How Hornchurch accountants can help you measure business performance
As Hornchurch accountants, we understand that often small and medium-sized business owners ask: how do I know if my business is performing well?
While your profit and loss account gives a snapshot of financial results, there are a range of additional metrics — beyond simply revenue and net profit — that more fully reveal your business’s strengths and weaknesses.
Using the right key performance indicators (KPIs) allows you to see whether you are meeting your strategic goals.
But choosing indicators that are meaningful — and interpreting them correctly — is just as important as collecting the data.
Use accounting ratios (with guidance from Hornchurch accountants)
One of the most common ways Hornchurch accountants measure performance is through accounting ratios — comparing one business metric against another to obtain insight.
For example, comparing the cost of goods sold to your average stock gives you stock turnover, a clear indicator of how fast your inventory converts into sales.
Ratios help interpret your numbers rather than just view them in isolation. As Hornchurch accountants, we see how ratios:
-
Highlight trends or anomalies in profitability
-
Pinpoint inefficiencies in operations
-
Enable peer comparisons and benchmarking
-
Aid in forecasting and planning
However, ratios must be interpreted carefully. If the current ratio rises, for instance, it might signal improved liquidity — or it could hide excess unused stock.
As Hornchurch accountants, we’d always dig deeper to find root causes.
Set specific goals & targets as advised by Hornchurch accountants
Beyond accounting ratios, performance measurement should link directly to goals.
Hornchurch accountants often recommend defining metrics tied to business priorities — not just financial ones. Examples include:
-
Average time to fulfil orders
-
Rate of sales conversion
-
Number of returns or complaints
-
Employee turnover
-
Energy or resource usage per unit produced
Ensure your KPIs are SMART: Specific, Measurable, Achievable, Realistic, Time-based. Also, limit the number to a manageable set so you don’t drown in data.
As Hornchurch accountants, we often work with clients to distil 4–7 core KPIs that truly reflect business health.
Common accounting ratios analysed by Hornchurch accountants
Below are the essential ratios that Hornchurch accountants use to assess performance across profitability, liquidity, and operational efficiency.
Profitability ratios
-
Gross profit margin = (Gross Profit ÷ Turnover) × 100
-
Net profit margin = (Net Profit ÷ Turnover) × 100
-
Return on assets = (Net Profit ÷ Net Assets) × 100
-
Break-even point = Fixed Costs ÷ Gross Margin Percentage
Liquidity ratios
-
Current ratio = Current Assets ÷ Current Liabilities
-
Quick ratio = (Current Assets – Inventory) ÷ Current Liabilities
Performance / efficiency ratios
-
Debtor (receivables) days = (Debtors ÷ Credit Sales) × 365
-
Creditor (payables) days = (Creditors ÷ Purchases) × 365
-
Stock turnover = Cost of Goods Sold ÷ Average Stock
These ratios, used regularly, help you and your Hornchurch accountants monitor cash flow, working capital, and operational effectiveness.
How frequently should Hornchurch accountants review KPIs?
To get meaningful insights, your KPIs should be evaluated at regular intervals — often monthly or quarterly. Tracking over time reveals trends, seasonality, or outliers.
Hornchurch accountants typically advise:
-
Producing management accounts monthly
-
Comparing KPI trends over multiple periods
-
Benchmarking against industry norms
-
Investigating deviations from expected performance
Always bear in mind: a change in a ratio is a signal, not a diagnosis — you must investigate underlying causes.
How Trueman Brown (Hornchurch accountants) can support you
At Trueman Brown, we act as your trusted Hornchurch accountants, helping you to measure, interpret, and act on performance metrics.
Whether you need help selecting the right KPIs, preparing regular management accounts, or analysing trends, we are here.
You can reach us via email at mark@truemanbrown.co.uk or by telephone on 01708 397262.
We’ll work with you to build a dashboard of meaningful metrics and guide you in using them to steer your business.
Frequently Asked Questions (FAQ)
Q: What exactly are KPIs, and why do I need them?
A: KPIs (Key Performance Indicators) are quantifiable measures that reflect how well your business is achieving core objectives. They help you track progress, spot problems early, and make informed decisions.
Q: How many KPIs should my business monitor?
A: It depends on your size and complexity, but we generally recommend focusing on 4 to 7 core KPIs. Too many dilute focus and make actionable insight harder to uncover.
Q: Can Hornchurch accountants help me benchmark against my industry?
A: Yes — as Hornchurch accountants, part of our role is to provide comparative data from your sector, so you can see where you stand versus peers.
Q: How often should I review performance metrics?
A: Monthly is ideal. It gives you regular feedback without being overwhelming. Quarterly reviews are also useful for high-level trends.
Q: What if a KPI moves in the “wrong” direction — should I panic?
A: Not immediately. A decline or rise is a signal to investigate, not necessarily a failure. With your Hornchurch accountants, you’ll explore root causes and determine appropriate interventions.
Q: How can I get started with Trueman Brown as my Hornchurch accountants?
A: Simply contact us at mark@truemanbrown.co.uk or 01708 397262. We’ll arrange an initial consultation to understand your business and set up performance measures tailored to your goals.