3 steps to improve financial performance management –
Large organisations benefit from higher investments and adherence to systems, processes and controls. Small businesses have shorter command chains and thereby higher transparency and control. Mid-sized businesses lie somewhere in between. The complexity of their business is rapidly increasing, and systems that may have been appropriate for a smaller organisation are no longer adequate. While most mid-sized organisations acknowledge this problem, they don’t necessarily know how to get themselves out of it.
Setting up the required systems, controls and processes for monitoring the financial and business health of a mid-sized business is not just important, it is mandatory.
Step 1: Identify your measures for business success
While the broad aspects of financial performance management remain the same across organisations, it is important to understand what sets your business apart, and define the measures accordingly. A service organisation measures profitability by project while manufacturing units look at profitability by product. In a service organisation, keeping employee costs under check and maximizing employee utilization are most critical. For a manufacturing company, inventory & cost management are essential. Take your time and define the measures carefully. Your measuring initiatives will only be successful if you can keep it simple. Try and define meaningful measures that can be easily tracked and reported
Step 2: Fix your data source
Your output is as good as your input. Don’t start replacing your tap if your drain is clogged. Audit the quality of your input data (both financial and non-financial). If you want to look at project-wise profitability, you need to capture project information at the time of booking your costs and revenues. If you do not have in-house expertise, get a good consultant to fix, clean and restructure your source data. A good accounting firm can quickly restructure and clean your accounting data. Similarly, a good business analyst can fix your operational data.
Step 3: Measure & Report
If you can’t measure, you can’t fix. Performance management measures are fairly useless if you have no way to measure and report them. It is also important to determine the correct frequency for reporting. A good measurement and reporting tool is invaluable in your performance management efforts. With the advent of cloud computing, technology has become ubiquitous. High quality tools are now available at a fraction of the cost. Affordable financial performance management and BI tools are accessible to businesses of all sizes. Choose a tool that can be configured for your local requirements. Business user friendly packaged solutions are better for mid-sized businesses than platforms that need extensive customization before usage. Make sure the tool you choose can be managed and maintained by business users without having to depend on in-house or vendor IT teams for any changes in reporting requirements.
FinAlyzer video: Take a Tour: Beyondsquare FinAlyzer
If you need help/advise on automating the processes for monitoring KPI’s for your business, leave a comment or send me a LinkedIn message.
Karthik Ganeshan (Co-Founder and Director at Beyond Square Solutions)