In the ActionCOACH system, the first stage in the foundation level is FINANCIAL MASTERY. Financial mastery is one of the skills, capabilities and tool sets you must have in your business to be successful and ensure that you the fundamental financial insights into your business to help you make great decisions.
Financial Mastery begins with reviewing your business financial reports on a regular and timely basis. You should be reviewing three critical financial reports on at least a monthly basis – your Profit & Loss Statement (P&L), your Balance Sheet and your Cash Flow Statement. These three financial documents will tell the story about your business. Together they paint a powerful picture of how well your business is performing, where your opportunities for improvement are hiding and what the near term future outlook is from a financial perspective. It is critical that you are having these prepared on a timely basis and are reviewing them monthly. In some businesses with high frequency and volume of transactions, it should be weekly. How often do you review your statements?
Once you have your monthly financial reports available, you are in a position to track some Key Performance Indicators. These are important ratios and measures that you can lift from your financial statements and track on a regular basis. You not only want to know where your business is at a particular snapshot in time, but you want to know how your business is doing relative to the past months – perhaps even to the same month the prior years. Have you identified your Key Performance Indicators?
These Key Performance Indicators are best viewed on a Dashboard – a visible set of graphs that tell a story of the health and trends in your business. Your dashboard should be updated at least monthly and should be much like the dashboard of a car – allowing you to look forward rather than in the rear-view mirror. Included in your dashboard should be activities that are not found in your financial statements, but rather reflect your lead generation and lead conversion success rates as well as other delivery and customer satisfaction measures. Is your Dashboard up and visible? Are you aware of the trends in your business? What are the key drivers of your business?
Being successful in Financial Mastery is a partly about your mindset. You must have the disciplined mindset to consistently review the financial data you need to run your business, and the stomach to look even when the news is not good. How can you know who is winning if you do not know the score? As you gain familiarity and the process becomes fast and easy, you can expand your awareness. You can begin looking at the individual profit margins by product or service type, see which of your marketing efforts are paying off most profitably, or you can anticipate cash flow crunches on the horizon – and many more critical metrics.
Nothing should be a surprise in your business. Would you fly an airplane into weather without a solid instrument dashboard and the expertise on how to use it properly? Would you do that if your mindset was not 100%? Of course not! Yet I talk to business owners every single day whose lives ultimately depend on how well their business runs, yet they don’t have the dashboard, systems or KPIs in place to ensure that they and the business are running at peak performance.
The faster you want to go in your business, the better set of financial indicators you must have. Going fast is good only if you have the financial awareness and can read the financial dashboard During this stage of the race, take the time to nail down your Financial Mastery. Expect and demand the regular reports, graphs, metrics and indicators that will let you race even faster – without the fear of not knowing where you are headed or whether you have enough gas!
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