(Continuation of Fingernails post)
“Your rear view mirror is broken,” says your alarmed passenger.
“No worries,” you cleverly reply. “I want to see where I am going, not where I’ve been.”
Most financial reviews focus on the question of “how were actuals compared to budget?” I’m sure we’d all agree that is an appropriate question. The problem is that actual results are usually 30-45 days stale. As an example, I’ll sit in a board meeting in mid-November discussing how we did in September (the most recent month in which actuals were available).
This might not be a problem if you are the Cap’n Crunch product manager for Quaker Oats. I, however, live in the rapidly-changing Internet/telecom industry. Wasting time on how we performed two months ago is akin to getting directions to the Pepsi Center when I am heading to Frasca. It is where I have been, not where I am going.
If that is the best you can do, you are driving at night with your headlights off. It is just a matter of time before your crash.
BTW, most companies I’ve seen suffer from this dynamic. It is a reality that it takes 10-20 days to close last month’s books and assess results. Therefore, the focus during financial discussions is either on last month or on two months ago, depending on when the discussion is taking place. Most time is spent on discussing what happened in the rear view mirror, not on where the company is headed.
Disciplined operational finance capabilities are required to change this dynamic. I consider this well worth the effort–I credit it to be a major factor in the success of the companies I am involved with. I will elaborate on this in subsequent posts.
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Completely agree with this post. That’s why I would have my monthly review meetings focus on pipeline and KSF’s around new customer generation. Growing revenues solve expense problems (until your industry contracts, of course). Still, I’m amazed how the review of past month’s financials surfaces the fact that we have inadequate new business capabilities and yet we spend so little time examining the new business process. This puts the 80/20 rule in reverse in my opinion…
“No Need for Rear View Mirror” is one of my all-time favorite posts. I am glad you found it. Thanks for the comment.
Growing revenue only solve expense problems IF the revenue really is adding material margin to the bottom line. For capital intensive businesses, the margin needs to be especially high to ensure that good return on investment is being attained. Adding revenue that doesn’t produce great payback can add to a company’s woes.