Reaching your goals by using dataYour historical financial data helps you understand what’s possible and where you may have missed low-hanging fruit. It informs leaders how goals may need to change for the upcoming financial period and where you may be making costly mistakes. There’s a simple process for connecting your goals to your financial data and reaping the benefits of doing so.
Start by creating goals for your businessMany businesses have similar goals. You may want to:
- Improve cash flow
- Lower debt
- Improve customer relationships
Track the right metricsNow that your goals are in place, you’ll need to ensure you are tracking the right metrics to help you achieve those goals. You can’t counteract rising expenses or plummeting customer satisfaction if you do not measure them. For example, let’s look at the above general goals. If you want to improve cash flow, you will track:
- Expenses/budget variance
- How closely do your actual expenses align with your budgeted estimate?
- Cost of goods sold
- How much do you spend to produce your products or services?
- Cost per sales channel
- How much does it cost to get your products or services to your customers?
- Budget and budget variance
- This is the difference between your budget and your actual expenses.
- Accounts receivable turnover rate
- This measures how effectively you extend credit and collect debts, which determines how efficiently you leverage your assets to make money.
- CCC (cash conversion cycle)
- This is the time it takes to sell inventory, collect receivables, and pay suppliers before you accrue penalties.
- Net Promoter Score (NPS)
- This is obtained through a one-question survey, “How likely are you to recommend us to a friend?”
- CAC (customer acquisition cost)
- This is the cost of gaining a new customer. The lower the cost, the better.
- Customer effort score
- This is how easy a customer thought your sales process was, as determined by a separate one-question survey sent immediately after the sale.