An accounting practice’s key performance indicators (KPIs) are the set of quantifiable measures that are used to gauge or compare performance in terms of meeting the practice’s strategic goals. A good KPI should act as a compass as it lets you know whether you are taking the right path towards your strategic goals. To be effective, a KPI must be well-defined and quantifiable, communicated throughout the business, and actually be crucial to achieving the goal. They are a ’key’ to optimal performance.
Common accounting practice KPI’s include:
- Profit – This is the most important performance indicator. Both the absolute profit per partner and net profit margin should be analysed.
- Labour cost versus revenue – This should ideally be 30% to 35% of revenue.
- Overheads – Measures cost effectiveness and assists in finding the best ways to reduce and manage costs.
- Number of customer numbers gained versus customers lost.
- Revenue ‘vs’ Target – This is a comparison between the actual revenue and the projected revenue.
- Day’s revenue outstanding – The lower the number, the better the practice is doing at collecting the debtors.
- Work in progress versus revenue – This shows the funds the practice has invested in partly completed work that hasn’t been billed to clients yet. Less than 5% to 10% is good.
- Staff turnover – Annual percentage.