Measure is the starting point of effective financial management in your business because, as I’ve shared in other episodes, what gets measured gets managed. Measurement is the foundation of the entire cycle of business financial management.

I look at that cycle as a circle, where each part points to another in a closed loop. When you implement this continuous process in your business, you can continue to uplevel the business.

So what does measure actually mean? It can take a lot of forms but the bottom line is you want to measure what’s important in your business – and that may not be the same as what’s important to someone else’s business. Your key metrics will be different based on the type of business you have, the industry you’re in, and your unique strategic plan.

What’s key is putting measurements in place as your benchmarks and putting them in a clear dashboard format that you look at frequently. They need to be where you can see them and communicate about them. How often do you need to have your eye on any particular number? Is it once per shift, per day, per week, per month, per payroll cycle? The correct frequency depends on when you figure out those numbers are going sideways, because as soon as you’re able to determine they’re going sideways, you need to take action.

These aren’t just measurements for measurements’ sake. These are actionable numbers. Don’t measure just to measure, measure what’s actually important, gather those numbers, and put them on some kind of dashboard. After you’ve determined what’s important to you and the frequency of measuring those numbers, you’re going to need to communicate those to the organization effectively.

Communicating key data – and what’s most important – to your team is critical. You want to let people know that the better you are as a team, the better you are as a company. There’s power in communicating what matters and the success of your company without divulging, of course, any personal numbers you’re not comfortable sharing. Communicate the data that’s important to the performance of your overall company and your teams, because your teams want to impact the business and be part of something successful. You can help them by communicating what’s important and updating them on the numbers that matter.

The next step in the cycle after measuring is monitoring. This is about paying attention to what you’re measuring so you can actually manage it. What good is measuring if you’re not going to pay attention to it?

When we monitor, what are we comparing those numbers to? What can we do with that data? You can compare it against benchmarks, targets, trends, a budget, a forecast, industry standards, etc. When you make those comparisons, you’ll really see the numbers tell you a story. You can see if the numbers are good or bad, and you can start drawing some important conclusions. You can see where there might be issues to pay attention to.

Bottom line: what gets measured gets managed, and it gets managed through the monitoring process. Monitoring leads to us paying attention on a regular basis to our data, so we can start to see the story behind the numbers.

We talked about measuring and monitoring. The third step in the business financial management cycle is analyzing. Analyze always begins with asking “why?” – sometimes over and over again until you get to the heart of the underlying cause.

How do we figure out the answer to that why?

In the last segment we talked about monitoring versus a benchmark or trends. When we see that gap, we’re going to calculate variances to those benchmarks (the difference between the two). We look at what it is, what it means, and why it’s there to try to determine the root cause. There’s an unpeeling of an onion a layer at a time to reveal the root cause as we continue to ask why.

You have data in your business, and the answers are in it. You just have to collect it and start figuring out the answer to the why question. When you analyze, you can go back and grab any data set that may lend itself to an answer. Always, when we do analysis, we want the data to reveal the story behind the numbers for whatever you’re looking at, whether it’s the balance sheet or common ratios or the income statement. By going back and understanding what those different numbers have to tell you about performance, you’re going to get a better picture of what’s going on.

Remember, the foundation of this is your chart of accounts. If your chart of accounts is set up properly, that’s going to lead to consistent, trusted reports you can use as a basis to analyze. You can get your numbers more easily than having to go back and recast numbers and reformat reports.

Ask yourself: if you go back two or three years, is that data consistently recorded with how you do it today? You need to look back and make sure your data is comparable. Of course, things change over time and your business, hopefully, is expanding. But you can look back and create some benchmarks that will be helpful to your business so you can analyze and understand what to do next.