How to Measure Business Performance

by Business Editor; Updated September 26, 2017
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How to Measure Business Performance. When you run your own business or have a vested interest in one through your investments, you need to know how to evaluate its performance based on facts and numbers. There are several parts in a business to watch. Here are some tips to measure the performance of a business and make appropriate changes to achieve your goals effectively.

Step 1

Evaluate the assets and liabilities of the business from the balance sheet. This shows the amount of capital used in the business, how much the business owes the creditors, the amount due from the debtors and the value of goodwill the business earned to date.

Step 2

Review the cash flow to assess operating, financial and investing activities. The effects of these activities can be understood through income and expenses from the statement of income. These help to compare the present and past financial performance of the business to see if budgets and forecasts are effective.

Step 3

Do internal comparison of cost and sales to understand if the amount of stock accumulated is increasing while sales remains stagnant, indicating poor utilization of stock.

Step 4

Compare the debtor and creditor values between past and present balance sheets to measure credit history. Make sure the debtors are paying on time to have a healthy cash circulation in the business and better performance. Check if the business is making payments to the creditor on time.

Step 5

Understand the customer satisfaction level through complaints and reviews from the end users. Having consistency and quality in performance and reliability improves goodwill, which is a key measure for the performance of a business.