By Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs
In a constantly changing business environment, what works for your business today may not necessarily work tomorrow. To ensure that your business continues to grow and thrive for years to come, you need to be monitoring and measuring your business in order to manage it. One way to monitor and measure the health of the business is through Key Performance Indicators (KPIs).
KPIs are financial and non-financial measures of activity outcomes that indicate how a business, or a process within a business, is performing. The first step is to determine and develop KPIs that are vital to the growth and success of your business. In agribusiness, there are a number of KPI categories that your business may want to measure. For example, here are some categories of KPIs and some specific examples of ratios to track within each category:
- Productivity: Estimated production potential, fertilizers per output, chemicals per output, yield per acre.
- Finance: current ratio – the ability of your business to pay all of your financial obligations within a year; working capital — measure your business’s financial health by analyzing readily available assets, and; return on equity — measure profitability by examining your ability generate revenue for each shareholder; operating profit — can be expressed on a per animal or per crop basis; profitability per field/ department — this metric will address which areas need more attention. If you can calculate profit in each area of the farm is turning over within a given period, you can then consider potential expansion in those areas that are most profitable.
- Administrative: Planation age structure, total plant number, field utilization rates, people efficiency, and mechanization utilization.
- Inventory: Monthly stock usage, waste percentage, average usage period for various inputs.
After identifying and tracking the actual results of the KPIs, you should compare them against your plan. You and your team should select those KPIs that provide meaningful and timely feedback about the strategy execution and financial performance of your business. The monitoring of KPIs will help you and your team to proactively identify emerging problems and opportunities and to ensure that you are getting the most out of your business plan. It is typically recommended that KPIs are monitored monthly, but this exercise can vary depending on the individual KPIs determined for the business. KPIs should to be available to the appropriate individuals within your business who can digest the information and make change within the organization accordingly. They shouldn’t sit on the owner’s desk, but should be seen by the people in charge of the particular KPI. Besides tracking KPIs for business growth, they can also be used to help with retainage of high-performing individuals on your team by getting their buy-in on decisions in order to help move them in the right direction.
Remember, there is always an opportunity for your business to be better! If you aren’t monitoring your actual results regularly you may miss out on the next big opportunity or you may cease to exist. Holbrook & Manter has been utilizing KPI’s for their clients and also for the firm for almost a century as we look to celebrate our 100-year anniversary next year.
Brian E. Ravencraft, CPA, CGMA is a Principal with Holbrook & Manter, CPAs. Brian has been with Holbrook & Manter since 1995, primarily focusing on the areas of Tax Consulting and Management Advisory Services within several firm service areas, focusing on agri-business and closely held businesses and their owners. Holbrook & Manter is a professional services firm founded in 1919 and we are unique in that we offer the resources of a large firm without compromising the focused and responsive personal attention that each client deserves. You can reach Brian through www.HolbrookManter.com or at BRavencraft@HolbrookManter.com.