Monitoring your financial performance is vital for understanding your company’s health and planning for the future. A blind spot is something we fail to see, it is out of your typical line of site and we miss what is there unless called to our attention. Without proper monitoring, you are casting a wide shadow upon your company’s potential, creating a large blind spot that can undermine even the best business. In this blog series we are going to talk about the 5 Blind Spots most business leaders with less than 50 employees have.
5 Common Blind Spots Leaders Have Are Not Seeing How To:
- Plan and Review Finance Planning & Execution
- Hold Employees Accountable in a Collaborative Way
- Run Superior Business Meetings
- Monitor Overall Financial Performance
- Manage Financial Aspects of Your Company
The aim of this blog series is to remove these common business leader blind spots by focusing your attention on each issue and bringing visibility and understanding to concepts that will be easier to see and, therefore, improve over time.
Blind Spot #4 – Lack of Consistent Financial Performance Monitoring
This article focuses on the fourth of five blind spots many business owners have when trying to grow from 5 to 50 employees. In our previous article we discussed the first blind spot: not seeing the value around consistent company planning. The second blind spot focused on how to maintain employee accountability, while the third highlighted seeing the importance of high-quality weekly management meetings.
The fourth blind spot lies in not realising the importance of consistently monitoring your company’s overall financial performance. This exists for two main reasons:
Business leaders think they mentally maintain their financial performance monitoring don’t need ‘reports’ to tell them how things are going.
This may be true to some extent but this belief comes unravelled when things become more complex or detailed. Mentally maintaining a general idea on the sales volume is more manageable than tracking the gross profit on a specific type of work. Additionally, we tend to forget how numbers are trending even when they are important to us. Utilising efficient, documented financial performance monitoring, such as with a company scorecard, retains performance information objectively so it removes our tendencies to remember things the way we’d like versus what actually occurred.
Business leaders mistake financial reports for financial performance monitoring.
We agree with most business owners and even some finance managers that there is minimal value (though certainly some) in reviewing numbers that occurred in the previous month or quarter. It is like thinking you could affect the outcome of a game by watching the replay highlights. Effective financial performance monitoring is about reviewing numbers where the results indicate how the game is going to end if things continue on the current path.
This gives the business the all-important opportunity to take preemptive actions that can affect outcomes. This is the difference between a KPI (key performance indicator) and KPR (key performance result). An indicator attempts to predict the future while a Result is something that cannot be changed or affected.
Even when business managers realise they can’t effectively monitor their company without first monitoring KPIs, it still requires work to obtain an effective scorecard for a company.
The goal is to keep your financial performance monitoring scorecard to between 7 and 10 statistics, though when beginning that number is often more like 15-20. Over time and consistent financial performance monitoring, companies settle into a scorecard that has around 10 numbers that include mostly KPIs but a few KPRs. The management team develops a level of trust and comfort that when the numbers are good the company is actually doing well, and when numbers fall off, they are highlighting issues that need to be resolved in order to keep the company’s financial results on track.
When business leaders invest the time and energy required to generate effective financial performance monitoring it allows them to better predict what’s coming and to be able to navigate the inevitable issues that arise in business from time to time.
Scorecards should add fun and objectivity to a business and its financial management team. Start visually tracking more of your critical financial performance numbers consistently and see what happens to your ability to identify problems sooner and begin resolving them faster. After all, problems usually get bigger the longer they are left unattended, so the sooner you spot them, the easier it will be to resolve them.
Until next time, enjoy the process!
Need more advice on problem-solving? Contact us today for more financial insights