KPIs for ACCOUNTING DEPARTMENTS

What key performance indicators (KPIs) determine the success or failure of a PEO’s accounting department? Timely and accurate numbers are definitely at the forefront. The PEO space can be a dynamic environment to operate in. The risk and margins are ever-changing and keeping our finger on the pulse is imperative to our success. Timeliness, accuracy, and efficiency are vital. As leaders, what are the key indicators for success or failure which we can measure quickly? I would classify the KPIs as related to three different areas: timeliness, accuracy, and relevancy.

For timeliness, the first KPI should be the numbers available as often as necessary to monitor progress and pivot if required.

KPI 1: DATE OF MONTH-END CLOSE VERSUS PLANNED CLOSE

How quickly your accounting department closes the books can be an indication of how effective and efficient they are. Does your team embrace technology to streamline processes?

KPI 2: PRIOR PERIOD CHANGES AFTER CLOSE
In a perfect word, there would be zero adjustments, but the world is not perfect. Consider how many adjustments were made to the previous month and what is the materiality of those adjustments. This can tell you how effective the company policies that surround the accounting processes are. Are invoices recorded timely? Are proper communications happening between departments? Are schedules accurate and maintained? In other words, how much can you rely on the numbers you are being presented with each month?

KPI 3: LIQUIDITY RATIOS
Cash is king so the importance of assets to liability is critical to any business. Nothing is more than what you have, who owes you, and who you owe. Not only should these numbers be accurate, but they should be top of mind to any senior leader.

KPI 4: CRITICAL MARGINS
Know where you are making and losing dollars and how does that trends with prior years and where you have forecasted for the next 12 months. Give yourself time to investigate, evaluate, and adjust accordingly.

KPI 5: BENCHMARKING
How do you compare to others in your space? At ESI, we use the NAPEO FROS survey as one component of evaluation along with others. Are we missing the mark or an opportunity to thrive? Some good benchmarking items in PEO that I have found useful are the numbers of client employees per internal employee (measures the efficiency of your production). Employees by department can also help create some boundaries for staffing decisions. Thirdly, items measured by number of client employees are useful. For example, gross profit per worksite employee. Obviously, the surveys provide invaluable data, but you must determine how that aligns to your business model and priorities. Additionally, the quarterly NAPEO Pulse survey can also be valuable for quick benchmarking more frequently than annually.

KPI 6: ACTUAL TO BUDGET VARIANCE
How effective are you at evaluating where you are going based on what you know now? Can you quickly adjust when things don’t go as planned? You cannot measure what you don’t know. If you review your variance, investigate concerning variances and correct your planning at the root cause there is no reason you cannot see yourself gradually improve in this area. After all, the CFO should be concerned even more about the future than the past to ensure we can get where we want to go.

KPI 7: PAYROLL TAXES AND LICENSING COMPLIANCE
In many PEOs, the payroll tax function and PEO licensing are managed by way of the accounting and finance department. The dollars we manage are large and quick-moving. Ideally, we want to see zero penalties and interest. If your processes and staff are sound, then this can be accomplished. Of course, accidents happen, but we aim to never have them happen again. The constant measurement of penalties and interest is imperative to know how well your processes and procedures are working as well as how effective your accounting management is.

KPI 8: BENEFITS VARIANCES, AGING AND WRITE-OFFS
We knew it was coming. One of the hardest items to manage in the PEO space is the reconciliation of benefit billings and deductions. Time is of the essence. This function is sometimes managed in PEO accounting departments or sometimes benefits departments. Many of us who have been in the industry for any period of time have tried both approaches. In either case, a sound reconciliation process is critical. How are you quickly getting to variances while minimizing manual effort? Most importantly, how quickly are issues getting corrected? If you don’t quickly resolve issues, you risk losing dollars or having to confront a client with an under or over-billing. If you’re a senior finance leader, you need to understand your current variances and how quickly they are getting resolved. Uncorrected errors can quickly diminish profitability and client satisfaction.

KPIs can be an incredible to way to understand what is going on in the business. Be sure to consider the source of your data. Ideally, the KPI is generated from a source that cannot be manipulated and it can easily be validated. Start with some KPIs for a while and decide what items work or don’t work for your business. Modify and adapt to find the best KPIs for you. Be open to changes and suggestions. Finally, use the KPIs to execute the long-term goals of the company. Combined with the correct team and the discipline to execute, your PEO can continuously move towards its goals.