When does a Business need a CFO? Part Two

Needing a better and more complete understanding of business drivers

  • Business health and use of indicator ratio’s

Definition: Key performance indicators are a set of measures / indicators that a company or external parties use to gauge the business performance over time and in support of how well a business is performing against its strategic goals.

Ratios can be used in evaluation against industry competitors (benchmark of performance) and breaking performance down into simple and manageable indicators in performance improvement and highlighting key opportunities/ risks. (Business Executive scorecard summary)

In promoting Cash flow strategies within the business funding network, Bank / Equity funding Credit teams will use a KPI scorecard in evaluation of key dynamics. Examples are below and not limited to include:

  • Profit returns (Gross Profit, Expense and Interest cover),
  • Year on year growth (Revenue, Net profit),
  • Balance Sheet indicators including Quick ratio’s (Current assets / current liabilities), Receivable and inventory turnover.

All the above combine into key health check guides in evaluating a business credit score / opportunity and potential funding pricing.

(Have you asked your bank as to how they calculate the risk premium pricing that they charge out…. is this an industry related charge or is it reflective of your business and Key performance indicators?)

(CFO statement: Give us a yell if you want this discussed or highlighted in your own business operations)

Written by Brendan Raftery – Principal (QLD) – The CFO Centre

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