Optimizing Performance For Business Success
At Wolcott Consulting, our motto is "Maximize Value. Optimize Performance." Our many years of helping businesses optimize their performance has confirmed that one of the best ways to measure a company's performance is to implement an effective management-reporting system. This is sometimes easier said than done, but our expertise in helping companies maximize the value of their products and services are aided greatly by Key Performance Indicators (KPI) and other important business metrics.
What is a KPI and why use it?
In its most basic definition, a KPI is a measuring tool that gauges your company's performance against that of its outlined goals. It informs you as to whether or not your business systems are giving you the results you desire. KPIs provide companies with the data necessary to determine whether or not they are accomplishing their objectives with the plans currently in place.
Secondly, KPIs sharpen a company's focus by setting clear and attainable goals. By spelling out the definition of success, it is easier to set meaningful goals with which staff can align their efforts in fulfilling their job responsibilities.
Thirdly, KPIs facilitate improvement. In my days of playing college basketball, I heard an old coaching proverb that states, “What you measure will improve.” When I knew the coach was counting how many times I missed a box out, my focus on boxing out intensified. This philosophy is also true within the workplace. The strategy of focusing on stated objectives and being accountable is a paradigm for success. Behavioral research in the workplace environment has shown that employees will place importance on what the company emphasizes. In other words, that which you measure will improve.
Finally, with more pertinent data and clearer goals, using well thought-out KPIs will improve the quality of business decisions while simultaneously reducing ones that do not positively impact growth.
Which KPIs should a company use?
We always start with basic numerical data from the financial statement. By figuring out what spurs business growth, then measuring and reporting on that data, business owners can optimize their company's performance by making informed decisions.
Some typical basic financial metrics include Gross Profit Margin, Net Income, EBITDA, Revenue/Income Growth, Working Capital Ratio, and Return on Equity. From there, we investigate further to determine what exactly is driving those financial metrics. In doing so, we must ask several questions. Which product or service brings in the most revenue? Which one is most profitable? What is the company’s customer concentration? What does it cost to acquire a new customer/client? How relevant are the assets? How efficient are the company’s operations? There are also client-specific financial, sales, or operational drivers that propel huge breakthroughs. We help business owners discover what those are.
It is also vital to mix in some KPIs that are leading indicators. Most financial metrics are lagging indicators, as they show what occurred in the past. By identifying and employing leading indicators, managers can save valuable time and money by focusing corrective measures on what needs to improve. However, excessive and complicated KPIs should be avoided.
The Role of the Fractional CFO
It is the role of the Fractional CFO to provide performance metrics' expertise to small businesses and show them how effective measuring and reporting yields effective results. At Wolcott Consulting, we identify each client's unique business needs, and provide solutions that are tailored to their specific needs. There are no cookie-cutter, one-size-fits-all solutions.
Many business owners know that they must review their financial statements, however pleasant or disappointing. But, the expert financial consultants at Wolcott Consulting go beyond a perfunctory review. By using a proven methodology that “translates” financial reporting data, we are able to give business owners a clear picture of how their businesses are performing. We can help them get on track with their objectives, and help improve their business processes towards this end.
In the end, it is in the best interest of every company to have management reporting and KPIs. To execute a plan effectively, it is important to begin with the end goal in mind. Effective data reporting has specific criteria, and we have found that most small businesses need assistance with clean reporting. But, the extra effort boosting correct metrics' output will yield results that reflect positively upon a company's bottom line.
Wolcott Consulting was founded upon the principles of integrity in business and we take pride in helping companies maximize their value and optimize their performance.