How are your Company Financials?  How are your Gross Margins?  How are your  Expenses?

Financial RptAnd now for what may be the toughest questions!  What can you afford to do?  Of course, you will do whatever it takes to make this business fly!  But can you?  What is your current cash flow?  Inventory turns? Profitability (perhaps EBITA)?  Cash on hand?  Debt?

When you do sell a product, are you making enough margin on it?  If not, what is the problem?  Here you need to look at your entire portfolio of products and solutions and assess the financial performance – volume, cost, price, quality, ability to ship – for each product or service.  Assess the stars and dogs explicitly, understanding the problems with each one for future action and engagement within the different functional groups.  With an understanding of what is going well and what is not, you are positioned to make changes that will improve business performance going forward.  For example, if one product is actually selling at a loss, you can kill it, re-design it for lower cost, raise its price or accept it as a loss leader. In the case of the latter, it had better bring in business or be of some other value!  If another product is a star but has low volume, a first priority might be to promote it to quickly improve business performance.

Expenses are of course the other side of the equation.  Looking at big ticket items such as supplier costs, rent, debt and development costs gives a trained eye a lot of insight into the efficiency of the operation as well as the skill of those managing execution.  Outliers in cost-of-product need to be understood, and this area can be targeted for a quick win through supplier negotiation.  Also, it is absolutely critical to assess the cost of personnel.  You must start from the first day to understand the cost-to-value contribution of every department and every employee of the operation.

In the end, good financial metrics are the compass to guide a business leader on where to go to improve results, so it is critical to have much more that the minimum data needed for legality and accounting.  It is essential to have by-product, by-region, by-channel, by-sales representative data with customer, cost, price and SKU information.  If this does not exist, put it on your list of high priority items to develop.

For a much more in-depth discussion on P&L management, see Strategy Deployment, Strategy Execution, and Spotlight on P&L.