The Mind 🧠 of a CFO
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Welcome to The Mind of a CFO newsletter. The newsletter is designed to help entrepreneurs grow in business 📈, mind 🧠, body 💪, and spirit🧘.
We will give our CFO's take on a topic to grow your business profitably each month.
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In this issue, we are going to continue to focus on KPIs. We are going to look at leading indicators instead of lagging KPIs. Before we do, I want to discuss what I learned this week from a room with around 30 CFOs from all types of industries discussing KPIs together. Here are my top 3 takeaways:
Do not let your ego get in the way. Having KPIs that all show positive results does nothing for your business. Your business will never be perfect, so why should your KPIs?
Sharing financial metrics with employees can be powerful. However, sharing the wrong metrics can cause issues. For instance, an ownership group only wanted to share top-line revenue. Top-line revenue kept growing, but net income took a dip. Employees expected their standard bonuses because all they saw was revenue increasing.
Hardly anyone had labor efficiency KPIs we recommend to clients, but others were interested in learning more.
Now, on to how happy is your #1 asset.
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CFO’s Take - People KPIs
People KPIs are excellent leading indicators. Considering people are your #1 asset, you have to make sure they are happy. If you use Gusto (our favorite payroll provider) you can use their simple employee survey that tracks employee happiness in real-time.
Capacity is another key KPI. Tracking capacity allows you to make sure your people are not overworked and you have the insight to know it’s time to make a hire.
At A2 advisers, we keep it simple by knowing how many clients or projects someone can handle. Then, track the number of clients/projects per person in real-time.
Below is an example of how you can track capacity:
Let’s break this down a bit:
Calculating Overhead Rate
The allocation of overhead ("OH") is an art formed by science. To calculate the allocation percentage, consider all the expenses associated with people working on your services. Then, allocate them by person and/or estimated projects in a year.
In most cases, the overhead allocation percentage should be around 20% to 35% of an employee’s payroll.
Read more about calculating overhead rates and see an example in this blog post.
Calculating How Many Potential Hours a Person Can Work
You always want to build in additional capacity. At A2 advisers, we say to consider your person 80% billable (as noted in the graphic). This is because it allows you to:
Add on additional clients before you need to hire someone
Give them additional projects if needed
We also recommend you factor in paid time off (“PTO”) policies you plan to have in place in two to three years to build in even more capacity.
We are not fans of tracking time, but you will at least need to monitor a few projects or clients to get a sense of how much time is required for each one. This is how you will be able to find the maximum number of clients per person.
Continue reading by clicking here.
Brain 🧠 Food
📚🧘 Want to be more productive and save your sanity? Then, learn how to say NO like a pro by clicking here.
📚📈 How to make millions presenting the McKinsey way 👇
Mckinsey makes millions on a single presentation.....yeah👀
Here is the central business storytelling framework I learned in my 4 yrs there🧵👇
— Vidit Saxena (@supermode_)
Oct 23, 2022
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Thanks for reading, The Virtual CFO!
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