As much as I love Balance Sheets and P&Ls, they do have a couple big drawbacks. First, they take time to prepare and interpret (especially if you’re not an accountant). Second, they often put business owners to sleep because they contain too much information.

That’s why Key Performance Indicators (KPIs) are such a useful tool. The basic idea: Identify a small set of key numbers that highlight what's happening in crucial areas of your business, then look at those numbers on a regular basis (daily, weekly, monthly) to gauge how your business is performing. This is a lot easier than plowing through a full set of financials.

There are tons of different KPIs out there and the concept can feel overwhelming at first, but it’s not brain surgery. At Scooter, we focus primarily on financial KPIs (because we’re accountants) and here are a few examples to show you what I mean:

• Daily/Weekly/Monthly Revenue: No surprise here, every business owner wants to know how sales is tracking. It’s nice to look at this month’s revenue and your YTD total, as well.

• Gross Profit: Tells you how much profit the business is making before operating expenses have been paid. Accountants like to look to look at this number in both dollar and percentage terms (the percentage figure is called “Gross Margin”).

• Operating Expenses: This includes all the expenses the business incurs during its day-to-day operations. In addition to looking at the total, it’s nice to have a list of your top five monthly expenses (rent, payroll, advertising/marketing, software expenses, etc.).

• Cash on Hand: I’m stating the obvious here but cash on hand (which mostly consists of your bank balance plus or minus a few other things) is a number that needs to be watched closely every day. Over time you should develop a feel for how much cash the business needs have on hand to cover its regular operating expenses (a “target number,” so to speak) and if your balance falls below that number, somebody should ring the cow bell.

• Accounts Receivable (A/R): Another crucial number, almost as important as cash. In addition to tracking your total A/R, you should keep a close eye on your A/R aging and any overdue customers or invoices.

• Quick Ratio: One of my favorite ratios. The quick ratio (or “acid test”) tells you if your business has enough cash and liquid assets to pay its current liabilities. A quick ratio of less than one is a trouble sign, it means you don’t have enough money to pay your bills.

In addition to financial KPIs, there non-financial KPIs that can be equally if not more useful to business owners. These are trickier to identify because they don’t come straight from your accounting system and often need to be created from scratch. However, they can be especially valuable because they highlight important things about the business that aren’t included in the financials.

Here are some examples of non-financial KPIs: number of units sold, number of orders shipped, number of new customers, customer conversion rate, sales per square foot (a famous KPI for retailers), total headcount, employee turnover, and various customer service metrics.

Building a KPI system isn’t easy, it takes hard work and persistence. But the payoff can be big because all of a sudden you have a small, carefully-chosen set of numbers that tell you what’s happening in crucial areas of your business. And sometimes having a handful of key numbers that you can understand at a glance is better than having 3-5 pages of financial reporting that you don’t have time for.