Are You Listening to Your Business? Understanding Key Numbers for Informed Decisions

Navigating the business landscape means tuning into a unique dialogue—a conversation spoken in the language of numbers.

It's a perspective I've adopted over my career: accounting isn't merely a back-office function but the very language your business uses to reveal its health, opportunities, and challenges.

For us as business owners, it's not just about the numbers we see but understanding the stories they tell about our operations.

This understanding pivots on distinguishing between what I call "Leading and Lagging Indicators." These indicators are more than metrics; they're signposts guiding us toward more strategic, informed decisions.

It's here that the role of your strategic accountant becomes invaluable. They're not just number crunchers; they're translators capable of interpreting your business's numeric dialogue, ensuring you're not just hearing but listening to what your business is communicating.

Leading Indicators: The Forecasters

Imagine leading indicators as the forecasters of your business, signaling the onset of what's to come. In sales, for instance, these could be the efforts put into marketing to generate leads—tracking the number of inbound calls, leads, and appointments gives us a peek into the future, allowing us to gauge what we might expect in terms of actual sales.

The beauty of leading indicators lies in their ability to prepare us for what lies ahead, ensuring we're not caught off guard but rather are steps ahead, anticipating the outcome of our initial efforts.

Lagging Indicators: The Outcome

Conversely, lagging indicators are the definitive metrics that spell out success or pinpoint where adjustments are necessary. These numbers might not always directly tie into the accounting reports like the profit & loss statement or the balance sheet but are nonetheless integral to understanding our business's health.

For example, tracking the number of orders fulfilled is crucial, yet this specific metric doesn't appear in financial reports. Instead, what we see are the revenue and costs associated with these orders, informing us about profitability—our ultimate concern.

Bridging Leading and Lagging Indicators with Accounting

This distinction between leading and lagging indicators underscores why we need to stay attuned to both sets of metrics. They serve as precursors to the accounting data that eventually paints the full picture of our business's financial health. Until we receive those "month-end" financials, our grasp of the situation remains anticipatory.

Best Practices for Harnessing Business Metrics

Navigating the path of business growth and sustainability demands more than a cursory glance at your balance sheets. It requires a deep, insightful conversation with the numbers that shape your enterprise.

Here’s how to ensure you're effectively listening to what your business is telling you:

1- Assign Clear Metrics for Accountability:

Assign a specific, key metric to every team member and department. This metric should reflect their contribution to the company’s success. For example, a sales team might focus on the number of new client consultations, while your procurement team might track cost savings achieved through negotiations.

Actionable Steps: Implement a system where these key metrics are regularly reviewed and discussed. Use performance dashboards accessible to all relevant team members for real-time tracking.

2- Bring Your Data to Life with Dashboards:

Transforming numbers into visual stories can significantly enhance comprehension and engagement across your team. Dashboards not only make trends and outliers instantly recognizable but also galvanize your team by visually tracking progress toward shared objectives.

Actionable Steps: Utilize software tools to create dashboards that update automatically. Train your team on how to interpret these dashboards and encourage them to contribute ideas for improvement based on their insights.

3- Celebrate Success Through Communication:

Regular updates, whether via email, newsletters, or team meetings, serve as a powerful tool for recognizing achievements and reinforcing the importance of everyone’s contributions. Highlighting specific successes related to your metrics fosters a culture of achievement and continuous improvement.

Actionable Steps: Schedule a recurring time for updates and success sharing. Encourage departments to present their progress and lessons learned, fostering a learning environment.

3- Dive Deep into Your Profit & Loss Statement:

Understanding your P&L statement in both cash and accrual formats gives you insights into the financial health of your business. These insights guide strategic decisions, from cost management to investment in growth opportunities.

Actionable Steps: Work closely with your Strategic Accountant to review these reports monthly. Ask for explanations of significant variances and discuss potential strategies for improvement.

4- Partner with a Strategic Accountant:

A strategic accountant is not just a bookkeeper but a partner in your business’s growth. They can help you identify the right metrics to track, interpret your financial data, and advise on best practices for financial management.

Actionable Steps: Schedule regular strategy sessions with your accountant to review financial performance, discuss challenges, and plan for future growth. Make these meetings an integral part of your business planning cycle.

Listening to Your Business

By embedding these practices into your operational ethos, you're doing more than running a business; you're listening intently to the dialogue of growth, resilience, and opportunity it's eager to share.

Remember, a healthy relationship with your business's numbers isn't just about tracking them; it's about listening to what they're telling you, responding accordingly, and steering your enterprise toward its goals.

Your business is speaking; are you listening?

To deepen your understanding of how a strategic accountant can transform your business, I invite you to download our eBook, "Your Strategic Accountant: What Every Business Owner Should Expect from Their Accountant." This resource is designed to help you leverage the full potential of your partnership with your accountant, ensuring that your business not only thrives today but is also poised for future success.

Download the eBook now and start on the path to a more profitable and strategically aligned business.

About Roger Knecht

Roger Knecht is president of Universal Accounting Center, a post-secondary school for accounting professionals. With over 20 years of marketing, sales, HR & operations experience, Roger Knecht has helped thousands of business owners work ON their businesses to increase revenue, improve profits and build value. His strong work ethic and collaborative style delivers reliable, high-quality results for business owners.

Roger’s podcast, Building the Premier Accounting Firm, keeps accounting professionals on the cutting edge of the industry offering quality bookkeeping, accounting, and tax services. He hosts discussions with some of the accounting world’s best minds and shares actionable insights for firms.

Roger is the author of “Your Strategic Accountant” and “Your Profit & Growth Expert”, each written to help business owners understand what they can expect from the accounting profession.

Universal Accounting provides accounting professionals with the training, certifications, coaching, and support they need to become Profit and Growth Experts for their clients.