10 Questions for your Business's Financial Success

The first half of the year is gone! I don’t know about you, but for me, it went by FAST! It’s a natural inflection point to analyze how your business is doing. Are you hitting your financial goals or languishing?

Now is a great time to ask: How am I doing with the financial management of my business? Have I built a foundation on which I can scale and grow the company?

It’s important to reflect on the areas of your business that will make a difference in success or failure. The time has come to address your concerns and consider the following ten questions. Answer them honestly, as they can have a BIG impact on your business for the rest of the year.

Keeping Score

1. Do you know the drivers of your business growth?

If you asked the key members of your management team; What are the leading indicators and drivers of our business growth – what would they say? Would you all agree? And most importantly, do you have access to those metrics, and are you tracking them on a weekly or monthly basis?

GrowthForce has served over a thousand small businesses, and one of the most important common denominators for a CEO’s success is keeping score. A CEO must understand how to produce and analyze KPIs, reports & scorecards about past performance to drive future results.

Don’t get overwhelmed or be afraid of this critical part of your business management - read The CEO’s Guide to Keeping Score to be sure you’ve set your business up for success this next half of the year.

The Right Reports

2. Do you have the KPIs you need to make data-driven decisions?

Do you get your financial reports on time? What financial reports are you looking at and when are you getting them? Do you know the difference between financial reports and management reports?

Most business owners are familiar with the basic financial reports they should be getting monthly, but many are less familiar with the kinds of management reports available that could help their businesses increase performance and profitability.

Management reports are great for CEOs and managers to gain insight into specific areas of their business. However, you want to make sure you are getting the reports that your business needs to drive strategic decision-making. You don’t want to put the work into pulling reports that aren’t being acted upon.

Some businesses only want to produce financial reports each month for many reasons. We hear businesses say “It costs extra for management reporting; we don’t have time for it and I don’t think it will help my business.”

If you don’t receive management reporting each month, you could be missing out on financial intelligence that can help your company grow, or prevent you from implementing costly programs that don’t provide an ROI.

Optimized Accounting System

3. Do you have a Smart Back Office?

Building a Smart Back Office ensures you get more relevant data into your QuickBooks accounting system, more quickly and with fewer errors than manual processes. This adds up to more meaningful, accurate, and timely information with a lower total cost of your accounting function.

That’s a major advantage that small businesses didn’t have in years past. To learn about how to take advantage of what’s available to your business in this day and age, download our guide to The Smart Back Office.

Improved Cash Flow

4. Do you have a handle on your cash flow management?

Contrary to what some believe, profits don’t equal cash flow. The situation where profit and cash flow are at odds is very common for a small business that must invest in assets in order to grow. The reasons can always be seen on the balance sheet.

To understand where your cash has gone, you must first understand the relationship between profit and cash flow, and how each is calculated.

You’ll find your cash in hidden asset accounts like inventory, fixed assets, accounts receivable, and prepaid insurance. Or in using cash to pay down debt, such as credit cards, accounts payable, or bank loans.

Understanding your real cash flow will help you know whether to hold off on more investments and cash outlays – or whether the time is right to spend.

Just making a profit isn’t enough to guarantee long-term success – a cash flow management strategy must be considered for improving cash flow in your business to ensure sustainable growth.

Implementing measures to improve cash flow is integral to your business’s long-term success and health.  

To learn more, download The CEO’s Guide to Improving Cash Flow

Profitable Business

5. Do you think strategically about how your people drive the performance of your business, and as a result, profitability?

You have to constantly evaluate the productivity of your people and resources. Do you have the right people?

Defining your business strategy involves knowing what your company stands for, why customers should buy from you, and why people should come to work for you.

Developing human capital strategies will help you get more productivity from your people. The science of a happy workforce is simple: engaged employees equal increased productivity and profitability.

Using our 5-step framework, you can learn how to think strategically about how people drive performance and, as a result, profitability.

If you value your staff as the most important resource in your company, you need to listen to their training needs, career goals, and ideas for your business. There are several ways to gauge if your employees are happy and are producing quality work that ultimately affects your bottom line. This doesn’t have to be very complicated or time-consuming.

This is different from the formal annual review that you should use for evaluating your best performers and, perhaps, compensation adjustments. This check-in is designed to force your supervisors to do a listening campaign.

If you empower your staff to help make the company better, you'll get better. The people serving your clients know more about what's broken than the CEO ever will.

Productive Employees

6. Are you measuring this key metric?

If not, we would suggest doing so right away. In companies that profit from their workers’ services, gross profit is directly related to people's performance. Strategic CEOs consider employees an asset to the business. Thus, the lower employee turnover rate will help them achieve their targeted profit margins.

There’s a lot to be said about keeping score relating to what’s important and assessing your KPIs in conjunction with your people. Clearly, there is a multitude of questions you should be asking as a CEO.

Analysis of the drivers of your business, and having the ability to measure them through easy access to your KPIs, will help you implement the right strategy.

If your business is a “people business” – a business that makes money by providing a service delivered by your employees – you need to focus on “people KPIs.”

A people scorecard shows KPIs of profit on the investment you made in your people. When analyzing the people scorecard, CEOs should make sure that the income per hour paid trend line is increasing at an equal or greater rate than the labor cost per hour paid.

Maintaining a Budget

7. Do you need to review/revise?

According to an article published in  Entrepreneur magazine, only 47% of small business owners maintain a budget. Source: Entrepreneur

The six-month mark is a great time to evaluate the economics of your business. It's late enough in the year to have meaningful information, but early enough make course corrections and do something different if needed. If you don't have a budget for the year, dump your P&L by month into Excel and do three things:

• Ask: "How is income going to change in the second half?"
• Ask: "What is my target gross profit % ?" This is a quick way to guesstimate the cost of goods sold.
• Plugin any changes to overhead costs - which usually occur in response to changes in income.
• Ask:
• Do I need to spend more on marketing or sales to reach my revenue targets?
• Do I need more space to handle any new staff hires?

Financial statements and profit & loss reports are just part of the business equation – but it’s your financial budget that provides critical context by providing a base against which your performance can be measured.

Understandably, many business owners find budget planning to be frustrating. It’s difficult to predict your operating costs over the course of a single year, as well as provide a cushion for any unforeseen financial challenges that may pop up. However, planning for your annual budget can be slightly less difficult if you break up the year. 

The Right Clients

8. Should you fire any of your clients?

If you keep bad clients, it will ultimately wreak havoc on your company’s staff and business success.

The business model of a service-based company is to attract and maintain a strong client base. It’s likely that your business puts a lot of effort into networking, marketing, and other activities to bring in new clients, in addition to ongoing efforts to keep current customers happy.

However, there are cases when instead of focusing on hiring a new client; you need to fire an existing one. Although this may seem counterproductive, firing a lousy client helps you better focus your resources on other areas of business.

If you keep low margin clients out of fear of losing cash flow, or not being able to replace them with a higher margin client, you will kill your business. Don’t be afraid to fire low-margin clients.

Business Goals

9. Do you have written goals?

Writing down your financial goals is a substantial step toward success, taking control of your business, and becoming truly profitable.

It’s not too early to set budgets and goals for the year ahead since you have a fairly good idea of where the business will go for the remainder of the year.

As a CEO or business owner, if you are not clear on the goals of your business or the progress toward those goals, how can you expect your employees to understand the direction of the business and for them to be focused on those goals?

Written goals provide a way to tie an employee’s performance to company goals that are driven by measurable objectives—revenue, profit, and customer satisfaction.

Personal Goals

10. What are your priorities in life?

As a business owner, you almost always put your business before yourself and that can be detrimental. Running a business can be very rewarding but it does leave very little room for you to hit your personal targets. Looking after yourself and your family should never be an afterthought. Your business can only thrive when you are happy and satisfied.

Most people arrange their priorities with work taking the spot right at the top, followed by Family, Health, and Community. What if you were to restructure this and make a change that works to your benefit where your Health was right at the top, followed by Family, Work, and then Community?

We call this Living the Dream. Are you willing to make changes to your life and priorities to live it?

Now, where will you go from here? You’ve reached the halfway point this year, so it’s the perfect time to reflect on these areas of your business and answer questions that will impact the future of your business’s financial success.  

Put your numbers to work!