The Finance Leader Podcast
The Finance Leader Podcast
Mastering Strategic Decision-Making: Aligning Business Strategy with Finance and Accounting Systems
Please download the free business strategy guide here.
Episode 118: Unlock the secrets to savvy strategic decision-making as we navigate the complex relationship between business strategy and the accounting and finance systems that support it. Perfect for small business owners looking to tighten their operations, this episode promises a deep understanding of how to leverage monthly financial statements and daily financial insights. We unravel the subtleties of resource allocation and explore the creation of meaningful KPIs that resonate with your unique business goals.
Episode outline:
- What is business strategy,
- Accounting and finance system considerations to support your strategy,
- Develop the right key performance indicators, and
- Use leadership and knowledge to solve business problems.
Please connect with me on:
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For more resources, please visit Finance Leader Academy: financeleaderacademy.com.
- Please download the Goal Setting Workbook that follows Episode 115: here
- On the website, you can download the Become a Finance Leader Guide. You can use this guide to build your Finance Leadership skills so you can help senior leaders develop and execute the strategy.
- I also offer a course, Advance Your Finance and Accounting Career: Developing a Promotion Strategy that Sets You Apart.
This week I am talking about how to analyze and evaluate your business strategy through your accounting and finance systems, particularly if you're a small business owner. Our business strategy is always about making choices with the resources you have, which is often limited. How do you know if you're achieving the results you want? And if the strategy is working, you need an effective accounting and finance system to measure the financials to measure key performance indicators. And to assign resources to the right budget lines. Let's make better data supported strategic choices to increase the chances of long term success. Please enjoy the episode. Welcome to the finance leader podcast where leadership is bigger than the numbers. I am your host, Stephen McLain. This is the podcast for developing leaders in finance and accounting. Please consider following me on Twitter, Facebook, Instagram, and LinkedIn. My usernames and the links are in this episode's show notes. Thank you. This is episode number 118. And I'll be talking about analyzing and evaluating your business strategy. And I'll highlight the following topics. Number one, what is business strategy number two, accounting and finance system considerations to support your strategy number three, develop the right key performance indicators. And for us leadership and knowledge to solve business problems. Business theorist and Professor Michael Porter said, the essence of strategy is choosing what not to do. I am so glad to be here for another discussion about leadership and strategy which is required to develop your competitive edge in the marketplace. We can't just guess on bringing a product or service to market. You need to do your homework and apply leadership to your decisions. And in the commitment of the resources you have to achieve it. The successful business leaders see opportunities and then make key business decisions committing their company in a new direction that may go against conventional wisdom. In case you didn't miss it. Last week in Episode 117. I interviewed speaker and author Mark McMillian. We discuss leadership, the importance of communication, how to have effective team meetings and conflict management. If you did miss it, please go back and listen, I believe what Mark shared can help us all. I really liked his talk about clarity and communication. It's key to aligning our team and for helping not to frustrate your team members. Now this week, I am coming back to a topic I introduced a few weeks ago. And bonus episode number 74. Elevate your small business and solopreneur journey with an accounting and finance system that supports business growth. How do you know your strategy makes sense? What are you measuring to evaluate the results, strategy becomes an exercise of committing your often limited resources to meet the needs of your ideal customer, you have a lot riding on that decision in the long term, because you may not get a second shot. So that requires you to track your financials, and to decide on key performance indicators or KPIs to measure success or failure, then it comes down to leadership for when you shift your strategy. I will discuss that in a later episode. Do you make decisions from your gut? Or is it data driven? Or maybe both? I know people make gut decisions about their businesses. It's a rare skill in my opinion, I believe in looking at the data, because you may be very much surprised on what the actual data is when it comes to your customer. Your sales, labor usage, cost of materials and much more, capture that data, do the analysis and make a better decision. This is why it's important to have an accounting and finance system that is linked to your strategy and supports better decision making. You need monthly financial statements and daily financial data on your customer and sales to help you navigate a better allocation of resources and a better way to solve problems and how to direct your team to help you achieve the result you desire. Additionally, you need someone or a team who can see things in a much bigger way. This can be difficult for some, you have to think differently in the data. Often. You have to find unconventional data may be publicly available data like data that is collected by government agencies. When you're looking at industry problems. It takes finding different data sources be open to data sources that can improve strategy decision making. Ultimately, I To be happy if you track your financial transactions, recognize your revenue and same period expenses. Set a yearly budget to track variances and determine a KPI or two to help you grow and create more value. Even doing this can yield valuable insights that can lead to better decisions. Also, this is big. Don't forget about your goal setting and achievement that we started several weeks ago, and episode 115. Please go back and listen to episodes 115 and 116. To review goal setting and to ensure you are avoiding the usual distractions are goal setting and achievement are just too important to overlook. Continue to review and execute your plan for this year. Your long term plan depends on it. And don't forget CPE completion, complete your CPE sooner than later. Leading and running a business requires effective decision making with data systems that support it. You must establish a strategy and then collect the right data to evaluate it properly. And we evaluate our strategy and business goals with the right key performance indicators. Additionally, you need an accounting and finance system that records analyzes and categorizes your financial transactions that provide a financial health picture. This establishes how you're using your financial resources and if they are being used effectively to achieve the strategy. Now let's talk about analyzing and evaluating your business strategy. Number one, what is business strategy? Again, your business strategy comes down to choices I want to replay my discussion from bonus episode number 74. Please enjoy. Your strategy is a roadmap for how you will achieve your business goals, create a competitive advantage and create value for your business. So your strategy must address the following. The first thing is who is your ideal customer and target market. Next, how are you going to serve that customer and target market? So what is your product and service mix? Next and probably most important is how will you compete? Is it going to be price alone, better quality, more features better service, maybe a hybrid of many of these to be more competitive, you need to find your ideal price, you need to purchase raw materials and services at a more favorable cost. And this helps you track your gross margin and how profitable your business is. The next thing I want you to do is to do a SWOT analysis that is to list your strengths, your weaknesses, your opportunities, and your threats. Next, I want you to list out your core values, what is important to you, and how you support your ideal customer, and how you run your business. How you treat your employees. What does your business do to support local community? The next thing I want you to do is to set your priorities How will you prioritize your resources to then meet your strategy? And when you get a chance write out your vision statement from your answers. Then write out a sentence declaring your strategy how will you compete and serve your ideal customer. And I want to give you an example here this is a strategic statement. For a local coffee shop. We will provide high quality coffee offerings from free trade source coffee bean farms, and a super motivational work area space to the local corporate professionals in the downtown area where they can gather for meetings outside their office or work on a project alone. Now this strategy talks about providing a high quality coffee offering, particularly mentioning where they're going to source the coffee beans and also what type of space that people can enjoy these coffee offerings and also who their ideal customer is going to be. Then I want you to go back and write your strategic statement. Identifying again, who your ideal customer is, what you're offering, what you're going to offer. In addition to that product and service, mix your ideal customer and also how your customer can enjoy your product or your service. Now to be clear, your business strategy is different from a comprehensive business plan. A strategy is an assessment of your customer, and the market you will serve. This helps you determine how you will compete in this market. And you'll need to make important decisions and choices about the resources you do have. In your strategy. You commit your valuable resources to meeting the needs of your customer. It's important to track it and know your financials. Number two, accounting and finance system considerations to support your strategy. Here's a partial replay from my discussion again from bonus episode number 74 on what you need in your accounting and finance systems to better support the business please enjoy. Number one, capture and classify your financial transactions. This is the foundation of any accounting system, you have to know where your money is being spent, and know when you're earning revenue. Additionally, you need to categorize your transactions and lump similar ones together, so you have more accurate data. This helps not only in knowing about how your money is moving, but also helps and accountability and internal controls. Additionally, along with your cash flow, when you know what is happening with your finances, you can determine and negotiate better raw materials costs. Number two, track your cash flow. The foundational lifeblood of any business is cashflow, you need to collect your receivables and pay your bills, you may need to use short term financing and your business. Tracking your cash flow helps you know how much cash you are burning through. And if you need additional cash, through receivables, collecting or with short term financing, and credit. Number three publish financial statements at a minimum you must publish a profit and loss statement and showing your revenues less any cost of goods sold and your expenses. If your business is equipment based or you sell physical products, you should also publish a balance sheet. Ideally, every business should be publishing a balance sheet number for budgeting. Please make sure you are producing an annual budget with projected revenues, cost of goods sold expenses and capital investments. So you have a plan to identify how much you expect to earn and how much you will spend each month or quarter calculate the variances to see how close you were to your projection. The more you perform this exercise, the more accurate you could become in the future. Number five, establish internal controls. How are you establishing accountability for your resources? How are you monitoring your physical cash? How are you preventing the theft of your inventory or property. Internal Controls help prevent theft from within your business. And sure you're performing a bank reconciliation every month. Number six determine your key business growth metrics and capture related data. Finance is different from accounting because you need to also look at non financial data to measure effectiveness, like store traffic or clicks or CART abandonments to figure out what is happening within your business. So you can make adjustments. Let's say you own a brick and mortar store. You will also want to know sales by hour and day. So you know what day and what hours the bulk of your sales occur. You can then adjust work schedules and even opening and closing times. This can maximize your sales by also helping you to be more efficient with your labor. What metrics should you track to make a better business decision with the resources you have. And finally, number seven, make assessments and adjust your resource commitments accordingly. The reason we measure our finances is so we can make better decisions to grow the business and to maximize our resources for the best results, measure, assess and make better decisions. I hope you enjoyed these two sound bites from bonus episode 74. It's so essential to have a system to record and organize your financials. When you know how you are using your resources and how you're earning revenue. You can do some incredible analysis to better position your business. Number three, develop the right key performance indicators. Keep in mind that anything you can measure can be improved. So what do we need to measure in our business to grow the business and create more value and try to stay away from the vanity metrics like social media likes and shares. They may make you feel validated, but until you convert them to sales, it does not matter. Sometimes it can be daunting and cumbersome to develop a system to measure your performance. We have talked about establishing your business strategy and recording your financials. We have also briefly discussed tracking non financial related data to examine your customers and even looking at specific expenses to find efficiencies. A KPI is something you can measure, like a business behavior to determine performance is a key performance indicator. Because what you're trying to measure has huge impacts. If you get it right, it leads to more growth. And if you're not measuring the right activity, you may not know what to do at all we need to determine the business goals then what data should you track to support those goals you will want to drive better performance. Choose the most critical KPIs that can drive the results you desire to achieve the business's goals. You may not even be collected the data right now that you actually need. So be clear careful to not settle on the data you do have, then establish targets and measure against those targets continue to measure, assess, analyze and refine your process. Number four, use leadership and knowledge to solve business problems. business can be very challenging, it takes constant evaluation and leadership to steer the business in the right direction. Because the conditions are constantly changing, we will always be asked to make choices about our limited resources, develop systems to measure, assess and make better decisions. This requires leadership to set and live up to the vision for the business. Commit to solving the right problems ensuring you're collecting and analyzing the right data set. Never stop challenging the status quo on your strategy and how to achieve it for action today, what are your key performance indicators? Do they support evaluating the strategy and business goals? Do your KPIs help you to understand your customer a little better? Are you collecting and evaluating the right data? Start thinking through this now, if you or your team has not done so already? Did you know that a finance leader Academy we offer a course on conflict management we have a guest instructor Mark McMillian of Macmillian leadership associates who will take you through the process of handling a hostile encounter in a variety of scenarios, from dealing with angry customers or your own team as they manage tough work issues. You can learn more at finance leader academy.com Thank you. Today I talked about analyzing and evaluating your business strategy and I highlighted the following points. Number one, what is business strategy? Number two, accounting and finance system considerations to support your strategy? Number three, develop the right key performance indicators. And for us leadership and knowledge to solve business problems. Business Growth relies on leadership a strategy that makes sense and knowing your numbers. Are you tracking your financials? Do you know the sales numbers around your customers and your service and product mix? Are you making decisions around what you are seeing in the data patterns and financial insights? It will take leadership knowing your numbers and collecting and analyzing the right data to find valuable insights to steer the business to success. Next episode I will be sharing an interview I conducted with a very special finance leader who has some incredible insights. You may have seen her on LinkedIn in accounting today. And in the Wall Street Journal, the Comptroller and VP of accounting for the low income investment fund was Sia, come on. I can't wait to share her insights on the finance and accounting professions. I hope you enjoyed the finance leader podcast I am focused on helping this community to become more confident finance leaders capable of transforming organizations. You can find this episode wherever you listen to podcasts. If this episode helped you today, please share with a colleague and leave a quick written review. Until next time, you can check out more resources at finance leader academy.com and sign up for my weekly updates so you don't miss an episode of the podcast. And now go lead your team and I'll see you next time. Thank you
