Using KPIs to Drive Financial Success

Running a business in New Zealand is tough work. Whether you’re in construction, retail, professional services or manufacturing, the daily challenges of keeping customers happy, managing staff, and balancing cash flow can be all-consuming.

One of the most powerful tools to make sense of it all is the use of key performance indicators (KPIs).

Now, KPIs might sound like something out of a corporate handbook – complicated, heavy, and best left to analysts. But the truth is, when you strip them down, KPIs are simply measurable numbers that show how your business is performing. Once you know which ones to track, they can help you steer your business with confidence.

Why KPIs Matter for Owners

For many SME owners, the financial side of business can feel like it’s written in another language. The good news is, it’s not rocket science. With a bit of familiarisation, KPIs become a powerful way to navigate and understand performance.

Think of KPIs as your dashboard. Just like in a car, you don’t need to know everything about the engine – you just need the right gauges in front of you, so you know when things are running smoothly and when something needs attention.

A Few KPIs That Matter Most

Here are some common ones we often highlight with clients:

Profit and performance KPIs:

• Gross Profit Margin: percentage of sales left after covering the direct cost of goods or services.
• Net Profit Margin: what you actually take home after all expenses.
• Debtor Days: how long it takes to get paid after sending an invoice.
• Inventory Turnover: how quickly you sell through your stock.
• Cash Conversion Cycle: how fast you can turn operations into cash.

Balance sheet KPIs:

• Current Ratio: your ability to pay short-term obligations with short-term assets.
• Debt-to-Equity Ratio: how much leverage you are using to fund the business.
• Return on Assets (ROA): how effectively you use assets to generate profit.

Bespoke KPIs can be just as important. For example, one client tracks their wages-to-sales ratio across revenue channels to ensure labour costs align with revenue streams. KPIs can be designed to fit your business model and industry — the options are almost limitless.

Mark-Up vs Gross Margin – A Costly Confusion

A common mistake is mixing up mark-up with gross margin.

Here’s a quick example (excluding GST):

• Buy a product for $100.
• Add a 25% mark-up → sell it for $125.
• Gross margin? Only 20%, not 25%.

Now imagine you thought you were working on 25% gross margin, but were really achieving only 20%. Across $1 million of sales, that difference could mean $50,000 in lost profit.

As one of our Directors often reminds us: “Without gross profit, we have nothing left.” Gross profit funds your overheads, your growth, and ultimately, your reward as the business owner. If it’s not there, nothing else works.

Making KPIs Easy to Track

At Andersen, we know most business owners don’t want to wade through complex spreadsheets. That’s why, working alongside our Growth Partner Solutions and Corporate Finance teams, we help businesses create simple, customised dashboards.

These dashboards are:

• Visually clear and easy to read.
• Tailored to what matters in your business.
• Equipped with alerts so you know when a KPI is moving in the wrong direction.

This means you can take corrective action early — before issues become costly. As the saying goes: better to prevent than to cure.

Final Thoughts

If you’re an SME owner, don’t underestimate the power of KPIs. They’re not just numbers for accountants – they’re the story of your business; told in a language you can act on. By focusing on the right indicators, you can make better decisions, avoid costly mistakes, and drive your business towards long-term financial success.

If this article resonates with your needs, and you’d like to explore more, please contact our Andersen New Zealand team. We can help you decide which KPIs are most relevant, create tailored dashboards, and even participate in monthly finance meetings to interpret results and support corrective measures.

Author - JK