Finance Function Part 2: Confronting the Reality of Your Business
If you’ve read this newsletter for a while, you’ve probably figured out I have a nuanced relationship with data, which I can best describe as:
1. Good data is important and should drive better decision-making in your business.
2. But lack of data should never be an excuse to delay taking action when your gut already tells you what the data would directionally say.
3. And if you are running a business, you will inevitably face situations where you must make decisions without every data point you would like to have.
4. Also, good data is important and should drive better decision-making in your business.
If you want to focus on 1 and 4, let me refresh you on last week’s article about cleaning up your finance function. That part comes first—no skips and no shortcuts.
But once you have good, clean, reliable numbers to look at, you can start to address all kinds of questions and issues about your business.
Questions like:
- Why is our gross margin well below industry standard?
- What is the average lifetime value (LTV) for one of our customers?
- Are we more profitable with customers of a certain size or in a certain sector?
- How much can we spend on acquiring a new client (CAC)? Are we spending too much, or not enough?
Here’s what I usually see when going through this process with clients.
They get all excited about having data. Information - yay!
Then, they start to look at the data, and their faces change. Reality - boo!
There’s a reckoning that often happens when you get real with your finances. The numbers don’t lie, and once you open Pandora’s box, there’s no way to put the genie back in the bottle. Or something.
Because here’s what the data usually tells a team: to reach their goals, it’s going to be freaking hard. And companies fight it. They know the data is real. They know the numbers are clean. But they are so used to doing things a certain way that they can’t fully face the implications of what their finances are telling them.
No, you won’t just figure it out.
Does the data show you’ve never grown more than 20% in a year? Then this year’s goal of 50% growth is not going to happen. Not without a believable plan, and that plan can’t be “do more of the same stuff we’ve been doing.” Not even close.
Does your budgeted marketing spend align with (a) what it costs to actually acquire a client, and (b) how many clients you plan to acquire this year? If not, you can’t sweep the discrepancy under the rug. You need to change the budget, change the target, or figure out a (believable) way to reduce your CAC.
I know how difficult this is. It requires setting ego aside. You don’t have money, you don’t have time, you’re overcommitted. It’s easier to just say, “We’ll hit the number.” But you won’t.
Hard truths force clarity. They also force creativity.
When we confront our fears, identify where the numbers just don’t work, and deal with what’s real—then we can get real with ourselves about what we need to fix, change, or do differently.
Because if you have a beautiful business that doesn’t hit its targets, you do not have a well-run company. And I want you to have a well-run company.
I want you to have happy clients, and happy team members, and I want your business to make money. Those are the things that matter most.
Two final thoughts on cleaning up your finances and using them to drive your business:
- This work is hard, but it is worth it. Clarity can be bracing, like taking a cold shower. But it wakes you up and leaves you awake, alert, and ready to act.
- You don’t have to do this alone. Your leadership team exists to help the business hit its numbers. They should be in lockstep with you on any necessary changes. And you can always reach out to our team if you want help.
