Situation: A company has a good accounting system, but the CEO is concerned that they are not making the best use of metrics to drive the business. He senses a lack of shared understanding of key metrics and goals. He senses the appearance of financial disarray, despite his clear grasp of the business. Do you have control of the numbers?
Advice from the CEOs:
- A good accounting system may be in place, but if it is not being used to drive the business and monitor the achievement of milestones then the company is not gaining the best advantage from it.
- If there is a sense of financial disarray, this suggests that the company lacks financial metrics. Employees and managers may be doing their jobs, but without financial metrics it is difficult to tell how well they are doing their jobs.
- Start with basic metrics:
- Where are sales coming from?
- What is the profitability of sales by customer segment and product line?
- What is the company’s profitability?
- What are the profitability trends of the company and key segments of the business?
- Once a company is tracking these metrics, it is easier to focus managers and employees on products, product development, operations, sales and marketing issues that are most essential to the company’s success.
- The company needs the equivalent of a CFO. This means a financial person, not an accountant. An individual who knows how to look at the numbers. A CFO will help the company to
- See the strategic trends in the business,
- Uncover the best opportunities for growth, and
- Understand the greatest potential threats to growth of the business.