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Posts Tagged ‘key metrics’
Are you using the right metrics to measure your company success?
Key Performance Indicator – Resources & Outputs
A company’s resources include: their people, their plant and equipment and the hours available for production. In a well-financed business, resources also include cash and working capital. Ask yourself, what are your unit outputs or sales from your employed resources?
Outputs include:
- Physical units produced/sold
- Purchased units resold
- Machine hours sold
- Project hours sold
- Information reports sold
- Customer Acquisitions
- Other defined unit outputs
Have you defined all of your resources and outputs? Do you understand how to measure the performance of each resource with its related outputs? Are you actually doing this—or just occasionally giving the idea a passing thought?
Think in terms of units for the outputs. What is your client/customer acquisition cost? Have you calculated dollars per unit produced/sold and the unit cost for COGS, overhead and margins? Do you understand how to interpret these results?
If you are doing this kind of analysis and tracking the trends, do you believe the veracity of the results—or is there some doubt?
Many businesses produce some very good financial results, but have not mastered the art of measuring how productive their resources are, and the trend over time.
CFO-Pro specializes in defining and measuring performance indicators, and enhancing your understanding of how these indicators can affect your financial results.
This is not typically a costly exercise since all the information needed is available. It just needs to be surfaced and inter-connected to provide some very valuable trending insights.
Please feel free to call or email me to discuss your situation.
Virtual CFO Services – How to hire a qualified interim CFO
The answers you need before hiring an interim CFO
Business Meeting (Photo credit: thetaxhaven)
If you’ve thought about using virtual CFO services, I recommend doing due diligence on your candidate and asking the following questions. The qualified interim CFO you choose should be able to respond positively to 90% of the qualifications listed below.
- Does the virtual CFO have hands-on experience in working with a company of your size and is he or she accustomed to the type of company culture you provide?
- Does the virtual CFO have experience in your specific industry? If not, does he or she have the breadth and equivalence of experience necessary to serve your company?
- Does the virtual CFO have experience in defining and implementing key productivity and financial indicators, and the requisite skills to track the indicators to keep the CEO informed?
- Does the virtual CFO have experience in delivering clean, lean Executive Summary financial information, with commentary regarding tracking and trends, so that the CEO can easily understand where his company stands and what the numbers mean to make informed decisions?
- Is the virtual CFO candidate willing to discuss the two or three most challenging situations he or she has worked on and how those challenges were resolved on behalf of their clients?
- Does the virtual CFO have experience in working with bankers, lawyers, outside accountants and other professional service providers on behalf of the company he serves? If so, what did that experience entail – i.e. experience in mergers and acquisitions?
- Has the interim CFO worked side-by-side in the trenches with CEOs and done the job he was needed to do? Does he have proof of the CEO’s satisfaction through a series of outstanding references given across time and industry?
- Does your interim CFO feel that timely and accurate record keeping is equally as important as forward-looking financial strategies and planning – or does he or she give more emphasis to one over the other? The answer should indicate balance, and not weighting one over the other.
- Does the interim CFO have experience in resolving bottlenecks in company productivity and financial management issues?
- Will the interim CFO candidate readily discuss your situation before coming on-board so you have a clear understanding that he or she has a clear understanding of your challenges?
- Does the interim CFO have repeat clients and long-term professional relationships?
These are some of the main qualifications you should look for when hiring virtual CFO services.
How To Create Clean, Lean Monthly Financial Reports
Here’s how to turn a lengthy financial report into an executive financial summary
Finance (Photo credit: Tax Credits)
In my last blog I discussed the importance of lean month-to-month financial reporting. Now, I’ll tell you how to generate a lean and clean financial report.
Many CEOs wade through a lot of unnecessary financial detail that clutters their thinking and eats up time.
What the CEO really needs to see are sales figures and gross margins. They tell him or her the amount left over to cover the overhead and produce a profit for the owner.
Overhead Metrics
The first metric a CEO needs to know is the average monthly overhead cost. The second is the percentage of that average monthly overhead compared to sales.
If the average monthly overhead-to-sales percentage is moving up, the company better be generating more sales to cover overhead, or know the reason why it‘s not. In short, if the numbers are moving in ways unfavorable to the company, the CEO can begin to identify the problem and take steps to address that issue.
The worksheet design can be tailored to the company using the spreadsheet’s capabilities. When working with a company, my discussions with its CEO and my analysis of current financial statements will help me shape this monthly financial report into a format easily understood by the CEO.
Moreover, I can walk him through the way I designed the worksheet and how I interpret its numbers. That will allow the company to create the same kind of worksheet, month by month and year by year. That CEO will sleep better at night, because he understands what he’s looking for when reviewing those month-to-month and year-to-year worksheets.
If you would like help replacing one-inch financial reports with easy-to-peruse month-to-month worksheets, please contact me. I offer a 100 percent guarantee on my work. I take on only clients I can help. Call me and let’s talk about your business. My phone number is 630-269-7646.
Metrics to Watch in Creating Company Value
There have been several in-depth studies that analyzed the financial performance of hundreds of companies around the world. Insights were provided by these companies into the key metrics and strategies used by the best performers. The following were found to be the most sustainable value creators, and where focus is concentrated in those companies successfully creating value. The key numbers to watch are:
- Sales
- Net income
- Cash flow from operations
- Total assets
- Total liabilities
- Total equity
Using these six key numbers, four ratios are tracked and trended:
- Asset turnover (revenue/assets)-the higher the turnover, the better utilization of assets experienced.
- Profit margin (net income/revenue)-the greater the margin, the more profits available to fund growth.
- Cash-flow yield (cash flow from operations/net income)-the higher the yield, the more success enjoyed in managing working capital (ie., current assets minus current liabilities).
- Debt-to-equity (total liabilities/total equity)-the higher the ratio, the more of other peoples’ money (leverage) being used to finance growth.
Successful organizations do well on all these numbers. If you are not doing well on the ratios, then drilling down into the six key numbers is needed.
The entire management team needs to understand how the ratios and underlying key numbers connect to value creation.
Standards of performance can be created by looking at historical numbers over time, which will reveal ranges and trends. Then look for comparable measures within your industry to see how you fare against industry peers. Follow this up by setting some annual targets for 1 to 5 years. In other words, “do what the big dogs do” whether you are local or national in scope, and whether you are for-profit or not-for-profit.
This sets the discipline for making good decisions with the goal being to achieve outstanding long-term return on investment.
Your present performance measures may have defects; and there may be no quick remedies. CFO-Pro can provide a strategic perspective on your financial performance measures. If you are interested in connecting the strategy of your company with the financial reports, and to speak to how your company intends to create value, please contact me directly at jlafferty@cfo-pro.com or 630-269-7646.