The end of a business year is always an interesting and stressful time for those in a business leadership role. They are trying to simultaneously manage the numbers, shareholder expectations, and close the year strong... with an eye on a fast start for the following year. During the last few weeks of December, we typically see;
All of these business factors and actions have financial and other specific metrics that leaders review to make final decisions that determine the future of the business and the engagement of current and future employees such as;
Each of the elements I mentioned can be specifically measured and quantified. If used with strong business acumen skills, the interpretation of the numbers can create a culture of accountability and provide leaders with the tools they need to give feedback and coaching to their teams. As we get close to the last days of the year, I believe it is important for business leaders to remember something very important: “The numbers don't lie.” While there may be extenuating circumstances and supporting stories around all business metrics, it is critical for business leadership to have the business acumen skills to know what the numbers say, what they don’t say, and what to do with them.
In a previous blog post, Defining Business Acumen we provided you with insight and a clear overview of how we define Business Acumen skills. Today, here are a few leadership development thoughts on why having the right business acumen skills can help make sure that leaders are seeing the right things in the numbers.
1) Revenue and Profit Target
The Profit & Loss statement (P&L) / Income Statement shares information on revenues, expenses, and profit. These numbers are very clear and there is little misinterpretation. Business leaders need to look at two primary areas and determine if the functions driving them achieved their targets:
A healthy balance sheet usually means a healthy company. There are several elements on the balance sheet that drive it's health:
3) Free Cash Flow
Perhaps the most important metric of financial success is free cash flow (the amount of cash being generated by the operations of the business). The best way to calculate free cash is to subtract the organization’s capital expenditures from the cash flow from operations.
In each of the areas that I described, there is very little gray area as the numbers simply don’t lie. The question you need to ponder over the next few days as we enter a New Year is this: Do the people in my organization have the right business acumen skills to know if the numbers don’t lie?
Happy New Year and see every one of the “other side.”