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Many small business CEOs and nonprofit executive directors lack sound, data-driven insights for decision-making. Their finance teams often focus on recording transactions for tax returns rather than producing insightful reports. This lack of financial and operating insights, combined with the overwhelming noise in business intelligence, leaves leaders struggling to identify the right metrics to monitor.
Fortunately, small business CFO advisory services can bridge this gap. These services provide cost-effective solutions to generate valuable insights, helping leaders make informed decisions. Refer to our articles that define CFO advisory services and detail their costs, but read on to discover the most popular insights they deliver.
How to Approach Metrics Selection
As a starting point, broadly speaking, metrics fall into these four categories:
- Cash
- Profit
- Growth
- Market share
Within each of these areas, one can and should drill down several levels to reveal truly valuable insights. There are countless ways to slice and dice each of these areas, so it’s important to guide your selection process with your specific needs. Namely, you’ll want to start by understanding your top objectives. These goals should be quantifiable and measurable. You’ll also want to overlay your industry and stage of growth. For example, we have developed a framework for KPI selection specifically designed for earlier-stage software-as-a-service (SaaS) businesses.
Additionally, the most popular metrics we’ve found in delivering outsourced CFO advisory services across a wide range of industries can serve as a starting point for building a shortlist for your organization. While there are many useful metrics that fall outside those listed here, this list transcends industry. From a venture-backed SaaS firm to a nonprofit, from a managed IT service provider (MSP) to a family business, the below insights and deliverables are all relevant across the board.
5 Most Popular Insights and Deliverables
1. Cash Management with CFO Advisory
Nothing is more important in business than understanding your organization’s cash position. Best intentions and even lofty profits all fall by the wayside if your organization lacks sufficient cash to meet its obligations. Effective cash management ensures that your business can cover its expenses, invest in growth opportunities, and weather financial downturns.
As the leader of your organization, you must understand how much cash you have in the bank (easy), how fast you’re burning through it (harder), and how long it will last (hardest, due to the variables involved). All of this data can be packed into a single view. Growing and shrinking revenue can both lead to cash shortfalls, and in such situations, you often need this information to make the hard decisions on which bills you can pay, and when. CFO advisory services can provide you with the tools and insights needed to monitor and manage your cash flow effectively.
Cash flow projections are also a critical planning tool as they provide visibility into your future cash position. Projections can ensure you’ll never be blindsided by a cash shortfall and provide you with an advanced warning when such a crisis is on the horizon. Such a warning will enable you to take the necessary actions to prevent it altogether or navigate through it when it does arrive. By leveraging CFO advisory services, you can develop accurate cash flow forecasts and implement strategies to maintain a healthy cash position.
2. Profit Planning
Many business owners’ profitability analysis starts and ends with looking at the organization’s net income on the P&L. But gaining more detailed visibility into profitability can be game-changing. For example, let’s take a SaaS business, which takes its payment over time via a subscription. That firm must make the sales and marketing investment upfront even though payment is received in the future. If you don’t understand the unit economics—that is, the profitability of a single customer—you won’t know if your SaaS firm will ever reach profitability.
That is why measuring the cost to acquire a customer (CAC) and customer lifetime value (LTV) and the LTV/CAC ratio are fundamental to understanding if the ingredients are present for a viable business… long before your overall firm achieves break-even. These profit data are critical for fundraising. Investors will consider it a prerequisite to an investment.
Or in the case of a nonprofit, understanding each program’s profitability will be of paramount importance in determining what changes would be required to achieve sustainability. Moreover, donors will want to understand the profit picture and overall financial story before backing your organization. CFO advisory services can help you analyze your profitability at a granular level, providing insights into which products, services, or programs are most profitable and where improvements can be made.
By working with CFO advisory services, you can develop a comprehensive profit planning strategy that aligns with your business goals. This includes setting profit targets, monitoring performance against these targets, and making adjustments as needed to ensure long-term profitability. Detailed profit planning can also help you identify cost-saving opportunities and optimize your pricing strategies to maximize revenue.
3. Budgeting with A CFO Advisory
A budget helps bring your strategy to life as the financial roadmap used to make it a reality. A budget is where your growth goals are put down on paper and all the financial realities of hitting those goals come into play. Used effectively, a budget is an incredibly powerful tool because it gets your entire team pulling toward common, quantifiable goals. It measures your progress along the way and simultaneously can be used to hold your team responsible for holding up their end of the bargain. With department-level visibility, your department heads can no longer hide behind the cloak of the financials for the entire organization when their department falls behind plan.
CFO advisory services can assist in creating a detailed and realistic budget that aligns with your strategic objectives. This involves analyzing historical financial data, forecasting future revenue and expenses, and setting financial targets for each department. A well-constructed budget provides a clear framework for decision-making and resource allocation, ensuring that your organization stays on track to achieve its goals.
Regular budget reviews and updates are essential to maintaining financial discipline and adapting to changing circumstances. CFO advisory services can help you monitor your budget performance, identify variances, and take corrective actions as needed. By maintaining a dynamic and responsive budgeting process, you can ensure that your organization remains agile and resilient in the face of financial challenges.
4. Value Drivers
Business owners like to see their business increase in value over time, just as a nonprofit executive director wants to see its impact grow. Typically, the faster, the better. But unless they’re monitoring the underlying drivers of growth, it’s difficult to proactively manage that growth. For example, an MSP is valued based largely on its monthly recurring revenue (MRR). Whether seeking growth capital that requires a valuation or looking to sell, the MSP owner should keep a watchful eye on MRR.
Doing so has far-reaching impacts on resource allocation. For instance, hitting the next milestone in MRR growth might cause you to focus more marketing and sales resources on adding more recurring services over campaigns to win one-time hardware sales or project service revenue. What value drivers should you watch? An outsourced CFO advisory service would identify the right drivers and establish mechanisms to monitor them.
CFO advisory services can help you identify and track the key value drivers that are most relevant to your business. These may include customer acquisition and retention rates, product or service margins, operational efficiency, and market share. By focusing on these critical metrics, you can make informed decisions that drive growth and enhance the overall value of your business.
In addition to identifying value drivers, CFO advisory services can assist in developing strategies to optimize these drivers. This may involve improving customer satisfaction and loyalty, streamlining operations to reduce costs, or expanding into new markets to increase revenue. By continuously monitoring and optimizing your value drivers, you can ensure sustained growth and long-term success for your organization.
5. Current Initiatives
It seems that every business owner or nonprofit leader has at least one pet project—or a current initiative that they are pushing in parallel with day-to-day operations. It’s critical to quantitatively measure the performance of these initiatives. Doing so lets you monitor progress, and it drives decisions behind resource deployment. After all, an owner should depend on more than gut instinct to decide whether to sunset a project or invest additional resources. Let’s say you want to experiment with a new variable compensation program for select employees. Presenting the variable month-to-month compensation an employee (or group of employees) earns over top of their productivity in a single view can show the correlation—or lack thereof—between the two.
CFO advisory services can provide the tools and expertise needed to evaluate the performance of your current initiatives. This involves setting clear objectives and KPIs for each project, tracking progress against these metrics, and analyzing the results to determine the initiative’s impact on your overall business performance. By taking a data-driven approach, you can make informed decisions about whether to continue, modify, or discontinue a project based on its actual performance.
In addition to performance measurement, CFO advisory services can help you optimize resource allocation for your initiatives. This includes identifying the most effective use of your financial, human, and operational resources to maximize the impact of each project. By ensuring that your initiatives are aligned with your strategic goals and supported by the necessary resources, you can drive meaningful progress and achieve your desired outcomes.
Read this great article on LinkedIn on whether an outsourced CFO is right for you.
