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Corporate Financial DNA – How Important is it?

by | Aug 25, 2006 | PKF Texas - The Entrepreneur's Playbook®

Note: Running most Fridays in FromGregsHead.comis a continuing series of tips brought to you by Greg Price. These run Saturday mornings during the BusinessMaker’s Radio Show on Supertalk 97.5. Audio files can be found on the Entrepreneur’s Playbook page of the PKF Texas website.

Do you know your corporate financial DNA?

Are people asking for a Benchmark Report on your business?  As your company grows, are you treading water?  Are you ahead or behind of your competitors?  Success leaves clues, so do you know where to look?

If you know your corporate financial DNA, you can adapt to changing business demands more readily.  There are several areas that make up corporate financial DNA.  These include but are not limited to: revenue growth, operating income margin, percentage cost of good sold, days sales outstanding, days in inventory, and days purchases outstanding.

Corporate DNA must be combined with performance metrics to drive success.

No matter what metric you use, make sure it is easily understood by many managers throughout your company.  Use the metrics to reward performance of your employees.  Also, make sure your corporate DNA relates to shareholder value.

Look back at your successes.  What did you do right and how can you apply that to the future?  Success is measurable, but it takes the right combination of people, process, and technology to become effective.  Make sure you map SCM initiatives to financial performance gaps and link gaps to SCM Business Processes and Strategies.

Studies have shown, that for certain industries, using your corporate financial DNA to improve performance in reducing your Days Sales Outstanding from the median to the 1st quartile has a bigger impact on your cash flow than increasing sales from median to the 1st quartile.

Make sure you know the comparison between your corporate financial DNA and your industry.  If you do, you can implement improvement plans to put money in your pocket.

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