Mastering Strategic Decision-Making: Aligning Business Strategy with Finance and Accounting Systems

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Unlock the secrets to savvy strategic decision-making as we navigate the complex relationship between business strategy and the accounting and finance systems that support it. Perfect for small business owners looking to tighten their operations, this episode promises a deep understanding of how to leverage monthly financial statements and daily financial insights. We unravel the subtleties of resource allocation and explore the creation of meaningful KPIs that resonate with your unique business goals.

Episode outline:

1. What is business strategy,
2. Accounting and finance system considerations to support your strategy,
3. Develop the right key performance indicators, and 
4. Use leadership and knowledge to solve business problems. 

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2. Twitter: smclainiii
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For more resources, please visit Finance Leader Academy:  financeleaderacademy.com. 

1. Please download the Goal Setting Workbook that follows Episode 115: here
2. On the website, you can download the Become a Finance Leader Guide. You can use this guide to build your Finance Leadership skills so you can help senior leaders develop and execute the strategy.
3. I also offer a course, Advance Your Finance and Accounting Career: Developing a Promotion Strategy that Sets You Apart.

Episode Transcript

Stephen McLain (00:04):
This week I am talking about how to analyze and
evaluate your business strategythrough your accounting and
finance systems, particularly ifyou're a small business owner.
Our business strategy is alwaysabout making choices with the
resources you have, which isoften limited. How do you know

(00:25):
if you're achieving the resultsyou want? And if the strategy is
working, you need an effectiveaccounting and finance system to
measure the financials tomeasure key performance
indicators. And to assignresources to the right budget
lines. Let's make better datasupported strategic choices to
increase the chances of longterm success. Please enjoy the

(00:48):
episode. Welcome to the financeleader podcast where leadership
is bigger than the numbers. I amyour host, Stephen McLain. This
is the podcast for developingleaders in finance and
accounting. Please considerfollowing me on Twitter,
Facebook, Instagram, andLinkedIn. My usernames and the
links are in this episode's shownotes. Thank you. This is

(01:11):
episode number 118. And I'll betalking about analyzing and
evaluating your businessstrategy. And I'll highlight the
following topics. Number one,what is business strategy number
two, accounting and financesystem considerations to support
your strategy number three,develop the right key
performance indicators. And forus leadership and knowledge to

(01:35):
solve business problems.
Business theorist and ProfessorMichael Porter said, the essence
of strategy is choosing what notto do. I am so glad to be here
for another discussion aboutleadership and strategy which is
required to develop yourcompetitive edge in the
marketplace. We can't just guesson bringing a product or service
to market. You need to do yourhomework and apply leadership to

(01:59):
your decisions. And in thecommitment of the resources you
have to achieve it. Thesuccessful business leaders see
opportunities and then make keybusiness decisions committing
their company in a new directionthat may go against conventional
wisdom. In case you didn't missit. Last week in Episode 117. I

(02:19):
interviewed speaker and authorMark McMillian. We discuss
leadership, the importance ofcommunication, how to have
effective team meetings andconflict management. If you did
miss it, please go back andlisten, I believe what Mark
shared can help us all. I reallyliked his talk about clarity and
communication. It's key toaligning our team and for

(02:42):
helping not to frustrate yourteam members. Now this week, I
am coming back to a topic Iintroduced a few weeks ago. And
bonus episode number 74. Elevateyour small business and
solopreneur journey with anaccounting and finance system
that supports business growth.
How do you know your strategymakes sense? What are you

(03:05):
measuring to evaluate theresults, strategy becomes an
exercise of committing youroften limited resources to meet
the needs of your idealcustomer, you have a lot riding
on that decision in the longterm, because you may not get a
second shot. So that requiresyou to track your financials,
and to decide on key performanceindicators or KPIs to measure

(03:29):
success or failure, then itcomes down to leadership for
when you shift your strategy. Iwill discuss that in a later
episode. Do you make decisionsfrom your gut? Or is it data
driven? Or maybe both? I knowpeople make gut decisions about
their businesses. It's a rareskill in my opinion, I believe
in looking at the data, becauseyou may be very much surprised

(03:53):
on what the actual data is whenit comes to your customer. Your
sales, labor usage, cost ofmaterials and much more, capture
that data, do the analysis andmake a better decision. This is
why it's important to have anaccounting and finance system
that is linked to your strategyand supports better decision

(04:13):
making. You need monthlyfinancial statements and daily
financial data on your customerand sales to help you navigate a
better allocation of resourcesand a better way to solve
problems and how to direct yourteam to help you achieve the
result you desire. Additionally,you need someone or a team who
can see things in a much biggerway. This can be difficult for

(04:37):
some, you have to thinkdifferently in the data. Often.
You have to find unconventionaldata may be publicly available
data like data that is collectedby government agencies. When
you're looking at industryproblems. It takes finding
different data sources be opento data sources that can improve
strategy decision making.
Ultimately, ITo be happy if you track your

(05:00):
financial transactions,recognize your revenue and same
period expenses. Set a yearlybudget to track variances and
determine a KPI or two to helpyou grow and create more value.
Even doing this can yieldvaluable insights that can lead
to better decisions. Also, thisis big. Don't forget about your

(05:21):
goal setting and achievementthat we started several weeks
ago, and episode 115. Please goback and listen to episodes 115
and 116. To review goal settingand to ensure you are avoiding
the usual distractions are goalsetting and achievement are just
too important to overlook.

(05:42):
Continue to review and executeyour plan for this year. Your
long term plan depends on it.
And don't forget CPE completion,complete your CPE sooner than
later. Leading and running abusiness requires effective
decision making with datasystems that support it. You
must establish a strategy andthen collect the right data to

(06:02):
evaluate it properly. And weevaluate our strategy and
business goals with the rightkey performance indicators.
Additionally, you need anaccounting and finance system
that records analyzes andcategorizes your financial
transactions that provide afinancial health picture. This
establishes how you're usingyour financial resources and if

(06:25):
they are being used effectivelyto achieve the strategy. Now
let's talk about analyzing andevaluating your business
strategy. Number one, what isbusiness strategy? Again, your
business strategy comes down tochoices I want to replay my
discussion from bonus episodenumber 74. Please enjoy. Your
strategy is a roadmap for howyou will achieve your business

(06:50):
goals, create a competitiveadvantage and create value for
your business. So your strategymust address the following. The
first thing is who is your idealcustomer and target market.
Next, how are you going to servethat customer and target market?
So what is your product andservice mix? Next and probably

(07:11):
most important is how will youcompete? Is it going to be price
alone, better quality, morefeatures better service, maybe a
hybrid of many of these to bemore competitive, you need to
find your ideal price, you needto purchase raw materials and
services at a more favorablecost. And this helps you track

(07:32):
your gross margin and howprofitable your business is. The
next thing I want you to do isto do a SWOT analysis that is to
list your strengths, yourweaknesses, your opportunities,
and your threats. Next, I wantyou to list out your core
values, what is important toyou, and how you support your
ideal customer, and how you runyour business. How you treat

(07:56):
your employees. What does yourbusiness do to support local
community? The next thing I wantyou to do is to set your
priorities How will youprioritize your resources to
then meet your strategy? Andwhen you get a chance write out
your vision statement from youranswers. Then write out a
sentence declaring your strategyhow will you compete and serve

(08:18):
your ideal customer. And I wantto give you an example here this
is a strategic statement. For alocal coffee shop. We will
provide high quality coffeeofferings from free trade source
coffee bean farms, and a supermotivational work area space to
the local corporateprofessionals in the downtown
area where they can gather formeetings outside their office or

(08:41):
work on a project alone.
Now this strategy talks aboutproviding a high quality coffee
offering, particularlymentioning where they're going
to source the coffee beans andalso what type of space that
people can enjoy these coffeeofferings and also who their
ideal customer is going to be.
Then I want you to go back andwrite your strategic statement.

(09:04):
Identifying again, who yourideal customer is, what you're
offering, what you're going tooffer. In addition to that
product and service, mix yourideal customer and also how your
customer can enjoy your productor your service. Now to be
clear, your business strategy isdifferent from a comprehensive

(09:25):
business plan. A strategy is anassessment of your customer, and
the market you will serve. Thishelps you determine how you will
compete in this market. Andyou'll need to make important
decisions and choices about theresources you do have. In your
strategy. You commit yourvaluable resources to meeting
the needs of your customer. It'simportant to track it and know

(09:48):
your financials. Number two,accounting and finance system
considerations to support yourstrategy. Here's a partial
replay from my discussion againfrom
bonus episode number 74 on whatyou need in your accounting and
finance systems to bettersupport the business please
enjoy. Number one, capture andclassify your financial

(10:10):
transactions. This is thefoundation of any accounting
system, you have to know whereyour money is being spent, and
know when you're earningrevenue. Additionally, you need
to categorize your transactionsand lump similar ones together,
so you have more accurate data.
This helps not only in knowingabout how your money is moving,
but also helps andaccountability and internal

(10:31):
controls. Additionally, alongwith your cash flow, when you
know what is happening with yourfinances, you can determine and
negotiate better raw materialscosts. Number two, track your
cash flow. The foundationallifeblood of any business is
cashflow, you need to collectyour receivables and pay your
bills, you may need to use shortterm financing and your

(10:53):
business. Tracking your cashflow helps you know how much
cash you are burning through.
And if you need additional cash,through receivables, collecting
or with short term financing,and credit. Number three publish
financial statements at aminimum you must publish a
profit and loss statement andshowing your revenues less any

(11:15):
cost of goods sold and yourexpenses. If your business is
equipment based or you sellphysical products, you should
also publish a balance sheet.
Ideally, every business shouldbe publishing a balance sheet
number for budgeting. Pleasemake sure you are producing an
annual budget with projectedrevenues, cost of goods sold
expenses and capitalinvestments. So you have a plan

(11:37):
to identify how much you expectto earn and how much you will
spend each month or quartercalculate the variances to see
how close you were to yourprojection. The more you perform
this exercise, the more accurateyou could become in the future.
Number five, establish internalcontrols. How are you
establishing accountability foryour resources? How are you

(12:00):
monitoring your physical cash?
How are you preventing the theftof your inventory or property.
Internal Controls help preventtheft from within your business.
And sure you're performing abank reconciliation every month.
Number six determine your keybusiness growth metrics and
capture related data. Finance isdifferent from accounting

(12:23):
because you need to also look atnon financial data to measure
effectiveness, like storetraffic or clicks or CART
abandonments to figure out whatis happening within your
business. So you can makeadjustments. Let's say you own a
brick and mortar store. You willalso want to know sales by hour
and day. So you know what dayand what hours the bulk of your

(12:45):
sales occur. You can then adjustwork schedules and even opening
and closing times. This canmaximize your sales by also
helping you to be more efficientwith your labor. What metrics
should you track to make abetter business decision with
the resources you have. Andfinally, number seven, make
assessments and adjust yourresource commitments

(13:07):
accordingly. The reason wemeasure our finances is so we
can make better decisions togrow the business and to
maximize our resources for thebest results, measure, assess
and make better decisions.
I hope you enjoyed these twosound bites from bonus episode
74. It's so essential to have asystem to record and organize

(13:28):
your financials. When you knowhow you are using your resources
and how you're earning revenue.
You can do some incredibleanalysis to better position your
business. Number three, developthe right key performance
indicators. Keep in mind thatanything you can measure can be
improved. So what do we need tomeasure in our business to grow
the business and create morevalue and try to stay away from

(13:51):
the vanity metrics like socialmedia likes and shares. They may
make you feel validated, butuntil you convert them to sales,
it does not matter. Sometimes itcan be daunting and cumbersome
to develop a system to measureyour performance. We have talked
about establishing your businessstrategy and recording your
financials. We have also brieflydiscussed tracking non financial

(14:14):
related data to examine yourcustomers and even looking at
specific expenses to findefficiencies. A KPI is something
you can measure, like a businessbehavior to determine
performance is a key performanceindicator. Because what you're
trying to measure has hugeimpacts. If you get it right, it
leads to more growth. And ifyou're not measuring the right

(14:36):
activity, you may not know whatto do at all we need to
determine the business goalsthen what data should you track
to support those goals you willwant to drive better
performance. Choose the mostcritical KPIs that can drive the
results you desire to achievethe business's goals. You may
not even be collected the dataright now that you actually

(14:57):
need. So be clearcareful to not settle on the
data you do have, then establishtargets and measure against
those targets continue tomeasure, assess, analyze and
refine your process. Numberfour, use leadership and
knowledge to solve businessproblems. business can be very
challenging, it takes constantevaluation and leadership to

(15:18):
steer the business in the rightdirection. Because the
conditions are constantlychanging, we will always be
asked to make choices about ourlimited resources, develop
systems to measure, assess andmake better decisions. This
requires leadership to set andlive up to the vision for the
business. Commit to solving theright problems ensuring you're

(15:41):
collecting and analyzing theright data set. Never stop
challenging the status quo onyour strategy and how to achieve
itfor action today, what are your
key performance indicators? Dothey support evaluating the
strategy and business goals? Doyour KPIs help you to understand
your customer a little better?

(16:02):
Are you collecting andevaluating the right data? Start
thinking through this now, ifyou or your team has not done so
already?
Did you know that a financeleader Academy we offer a course
on conflict management we have aguest instructor Mark McMillian
of Macmillian leadershipassociates who will take you
through the process of handlinga hostile encounter in a variety

(16:24):
of scenarios, from dealing withangry customers or your own team
as they manage tough workissues. You can learn more at
finance leader academy.com Thankyou. Today I talked about
analyzing and evaluating yourbusiness strategy and I
highlighted the followingpoints. Number one, what is
business strategy? Number two,accounting and finance system

(16:44):
considerations to support yourstrategy? Number three, develop
the right key performanceindicators. And for us
leadership and knowledge tosolve business problems.
Business Growth relies onleadership a strategy that makes
sense and knowing your numbers.
Are you tracking yourfinancials? Do you know the
sales numbers around yourcustomers and your service and
product mix? Are you makingdecisions around what you are

(17:07):
seeing in the data patterns andfinancial insights? It will take
leadership knowing your numbersand collecting and analyzing the
right data to find valuableinsights to steer the business
to success. Next episode I willbe sharing an interview I
conducted with a very specialfinance leader who has some
incredible insights. You mayhave seen her on LinkedIn in

(17:29):
accounting today. And in theWall Street Journal, the
Comptroller and VP of accountingfor the low income investment
fund was Sia, come on. I can'twait to share her insights on
the finance and accountingprofessions. I hope you enjoyed
the finance leader podcast I amfocused on helping this
community to become moreconfident finance leaders

(17:49):
capable of transformingorganizations. You can find this
episode wherever you listen topodcasts. If this episode helped
you today, please share with acolleague and leave a quick
written review. Until next time,you can check out more resources
at finance leader academy.comand sign up for my weekly
updates so you don't miss anepisode of the podcast. And now

(18:10):
go lead your team and I'll seeyou next time. Thank you