Key Performance Indicators for Service Businesses. A White Paper by Stephen King President & CEO of GrowthForce

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1 Key Performance Indicators for Service Businesses A White Paper by Stephen King President & CEO of GrowthForce

2 2 KPIs FOR SERVICE BUSINESS Introduction INTRODUCTION There s an age old idiom: what management monitors gets done. This article summarizes the Key Performance Indicators ( KPIs ) GrowthForce finds small service business owners need to build a Typically, they include: Pricing: are we charging enough for our services? Staffing: who are our best performers and how do we reward INTRODUCTION successful business. As a business owner what KPIS should you monitor? There are only a few decisions that will make or break most businesses. them? When should we hire new staff and should anyone be let go? Cash flow: what is our Days Sales Outstanding (DSO)? Are we doing a good job billing and collecting?

3 KPIs FOR SERVICE BUSINESS Creating Reports It cost time money to create and review each report. Before you start creating reports, first you should ask what reports do you need? Many companies waste a lot of time generating reports that 3 don t get used. Worse yet, reports that might be needed aren't created and decisions about pricing, staffing and scheduling end up being made by the seat of the pants rather than being data-driven. CREATING REPORTS Typically, they include: What information do you need to see each day, week, month & quarter? Which managers need to see this data? What decisions do these managers need to make? How often to they need to get these reports so they can make those decisions? Management reports should be created with a specific purpose to make informed decisions. There are hundreds of decisions that get made each week but only a few that make a difference in the success of a business.

4 KPIs FOR SERVICE BUSINESS LABOR AS A KPI 4 Labor as a KPI The primary product of a service business is its employees. By definition that means the largest expense of a service business is labor. The ability to manage staff costs will make or break a service business. The most important KPIs for a service business are related to tracking labor. To help service business owners make critical decisions we suggest a weekly and monthly reporting package including the following: Utilization (%): How many hours is each person spending of a 40 hour week on client time? Realization Rate ($ per hour): How much revenue is each person earning in dollars per hour? (total revenue per client divided by total hours per client = revenue per hour) Gross Profit Margin ($ and %): What are the gross profits on the clients each person works on? This should be run on all completed projects (use the job status field to track closed projects) DSO: How long does it take you to get paid from those clients? (DSO= A/R/Total Sales x 360). For most businesses this should be 30 days or less.

5 KPIs FOR SERVICE BUSINESS The ability to keep your fingers on the pulse of your KPIs will tell you whether you are managing your staff, your cash and your business effectively. In addition to the labor and cash reports, we often recommend some of the following monthly 5 reports: P&L by month (summary for the past 4 months to evaluate trends) LABOR AS A KPI P&L by Qtr. Comparison (end of each quarter) P&L with % Income (shows spending as a % of income) Income by Customer Sales by item Unbilled Hardware/Software (ensure all cogs have been billed) Balance Sheet Sales tax liability In addition to closing the prior period and separating the bank reconciliation process from anyone with ability to pay bills, we also produce internal control reports to help reduce fraud. This includes deleted transaction report and zero invoice report. These reports ensure that there were no transactions that were deleted without your approval which is one major method of fraud. In summary, start with the end in mind. What information do you need to see each day, week, month, quarter and year in order to make critical business decisions about pricing, staffing and cash flow? Who needs to see those reports and how often will they be distributed? If you develop a standardized reporting package with KPIs, you will make more informed decisions and your business will be more successful.

6 About GrowthForce GrowthForce provides outsourced bookkeeping, accounting and controller services for growing businesses and nonprofits. GrowthForce combines advanced QuickBooks accounting system design with a fractional share of a full service accounting department including a U.S. based, dedicated team of bookkeepers, accountants and controllers. Our customized financial reporting and KPIs help small businesses and organizations drive performance and profitability through data-driven decisions. GrowthForce delivers a QuickBooks Smart Back Office that integrates and streamlines financial operations to meet the changing needs of growing businesses and nonprofits. To view our full library of case studies, white papers, and guides, please visit Rockmead Drive, Suite GrowthForce, LLC GrowthForce is not a CPA firm. GrowthForce accounting services provided through an alliance with SK CPA, PLLC. Kingwood, TX GRO_007_OFF_V3