According to the Wall Street Journal, 60-80% of business owners don’t know what their financial statements are telling them. I know what you’re thinking. “That’s not me.”
Numbers, numbers, numbers. It’s not the numbers themselves, but the stories that they tell that are important. Which numbers should you look at? What are the performance measures that you should pay attention to? Looking at the numbers from your accounting department isn’t enough. Having the correct numbers at your disposal will tell you about every aspect of how your business is operating.
Let’s talk about KPIs: Key Performance Indicators. These are the measures that tell you how your business is performing. These can fall into a number of different areas. They can include financial information, which would include not only your financial statements but also subsidiary reports that drive to the heart of how your business is operating. There are hundreds of relevant ratios, but which are the ones that are most critical to your company’s success and growth?
Other metrics come from your production floor. What is the information that you need to make your manufacturing more efficient? How does your current production compare to last year? Does that information tell you whether you’re improving? If you’re not looking at those numbers, you will eventually see the end result when the items that are dragging down your production success finally show up on your financial reports. It’s easier and much less painful to stop problems when they start to appear. Those problems may arise when comparing estimates to final production results, tracking inventory variances, scrap levels, set-up time on the production line, dock to stock time, order processing time, or telephone answering data.
Other metrics may include a variety of important issues – sales performance, or your banking relationship, for instance.
All of these impact your bottom line in one way or another. Some will have an insidious effect on your profitability that would take time to show up on your financials and will take a long time to correct; some will have an immediate impact. But by watching those defined metrics daily, weekly, monthly, you will identify trends, catch things that are starting to slip before they become problems, and identify quickly if changes you’re making are having an impact on your bottom line. As an entrepreneur, you are focusing on your business. A skilled CFO has the experience to identify, track, and improve upon those metrics that are most important to your bottom line.
Those metrics are unique to each business and its strategic goals, and understanding and analyzing them is too important to leave to chance. At CFO Simplified, our CFOs each possess decades of experience, in a wide range of industries and business sectors, from heavy manufacturing to public education. Our team has the wisdom and know-how to work with you to create and maintain the dashboards that you need to keep an eye on the critical aspects of your business. To learn how our part-time CFOs can improve your business metrics, contact CFO Simplified today.
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