Financial Performance Management
Financial Performance Management is a process designed to address issues related to cash flow, working capital, profitability, and bankability.
Today, most women business owners are trying to grow their businesses without adequate information, without a clear understanding of what they want to achieve, and without a plan and a system of accountability.
A properly designed and implemented performance management program can achieve significant, measurable, bottom-line results. Through this process you will:
- Determine Actual Current Financial Status of your Business
- Define Goals & Strategic Options
- Select & Implement Appropriate Strategic Option
- Monitor & Refine to Achieve Desired Results
In this post we will assume that your current financial reports are indeed accurate and you are beginning with the defining your goals and strategic options stage.
To define your goals you first need to know what the strengths and weaknesses of your current position are. Using your accurate financial reports you will answer questions such as:
- Is your business profitable?
- How does it compare to the industry in terms of both profitability and other KPI’s?
- Does the business have a sufficient amount of working capital and liquidity?
- Have you calculated and provided for a minimum bank and cash balance?
- How long is the business’ operating cycle?
- Is there any point during the operating cycle in which the business needs cash temporarily?
- What additional sources of capital are available and appropriate for your particular business?
- Are you in compliance with all banking covenants?
- What is the break-even point?
- Are all of the profit centers independently profitable?
- Are there any leaks?
There are many issues to assess – but once you have assessed them and developed a clear understanding of the strengths and weaknesses of the business, you can incorporate resolving the weaknesses into the goals.
Strategies refer to the assumptions and methodologies that you intend to employ to meet the newly developed goals.
As an example, you may want to grow by 35% in top line revenue but also grow net profit by 50%. This may seem like a mismatch, but is possible given that operating expenses don’t have to grow the same percentage as top line revenues.
Or you may want to achieve the same bottom line results by changing the revenue/gross margin mix of the products and services you sell.
These are two different strategic options to achieve the same result. There may be many more to be considered as well.
One or more of your goals may be to address aspects of weaknesses developed in the analysis. Perhaps you have determined that the working capital available is not sufficient. You may want to identify and develop additional sources of capital.
Selecting a Strategic Option should be done after an analysis of several different strategic options have taken place and been thoroughly considered. There are different routes to the same destination. However, each route will have an impact on your business and operations that can to some extent be predicted in advance. Weigh each of the strategies and their consequences and then decide which strategy achieves the result and has the most positive impact on the entire business.
Once you have selected the strategic option, be sure to communicate it throughout the organization and secure buy in by all of the key stakeholders. If you don’t do this, you may find the road ahead especially rocky. People implement strategies. You need them to be on board.
Implementation – be sure to measure the Key Performance Indicators (before implementation) and measure them again at specific milestones after implementation. Are all the key aspects of your business performing as anticipated? As desired? Are there any adjustments that need to be made?
If you keep monitoring and refining, you will meet or exceed your goal.
Financial performance management is the process of proactively managing your business finances.