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Monthly Archives: December 2015

Key Performance Indicators – Overview of KPIs



This article will give an overview of key performance indicators (KPIs)  and offer some helpful tips and advice when it comes to defining KPIs.

Overview of Key Performance Indicators:

A performance indicator is a measurement by which some sort of performance is gauged.  A key performance indicator is a specific type of performance indicator that has been identified as being critical to the performance of a business, company or organization.

Obviously, the nature of an organization or company will affect the types of key performance indicators examined.  Businesses tend to look at issues/events such as:

  • The amount of income from new and returning customers.
  • Total sales per month, year, etc.
  • Sales by department, sales personnel, etc.
  • The return on investment (ROI) from advertising and marketing campaigns.
  • Turnover of accounts payable.
  • Cash flow return on investments.
  • Processing costs of invoicing.
  • Amount of bad debt versus revenue.
  • Return on equity.
  • Monetary value of overdue invoices.

Defining and monitoring KPIs, as well as taking action based upon KPI results, are critical parts of any professional performance-management process.

Types of KPIs:

Key performance indicators can be differentiated by the nature of their measurements.  Some types of KPIs are:

  • Quantitative indicators, which represent a finite number.
  • Directional indicators, which represent upwards or downwards trends.
  • Financial indicators, which represent some sort of finance-specific values (e.g., ROI).

Defining Key Performance Indicators:

It is important to have a few things in place before defining KPIs:

  1. Have a formalized business process.  KPIs should allow for some type of action to occur, based on KPI values.  Modifying processes can be difficult if those processes are not documented and understood.
  2. Define business goals.  Know what it is you want to achieve and then utilize key performance indicators that will help you achieve those goals.
  3. Be able to quantify your business metrics.  Most often this is done via customer relationship management (CRM) software, along with a back-end database system.  Company data should always be stored in electronic format so it can be easily queried.

The next step is to think about what metrics play an important role in your success – and from that define key performance indicators that measure those metrics in a way that is “actionable.”   In other words, a KPI’s value should result in some sort of possible action being taken.  The exception is a KPI’s value that represents either success or failure: in the case of “success” an action may not be required.

Once you have determined what your key indicators are going to be you must then set some sort of numerical targets for them.  Numerical targets can be:

  • An upper or lower limit.
  • A specific value.
  • A range of values.
  • A percentage.
  • A date (by which time something should be completed).

Your key performance indicators must then be analyzed by users who have the authority to take action or initiate some sort of action based on KPI values.

Note that KPIs are most often included in data visualization software such as performance dashboards.


This article has just scratched the surface on the importance of key performance indicators.  However, it should be apparent that performance management and KPIs can and should play a crucial role when it comes to achieving your defined goals and objectives, whatever they may be!

[ad_2] Source by Steve Bogdon

Are Your Business Ratios Convincing Your Banker?


There are several key ratios you need to understand in order to gain your bankers confidence and prove to him/her you know what you are doing. It is much better to prepare and present the information well in advance rather then make the banker ask for it.

The key ratios your banker will be looking for fall into five groups:

  • liquidity ratios (are current assets adequate to meet current obligations?),
  • coverage ratios (is your business able to service debt?),
  • Leverage ratios (how vulnerable is your business to poor market conditions?),
  • Operating ratios (these assist you and your banker in evaluating your performance),
  • expense to sales ratios.

These ratios can also be expressed in terms of key income statement ratios, key balance sheet ratios and key asset management ratios.

Key balance sheet ratios (ratios based on information from your balance sheet) help the banker (and you) determine the solvency of your business and its financial safety. These ratios include the current ratio, the quick ratio and the safety ratio.

It is the Key asset management ratios, which will help you and your banker, determine how well you are operating your business. These ratios include sales to assets, return on assets, return on equity, inventory management, accounts receivable, management (how quickly you collect your money) and accounts payable management. Unless you are familiar with bookkeeping, it is strongly recommended that you seek assistance from your bookkeeper or accountant before attempting to prepare ratio analysis information for the banker.

Once your bookkeeper or accountant has prepared the ratio information for the loan officer, that individual should consult a copy of the current RMA Annual Statement Studies (Robert Morris Associates, the national association of bank loan officers). Turn to the (SIC) Standard Industrial Code Classification for your industry and start making comparisons between your business and those of your peers. Since there is a significant difference in total sales, costs of operations and so forth, the basis for comparative analysis are these ratios. For more information on how this process works it is recommended you read the relevant information regarding how RMA studies are prepared and what they mean. Your banker and local libraries will have a copy you can review.

In order to give you as clear an understanding as possible, the following key ratio information is based on the RMA material.

Key liquidity ration include the current ratio, the quick ratio, (also known as the “acid test”), sales to receivables, cost of sales to inventory, cost of sales to payable, days payable, and sales to working capital.

Current Ratio

Total current assets

Total current liabilities.

The current ratio divides total current assets by total current liabilities. RMA defines this ratio as a rough indication of a business’s ability to service its current obligations. The higher the current ratio the greater the difference between obligations and your business’s ability to pay them.

Since the current ratio is comparing the current assets with the current obligations of the business, a higher than industry ratio would indicate a larger amount of current assets (cash, inventory, receivables) to current liabilities (payables-including current payroll obligations, and current portion of long term debt) and possibly indicates a stronger position of the business to meet short term obligations.

Quick Ratio

Cash & equivalents + trade receivables – (net)

Total current liabilities

The quick ratio is a more conservative measure of liquidity. This ratio states the degree to which a business’s current liabilities are covered by the most liquid of the assets.

Much like the current ratio, the quick ratio includes only those assets, which can be quickly converted to cash. A higher than average ratio would indicate that quick assets (cash and receivables) are strong in relation to current liabilities for the same reasons as noted above under current ratio. This ratio does not take into consideration the revolving nature of current assets and liabilities, and management can put pressure on either of these to influence this ratio at a particular assessment date.

Sales/Receivable Ratio

Net sales

Trade receivables – net

The sales to receivables ratio is simply set sales divided by trade receivables, and it measures the number of times trade (accounts) receivables turn over during the year. Generally, the higher the turnover, the better.

A higher than average number would be an indication that receivables are lower than usual at the balance sheet date. This could happen if a large outstanding balance was paid off just before the balance sheet date, or could just be that a business’s credit policy is tighter than the average.

Day’s Receivable Ratio


sales to receivable ratio

This ratio states the average time in days that receivables are outstanding. As you know, the greater number of days outstanding, the greater the likelihood the accounts receivable will turn bad.

This ratio indicates the average number of days to collect receivables. This can very for the same reasons noted under sales/receivable ratio.

In subsequent articles we will discuss ratios in more detail, including:

  • Cost of sales/inventory ratio & day’s inventory
  • Cost of sales/Payable ratio
  • Sales to Working Capital Ratio
  • Coverage Ratios
  • Net profit + Depreciation/current portion of long-term debt ratio
  • Leverage ratios
  • Net fixed assets/net worth ratio
  • Debt/net worth ratio
  • Operating Ratios
  • Percent of profit before taxes/tangible net worth ratio
  • Percent of profits before taxes/total assets ratio
  • Leverage ratios
  • Net fixed assets/net worth ratio
  • Debt/net worth ratio
  • Sales/net fixed assets ratio
  • Sales/total assets ratio

Happy trails

[ad_2] Source by Donald Yates

Accounting Basic – What is the Accounting Equation?


The accounting equation is the basic, fundamental formula of double-entry system. The formula of the equation involves a business’s liabilities, assets, and equity and how these three elements are related. The formula says that a business’s equity, or net worth, can be calculated by subtracting the worth of the business’s liabilities from the worth of its assets.

The accounting equation is the most commonly used equation on balance sheets, and it is necessary to understand the equation in order to properly evaluate and understand balance sheet.

With a basic understanding of the terms associated with the equation, it is relatively easy to understand the formula and how it works. The worth of a business’s liabilities is the total amount of money or resources the business paid out in order to acquire its assets. The worth of a business’s assets is the total amount of money or products in possession of the business owner. The accounting equation is represented: worth of assets – worth of liabilities = total equity.

For an example of the accounting equation let us consider ABC Cellular Phones. Last month the following transactions took place:

  • the owner invested $3,000 into his business
  • paid $500 for his bills for the month
  • received $1,000 from customer for purchases.

The equation would look like this:

assets ($3,000 + $1,000) – liabilities ($500) = $3,500 total equity.

It is important to understand that this illustration is very basic and does not take into consideration factors that influence the worth of business’s assets and liabilities, such as depreciation, that can fluctuate over time.

The accounting equation works not only to accurately assess the equity of a business, but also to alert a business to problems regarding the calculation of its equity. If the equation is properly used and the liabilities are accurately subtracted for the assets, the calculated equity should match the actual equity. If there is a discrepancy between what the accounting equation calculates as a company’s equity and the actual equity, then there is clearly a problem that should be investigated. Or, if the sum of the worth of liabilities and the worth of the equity does not equal the worth of assets, there is an accounting error. Thus, a discrepancy can alert businesses to a problem with their balance sheet.

[ad_2] Source by Ana Orwel

Tax-Free Rental Income


Real estate is one of my absolute favorite areas in the tax law. Why? Because there is so much flexibility in how to do things in order to legally maximize the tax benefits available.

Did You Know You Can Receive Rental Income Tax-Free?

Of course, there are specific rules behind this permanent tax saving strategy. I find that after I go through the rules with my clients, we usually find a way to use this strategy – legally – and it creates another stream of permanent tax savings. Plus, this strategy can be used every year so these are annual permanent tax savings!

General Rule

The rule is applied most often to vacation homes. The rule prevents taxpayers from deducting large expenses as rental real estate expenses for maintaining their vacation home.

The rule states that if you rent your property for 14 days or less per year, then the expenses that are not otherwise deductible are considered personal non-deductible expenses. This means no deduction for utilities, insurance, maintenance or similar expenses. It also means no depreciation deduction.

On the flip side, however, the rental income received is tax-free.

The reasoning behind this rule is that If the expenses were allowed to be deducted, it would likely lead to a large loss because these expenses (even pro-rated for the rental period) typically outweigh the rental income. So, the rule takes a conservative approach by making the expenses non-deductible and the income non-taxable.

Ways to Apply this Strategy

While the rule is most often used in the situation of vacation homes to prevent taxpayers from claiming rental losses on a property rented 14 days or less per year, it can be applied to any property – including your residence!

You’ve probably heard of people renting their home for a week to out-of-town visitors coming into town for big sports and entertainment venues. As long as the total days rented doesn’t exceed 14, the rental income they receive is tax-free.

Now, some of us may not be too excited to rent our home to strangers, but perhaps there are people (or even companies) we know who may want to rent our homes for a short period of time.

As I mentioned previously, usually my clients and I are successful in finding ways to use this great permanent tax savings strategy. At first, many clients don’t think it will apply to them, but after they are able to think about it as they go through their day-to-day activities, they find a way to use it – legally!

Copyright (c) 2009 Tom Wheelwright

[ad_2] Source by Thomas Wheelwright

Human Resource Management and Organizational Effectiveness


1. Introduction

Organizational effectiveness depends on having the right people in the right jobs at the right time to meet rapidly changing organizational requirements. Right people can be obtained by performing the role of Human Resource (HR) function. Below is an outline and explanation of how to assess the HR functions of an organization by using HR activities in an architectural firm as an example. Human resource management (HRM), as defined by Bratton, J. & Gold, J. (2003), is

“A strategic approach to managing employment relations which emphasizes that leveraging people’s capabilities is critical to achieving sustainable competitive advantage, this being achieved through a distinctive set of integrated employment policies, programmes and practices.”

According to this definition, we can see that human resource management should not merely handle recruitment, pay, and discharging, but also should maximize the use of an organization’s human resources in a more strategic level. To describe what the HRM does in the organization, Ulrich, D. & Brocklebank, W. (2005) have outlined some of the HRM roles such as employee advocate, human capital developer, functional expert, strategic partner and HR leader etc.

An important aspect of an organization’s business focus and direction towards achieving high levels of competency and competitiveness would depend very much upon their human resource management practices to contribute effectively towards profitability, quality, and other goals in line with the mission and vision of the company.

Staffing, training, compensation and performance management are basically important tools in the human resources practices that shape the organization’s role in satisfying the needs of its stakeholders. Stakeholders of an organization comprise mainly of stockholders who will want to reap on their investments, customers whose wants and desires for high quality products or services are met, employees who want their jobs in the organization to be interesting with reasonable compensation and reward system and lastly, the community who would want the company to contribute and participate in activities and projects relating to the environmental issues. Common rules and procedures of human resource management must be adhered to by the organization which forms basic guidelines on its practices. Teamwork among lower levels of staff and the management should be created and maintained to assist in various angles that would deem necessary in eliminating communication breakdowns and foster better relationship among workers. The management should emphasize on good corporate culture in order to develop employees and create a positive and conducive work environment

Performance appraisal (PA) is one of the important components in the rational and systemic process of human resource management. The information obtained through performance appraisal provides foundations for recruiting and selecting new hires, training and development of existing staff, and motivating and maintaining a quality work force by adequately and properly rewarding their performance. Without a reliable performance appraisal system, a human resource management system falls apart, resulting in the total waste of the valuable human assets a company has.

There are two primary purposes of performance appraisal: evaluative and developmental. The evaluative purpose is intended to inform people of their performance standing. The collected performance data are frequently used to reward high performance and to punish poor performance. The developmental purpose is intended to identify problems in employees performing the assigned task. The collected performance data are used to provide necessary skill training or professional development.

2. Affirmative action has assisted many members of minority groups in creating equal opportunities in education and employment. Who could object to assisting these minorities, who suffered years of discrimination, in getting the equal opportunity they deserve? The problem is, affirmative action promotes racial preferences and quotas which cause mixed emotions. One time supporters of affirmative action are now calling out “reverse discrimination”. If we want a stronger support for affirmative action we need to get rid of the preferential treatments.

The back bone of affirmative action began with the ratification of the Thirteenth Amendment. The amendment abolished slavery and any involuntary labor, is showed there was a calling for equal opportunity for all South Africans.

A comprehensive Human Resource Strategy plays a vital role in the achievement of an organisation’s overall strategic objectives and visibly illustrates that the human resources function fully understands and supports the direction in which the organisation is moving. A comprehensive HR Strategy will also support other specific strategic objectives undertaken by the marketing, financial, operational and technology departments.

In essence, an HR strategy should aim to capture “the people element” of what an organisation is hoping to achieve in the medium to long term, ensuring that:-

o it has the right people in place

o it has the right mix of skills

o employees display the right attitudes and behaviours, and

o employees are developed in the right way.

If, as is sometimes the case, organisation strategies and plans have been developed without any human resource input, the justification for the HR strategy may be more about teasing out the implicit people factors which are inherent in the plans, rather than simply summarising their explicit “people” content.

An HR strategy will add value to the organisation if it:

o articulates more clearly some of the common themes which lie behind the achievement of other plans and strategies, which have not been fully identified before; and

o identifies fundamental underlying issues which must be addressed by any organisation or business if its people are to be motivated, committed and operate effectively.

The first of these areas will entail a careful consideration of existing or developing plans and strategies to identify and draw attention to common themes and implications, which have not been made explicit previously.

The second area should be about identifying which of these plans and strategies are so fundamental that there must be clear plans to address them before the organisation can achieve on any of its goals. These are likely to include:

o workforce planning issues

o succession planning

o workforce skills plans

o employment equity plans

o black economic empowerment initiatives

o motivation and fair treatment issues

o pay levels designed to recruit, retain and motivate people

o the co-ordination of approaches to pay and grading across the organisation to create alignment and potential unequal pay claims

o a grading and remuneration system which is seen as fair and giving proper reward for contributions made

o wider employment issues which impact on staff recruitment, retention, motivation etc.

o a consistent performance management framework which is designed to meet the needs of all sectors of the organisation including its people

o career development frameworks which look at development within the organisation at equipping employees with “employability” so that they can cope with increasingly frequent changes in employer and employment patterns

o policies and frameworks to ensure that people development issues are addressed systematically: competence frameworks, self-managed learning etc.

The HR strategy will need to show that careful planning of the people issues will make it substantially easier for the organisation to achieve its wider strategic and operational goals.

In addition, the HR strategy can add value is by ensuring that, in all its other plans, the organisation takes account of and plans for changes in the wider environment, which are likely to have a major impact on the organisation, such as:

o changes in the overall employment market – demographic or remuneration levels

o cultural changes which will impact on future employment patterns

o changes in the employee relations climate

o changes in the legal framework surrounding employment

o HR and employment practice being developed in other organisations, such as new flexible work practices.

Finding the right opportunity to present a case for developing an HR Strategy is critical to ensuring that there will be support for the initiative, and that its initial value will be recognised by the organisation.

Giving a strong practical slant to the proposed strategy may help gain acceptance for the idea, such as focusing on good management practice. It is also important to build “early or quick wins” into any new strategy.

Other opportunities may present the ideal moment to encourage the development of an HR Strategy:-

o a major new internal initiative could present the right opportunity to push for an accompanying HR strategy, such as a restructuring exercise, a corporate acquisition, joint venture or merger exercise.

o a new externally generated initiative could similarly generate the right climate for a new HR strategy – e.g. Black economic empowerment initiatives.

o In some instances, even negative news may provide the “right moment”, for example, recent industrial action or employee dissatisfaction expressed through a climate survey.

[ad_2] Source by Jacques Groenewald