“How Am I Doin’?” – Ed Koch, NYC Mayor 1978-1989
I have had the honor over the past couple of years to serve as a mentor to Strategic Steps for Growth at New York University, a program designed to help entrepreneurs during the early stages of their company. A common question that arises during these sessions is: “How often should I look at my company’s financial statements?”
The obvious answer is that you should look at your financials as often as possible, but in many cases the answer is not as straightforward as it seems. When we speak to our clients, we emphasize the following recurring themes:
- Regular reporting process: Every month we perform the same financial processes and procedures in closing a client’s books in order to align the expectations of the owner/principals with the objectives of their employees. By having the same process in place, there is always a clear set of goals and duties that need to be achieved in order for a company’s interim or year-end financials can be considered “closed”.
- Check your Key Performance Indicators (KPIs): Every company has to view their financial statements through a number of KPIs. Similar to the dashboard on your car, there will be several key metrics that you should use to measure how your company is performing relative to standard benchmarks. The key point is that you need to determine which key metrics — profit margin, current ratio, projected revenue, etc. — are going to be critical to gauge the success of your company’s performance.
- Budget versus Actual: It’s hard to determine how you’re doing unless you plan in advance what your expectations are for a one- or three-year period. Having detailed monthly, quarterly, and/or annual comparisons will help to highlight if there are areas that need to be improved upon or to determine if you are doing better than expected. It is vital to have a budgeting and forecasting procedure in place to ensure that your company is traveling along the right path.
- Trust the Process: Don’t be discouraged if you find that your KPIs or actual performance is tracking lower than industry standard or your own expectations. Understanding your weaknesses and developing a plan to address them is critical to any company on the road from good to great.
Take-away: Like Mayor Koch used to do to his constituents, all successful business owners must continually ask themselves and their customers, “How am I doin’?” If you aren’t sure what the right business metrics are or how to measure them, ask AcceleratingCFO for a free diagnostic on how to develop KPIs.
Co-founders & Managing Partners