Every business should develop a culture of understanding of their financial statements and why the numbers within matter. Clarity about financial metrics and clarity about other key performance indicators (KPIs) Is an essential part of having accountability within an organization. In addition, as the old parable goes, to reach a destination, you first need to know the starting point. Your financial statements and some of your KPIs give you the current starting point you need to map out your journey to your goals. There are multiple uses for these metrics:
Goal setting
Your organizations, or departments’ past performance as presented by your financial statements gives you great insight into what’s possible in the future. That insight will help you set reasonable, attainable goals. Goals built on a solid foundation of performance metrics are stronger goals.
Company Growth
Setting attainable goals positions your organization for growth. This growth can be revenue, profit, or new services and products. In addition, growth that is based upon the foundation provided by financial and KPI metrics will be controlled growth without unrealistic expectations or internal disruption.
Dashboards
Your financial metrics and KPIs can be used to populate various dashboards. These dashboards can provide your team with understandable, real- time visibility into what is going on within the company or their departments. Dashboards provide you and your team with actionably relevant snapshots on a timely basis. Well-designed dashboards can eliminate surprises and reduce chaos in your business.
Employee Engagement
The performance, engagement and retention of your team will increase when they understand exactly what their individual roles contribute to the financial results of the company. Nothing will cause your team to disengage faster than them feeling that they are being kept in the dark about company performance. A culture of financial understanding and openness is your defense against having to company rumor mill.
Compensation
Your KPIs and financial metrics will provide you and your manager’s better understanding of how the organization’s compensation plan supports company performance. Correct compensation within a company increases team motivation, which increases results.
Celebrations
Having timely financial metrics and KPIs will enable you to celebrate your organization’s wins. Celebrations have been shown to increase team engagement which can result in more celebrations in the future.
Takeaway
When financial understanding becomes part of your company culture, the entire organization becomes more focused, engaged and more profitable.