners figure out what changes they need to make in their business to avoid cash flow problems, and increase their revenue. Jim Collins author of 6 books including bestseller Good to Great has been quoted as saying in his book: ìThe good-to-great companies did not focus principally on what to do to become great; they focused equally on what not to do and what to stop doing.î
Industry Canada says that half of all businesses will fail within five years of opening their business and out of all of those failed entrepreneurs, they were asked to share the reason why their business failed, and they gave overwhelmingly three responses back. These three responses overshadowed any other responses that entrepreneurs gave is the reason why they failed. 42% said they failed because they were unable to find enough customers in their business. 29% said that they ran out of money in their business and 23% said they were not able to find the right staff. If business owners can figure out a way to avoid these pitfalls, they could increase their chances of succeeding in their business.
A powerful tool that business owners can use to help them increase their chances of succeeding in business simply by being proactive to avoid those three most common business failure reasons, is the financial statement ratio analysis. Most entrepreneurs say that they understand how important it is to be reviewing their financial statements, to see the financial health of their business. However, reviewing the financial statements alone is not enough to help business owners make decisions on what to do in their business if they want to avoid cash flow shortages, or increase their revenue. By utilizing key performance indicators, business owners turn their financial statements into financial statement ratio analysis, they can help business owners figure out what to change in their business to affect their financial statement says Edmonton business plan.
For example, if business owners see that their revenue is increasing in their business, and they want to find out why it is increasing so much, they can look at the key performance indicators devoted to revenue generation, and they may see that the number of Google reviews that their business has been skyrocketing recently. Edmonton’s business plan is a business owner can make the reasonable assumption that their revenue is skyrocketing because that key performance indicator has been performing exceptionally well.
By understanding and reviewing their key performance indicators alongside their financial statements says Edmonton business plan, entrepreneurs are able to make the decisions about what to change in their business to improve their business.