Starting a new business is exciting, but as things move forward, you might notice the financial picture isn’t as clear as you’d like. Without tracking the right numbers, it’s like running a race without knowing the route—you quickly feel lost and unsure. Instead of focusing on growth, you end up trying to make sense of your finances, and that excitement turns into frustration.
This is what happens when CFOs don’t pay attention to key KPIs. Without monitoring important metrics, decisions can become risky, and the business may lose direction. Now is the time to focus on these KPIs to keep your business moving smoothly.
Importance of KPIs for CFOs
Key Performance Indicators (KPIs) help track different parts of business performance. For KPIs to work well, they should connect to the company’s strategy, be easy to measure, and provide useful insights. In today’s business world, where improving efficiency is key to growth, it’s important for CFOs (Chief Financial Officers) to monitor their KPIs to evaluate performance and make informed decisions.
Many businesses still use manual methods like spreadsheets to track KPIs, but there is a growing shift toward automation. Automation can track both financial and non-financial KPIs continuously, saving time and reducing errors.
There are many KPIs to choose from, but it’s important to focus on the most important ones. Include these key metrics in your regular reports and adjust them as your business goals change.
KPIs for CFOs in 2024
These KPIs can vary by industry and company goals, but here are 10 important ones for CFOs to track in 2024:
1. Adopt Remote and Hybrid Work Styles
Remote and hybrid work are becoming more common, even though many executives prefer employees to return to the office. In 2024, CFOs will need to budget for extra costs like office equipment, internet, and tech upgrades.
These work models offer more flexibility, letting employees structure their work around their lives and improve their work-life balance. They also give companies access to a wider talent pool, allowing them to hire top talent from around the world while saving on office and commuting costs.
Many employees report higher productivity when working remotely due to fewer distractions and more comfortable workspaces. Tracking employee productivity and costs, CFOs can better manage labor expenses and staffing levels.
2. Use Automation and AI
Automation offers a great solution for companies facing staffing shortages, but it often requires a big upfront cost, making it a challenge for CFOs in 2024 to find affordable options. There’s also concern about how automation might affect employees, especially those resistant to change. CFOs must invest in training to help their teams adapt.
AI is changing how finance teams work by managing large amounts of data, automating tasks, and providing insights for decisions. As AI evolves, it redefines finance roles, freeing up staff for more strategic work. Finance leaders need to ensure AI tools are smoothly integrated into their systems and support the transition with proper training to improve analytical skills.
3. Rate of Payment Mistakes
The payment error rate measures how often payments fail due to system issues or human mistakes. This can happen with payments from debtors or creditors.
Common errors include missing purchase order references, lack of payment approval, or missing important documents. Monitoring this rate helps identify problems and improve the payment process.
4. Address Staffing Shortages
Many companies face difficulties in hiring finance and accounting professionals. CFOs should plan for staffing needs in their 2024 budgets, focusing on training, recruitment, and retaining talent through benefits like paid time off or flexible work schedules.
5. AR and AP Turnover
CFOs should prioritize the company’s ability to turn credit sales into cash. Accounts Receivable turnover is a key metric, measuring how often the business collects payments each year. Slow collections can strain cash flow, while collecting too quickly can increase costs and pressure debtors. This helps CFOs refine their collection strategies.
Similarly, Accounts Payable turnover tracks how often the company pays its bills, revealing the impact on cash flow. Monitoring this metric allows CFOs to better manage the company’s financial health and payment processes.
6. Current Ratio, Quick Ratio, and Debt-to-Equity Ratio
The current ratio measures a company’s ability to pay short-term debts by comparing its current assets (like cash, receivables, and inventory) to its current liabilities (such as debt and accounts payable).
The Quick Ratio, or Acid Test, is a stricter measure of liquidity. It excludes inventory, giving a more cautious view of financial health.
The Debt-to-Equity Ratio shows how much of a company’s growth is funded by debt compared to shareholder investments. A high ratio means more reliance on debt. Tracking these KPIs helps CFOs discuss financing strategies with management and shareholders.
7. Time to Pay Bills and Collect Sales
Days Payable Outstanding (DPO) measures how long your company takes to pay its creditors. Monitoring this helps identify delays in the payment process, like issues with invoice approval, and allows you to fix bottlenecks. If needed, your company can aim to meet payment deadlines or pay early to take advantage of discounts.
Days Sales Outstanding (DSO) tracks the average time it takes to collect money from customers. Watching this KPI helps your finance team spot late payers and use incentives like discounts to encourage faster payments.
8. Plan to Address Staffing Shortages
A recent survey found that 68% of companies struggle to hire finance and accounting professionals. As CFOs and controllers plan their 2024 budgets, they need to set aside enough resources to address these talent shortages.
Instead of just raising salaries, they should take a balanced approach by investing in upskilling, onboarding, training, and recruitment. CFOs should also work to build a positive company culture and offer other perks like extra paid time off, better benefits, and flexible work options to retain staff.
9. Single Source of Truth (SSOT)
In 2024, thriving in a rapidly shifting business landscape will depend on having quick, accurate, and easily accessible data. To achieve this, companies need to adopt cloud-based systems that streamline decision-making and improve flexibility.
Although upgrading from outdated systems to cloud solutions can be expensive, especially in uncertain times, these investments lead to better data quality and smarter decisions in the long run.
This is why creating a Single Source of Truth (SSOT) is essential. Poor data results in poor decisions. SSOT gives businesses a clear understanding of customer needs and enables teams to address problems more effectively.
10. Operational Capital
Managing working capital ensures a company can meet its short-term obligations and maintain smooth operations. It’s calculated by subtracting current liabilities from current assets like cash, short-term investments, and accounts receivable. Positive working capital means a business can cover its immediate needs, while negative working capital may indicate financial issues.
Efficient management improves cash flow, allowing for growth, handling unexpected costs, and avoiding debt. It also strengthens supplier relationships by ensuring timely payments, which can lead to better credit terms and discounts, contributing to overall financial stability.
The Roadmap to Smart Decisions
KPIs are like a map for CFOs, guiding them to make smart decisions and keep the business on track. As we move into 2024, using automation and real-time tracking will be like having a faster car to reach your destination.
CFOs need to find the right balance between using new technology and managing costs, just like staying on course while keeping an eye on the fuel gauge, to handle the challenges and opportunities ahead.
FAQs
What are KPIs, and why are they important for CFOs?
KPIs (Key Performance Indicators) are metrics that help CFOs measure the performance and financial health of a business. Tracking these indicators helps CFOs make informed decisions and improve business efficiency.
Which KPIs should CFOs focus on in 2024?
In 2024, CFOs should focus on KPIs such as accounts receivable and payable turnover, working capital, automation use, and employee productivity, among others, to ensure financial stability and growth.
How can automation impact KPI tracking for CFOs?
Automation helps CFOs track KPIs more efficiently by reducing manual work, improving accuracy, and providing real-time data. This allows finance teams to focus on more strategic tasks.
How can CFOs handle the challenge of staffing shortages while tracking KPIs?
CFOs should invest in training, upskilling, and creating a positive work environment to attract and retain talent. They should also use technology, like automation, to reduce the impact of staffing shortages on KPI tracking.