Lesson #6: If you don’t know the key KPIs that drive your business – you don’t know your business!
This is an article series based on lessons learned from my great mentor Lionel Morely Joel. Read the first article to understand the background and then dip in and out of the lessons as you please. In this lesson, why you need to know your accounts better than the accountants.
Even though I didn’t have much of a schooling I was always good at maths, I’m sure in no small part thanks to the market-stall education I received, where I needed to be very quick with figures. It was quite an education, and if you’re interested in a bit of a laugh you can read about one of my favourite stories here.
In any case, back to today’s lesson. After a few years under Lionel’s tutelage he thought that I should run the monthly management accounts meeting, which basically told us how the company was going and how each magazine was performing. Lionel would still chair the meeting but I was to run the agenda. At the first meeting under this new structure Lionel did something that he had never done before. He stopped the meeting mid-flow.
“Eddie,” he said. “I want to ask you some questions about this month’s report.”
He then went on to ask me 10 questions about the management accounts reports and specifically about the key KPIs of the business. Although I was good at maths and understood figures, I hadn’t spent much time digesting the reports and could only answer four of his questions correctly. He closed the meeting, calling it a waste of time. As I went to leave (quickly), I heard a soft “Eddie stay behind please.” (Here we go again, I thought.)
He explained that it took the accounts team a long time to provide us with those figures and that they were our lifeblood.
“They tell us where we have been, and where we are going. They are our road map,”he said. “And the best you could do was answer four out of the 10 questions I asked.”
And so he said that I must learn the key KPIs that made Newbourne profitable, and that I must go through the management accounts every month with these in mind. I had to go beyond just reading them. I must understand and question them. And never again ignore them. He provided sufficient stick to get me to do it: warning that at next month’s meeting I would again be asked 10 questions, and he expected me to get nine out of 10 right.
Luckily I did. And this one lesson, more than any other, has stood me in incredible stead for a career at the helm of businesses. From that day I have always scrutinised the monthly accounts; always made sure I understood the key KPIs that make a company profitable (normally there are only two to three really key ones).
Many times business leaders and executives undervalue the role the finance team play in a business. They spend days compiling figures so directors and managers have a real understanding of last month’s result (good or bad) and the trend for the year. They can provide insights and prescriptive information that is so critical to business planning. So when you think about your key players in your team don’t undervalue your finance team and the figures they provide you with. But equally don’t leave it all to them; you should know your business’s finances inside out and what stories these little figures are telling you. Even at the market stall we knew our key KPIs. Do you know yours?
Next: How listening to your young employees will improve your business.
If you could use some help getting to grips with the finances in your business why not contact me for a no-strings chat to see if I’m a good fit to help you and your business.