The last two weeks we talked about the key drivers of your results.

Once you understand the drivers, how do you get them into a reporting system?

This week we talk about the three keys:

1. Right metrics
2. Right party
3. Right time

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MASTER YOUR NUMBERS, LIVE!

Hey, Kurtis here. This is the part where I advertise for myself.

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Over four weeks we’ll help you:

• Learn how to decode your financial statements
• Identify key results drivers for your situation
• Select, track, and act on your key metrics
• Use your numbers to make better decisions and tell your story

We won’t just stick to theory… we’re going to dig into YOUR numbers.

Through the live breakout sessions to one-on-one sessions with me, you’ll walk away from this cohort with a complete system on how to analyze, digest, and use your numbers to improve your business outcomes.

We’re utilizing both pre-recorded sessions and live sessions to deliver the most value possible.

Over four weeks, you'll get 2 live sessions per week for the low price of $895.

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Enrollment is only open for the next 2 weeks, so enroll today so you don't miss it!

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Want to advertise to 40,000 small business owners and leaders? ​Go here​.

THE 3 KEYS TO BETTER FINANCIAL REPORTING (MOST BUSINESSES MISS THESE!)

Most business owners think they have financial reporting because they can pull an Income Statement (and sometimes a Balance Sheet). But the truth is, having reports doesn’t mean you have a reporting system.

In the first week of this series, I addressed ​9 signs your financial reporting stinks​.

We won’t rehash those here other than to point out what a good reporting system is:

• Relevant: Reports are tied to strategic goals.
• Accurate: Data is reliable and verified.
• Timely: Delivered when decision-makers need them.
• Clear: Key takeaways, without clutter, that are geared to the right party.
• Actionable: Highlights insights and clarifies next steps.
  • “What does this mean?”
  • “What should we do about it?”

So, how do we achieve these things? We do it by:

1. choosing the right metrics (relevant)
2. getting them delivered at the right time (timely)
3. and to the right parties (clear & actionable).

The only thing we’ve not solved for is accurate, which comes with setting up the right accounting processes and procedures, which is a lesson for another time. But, if we’ve achieved the others, it’ll give us insight into the accuracy because the data is prepared in a clean and interpretable manner.

So, let’s dive in and talk about what each of these 3 mean.

HOW TO CHOOSE THE RIGHT METRICS

The last two weeks we discussed the different types of drivers in your business and this was setting the foundation for choosing the right metrics.

When people struggle to interpret their financials, there are three common issues I see. They’re tracking:

1. the wrong things
2. not enough things
3. too many different things

Any of these three make your reports useless.

When I look at what businesses are tracking, I’ll often ask: why that?

Too often the answer to that question is something like this:

Well, that’s what I was told to track coming out of college. This is what the trade association says is the most important thing. It’s what I’ve always tracked.

The problem is this: tracking a metric without understanding the outcome it’s impacting is pointless.

To track the right things, we need to think in the terms of connected KPIs.

Connected KPIs is the idea that each KPI is connected in a chain that should ultimately link the desired result you have.

Woven into this concept is the idea of leading versus lagging measures.

• Lagging Indicators (What already happened):
  • Revenue
  • Net Profit
  • Gross Margin
  • Cash Flow
• Leading Indicators (Predicts future results):
  • Sales pipeline value
  • Customer churn rate
  • Employee productivity metrics
  • Marketing conversion rates

Leading measures should be predictive of lagging measures.

Equipment maintenance to downtime.
R&D investment to new product launches.
Training budget to higher sales call conversion rate.
Sales calls should be somewhat predictive of revenue.

But what’s often not done is a chain-link analysis to determine all the things that could be measured between those two points.

That’s where this idea of Connected KPIs comes in.

We want to understand the lead domino and final domino. The lead domino is the one you push over, which creates a chain reaction down the line. The final domino falls and reveals the final outcome.

So ask: what are each of those dominoes? Or what are all the lead KPIs in the chain before the lagging measure?

The idea is that we want to trace from our lagging goal (for example, a revenue goal) back to the primary inputs that are driving that result.

For example, say you’re in a sales-led organization and want to track a revenue goal related to “Product 4.” By tracking back the leading measures, you can see that your Sales Team drives the majority of the performance.

It’s then up to you to determine which measurable from the sales team is the most important leading metric for Product 4 Revenue.

When you do this, you’ve identified the key thing you need to track day in and day out.

With Connected KPIs, you should start with your strategic objectives, then walk backwards to the inputs required for each of these objectives.

This process ensures that instead of tracking random metrics because “you’ve always done it that way,” that you end up with metrics that lead to the outcomes you want. It solves the too few and too many different things, then we’ll solve the too many by ensuring the metrics are delivered to right party at the right time.

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RIGHT PARTY & RIGHT TIME

Even with the right metrics, a poor reporting structure can still make insights hard to act on. But even good structured data delivered to the wrong party won’t lead to good insights. So, both are key.

We want to thing in terms of two questions:

1. What type of metric is it?
2. Who should be responsible for this metric?

METRIC TYPES

The type of data determines the cadence at which the data should be reviewed. There are three types of metrics:

1. Operational (daily/weekly)
2. Financial (monthly)
3. Strategic (quarterly/annually)

By aligning the delivery of the metric with the right cadence, we ensures it is ACTIONABLE at the time you’re viewing it.

Here are some examples of the different types of reports:

• Operational Reports (Daily/Weekly):
  • Sales pipeline updates
  • Cash position tracking
  • Customer Support metrics
  • Marketing campaign performance
• Financial Reports (Monthly):
  • Financial Statement Analysis (P&L, Balance Sheet, & Statement of Cash Flows)
  • Budget vs. actuals comparison
  • Key profitability trends
• Strategic Reports (Quarterly/Annual):
  • Market trends and business positioning
  • Growth rate comparisons
  • Annual forecasting updates
  • Debt & Capital Structure analysis
  • Tax Planning & Compliance

These are just a sampling and not geared towards your situation. You’ll need to determine what’s key for you and on what cadence it’ll be delivered.

But by mapping out your KPIs and the cadence they’re delivered, you can ensure you don’t have too many and that they’re focused to the purpose of that reporting.

It also allows you to look at the same Strategic Objective in multiple ways. Leading metrics will be on operational reports and lagging on Financial or Strategic ones. This ensures you have “full coverage” and don’t create blind spots from viewing too few metrics.

RESPONSIBLE PARTY

There are two types of responsible parties:

1. Who is pulling the data (owner)
2. Who is analyzing it (audience)

It’s important you have a clear process for pulling the metric (which increases accuracy), but even more important that the metric gets to the right party.

The right party is the one who can interpret and act on the data. This is pretty intuitive, but this is determined by role or job, but also by who owns your strategic objectives.

Here are some examples of the audience for each report:

• CEO/Founder: Revenue, Profitability trends, cash flow projections, high-level KPIs
• Finance Team: Detailed budget vs. actuals, Receivables & Payables, Bank Reconciliations & Expense details
• Operations Manager: Efficiency metrics, inventory turnover, labor trends
• Sales & Marketing: Pipeline, customer acquisition cost, churn rates, & campaign performance

Is this an oversimplification? Absolutely. The CEO will likely need to have some hand in the reporting by departments. But the CEO is not the owner or the primary audience and that primary audience should be setting the reporting (with accountability from supervisors).

In the next few weeks we’ll talk about dashboard design and decision-making, but now that we’ve set the foundation, pause and ask:

1. Do you know how your strategic objective connects to the initial input? If not, do that exercise now.
2. Do you have the three types of reporting today? If not, what’s missing?
3. Are the right people and right time standards being met? If not, what steps need to be taken to fix this?

We’ll expand on these concepts in the next few weeks, so I’m curious: what reporting mistakes have you made in the past and what questions do you have?

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