Did you know business owners have the capability to manage literally their entire business from a single sheet of paper? A CFO can use metrics or key performance indicators to help the business owner put together a sort of Financial Dashboard. This Financial Dashboard is something many CFO’s share with their clients to help them identify key performance indicators in which to manage their business. What I’d like to ensure, however, is that the CFO shows the business owner how to use this tool more effectively to manage their business. Explaining to the business owner how to really use the financial dashboard may take a little more time and a lot more patience, but instilling that in them will go a long way in improving business productivity in general, and the productivity of the business owner individually. Using the financial dashboard to manage your business provides simplicity in the face of complex business problems, and also helps anticipate problems to circumvent future troubles.
I recently exhibited for one of my clients how in a simple metric called overhead per labor hour, a trend can show how well the business owner is doing managing their over head costs (which commensurate with managing their payroll costs). If you are not maximizing your overhead and payroll expense controls, giving a look at the way a metric trends can give you a quick indication. Probably the most productive way to visualize these trends is through the use of a graph.
Using the method of “finding benchmarks” is an okay strategy, but it will only take you so far. To “find benchmarks” means to find service or statistical bureaus that compile metrics from other companies in the same industry as your own so you can draw comparisons between yourself and your competitors more easily. Certainly, it’s useful and interesting information, but I personally believe no two companies are fully alike even if they are in the same industry. I suggest that all “benchmarking” be done internally, with the CFO, business owner, and advisory board all present to determine the most productive key performance indicators to track the target goals for each key performance indicator, and the way the business owner and CFO will use them to manage the business. Benchmarks are good to acknowledge, but I wouldn’t base my entire business strategy on them.
Of all the services provided by a CFO for hire, getting a business owner on board with the idea of using metrics to manage their business and teaching them to understand their uses is one of the most effective.