KRD Ltd. - Accountants, Consultants & Advisors

Financial Fluency: What Is It & Why Is It Important?

When traveling abroad, it’s the difference between seeing the city through the eyes of the tour guide and discovering the city through your own eyes.

In business, it’s the difference between seeing the company through someone else’s eyes and seeing it through your own eyes, especially when it comes to understanding how your efforts impact the company.

When someone else explains things to you, you only see things how they understand them. When you become financially fluent, you being to internalize and ask better questions to better understand the “why” behind your company’s financial data.

We all know what the bottom line is, but there’s a difference between “showing” the bottom line and “impacting” it.

Being fluent in financial and business statement can help you understand how your business processes impact the important things: how much cash is in the bank!

Two Views on Profit: The Financial View vs. Business Performance View

There are many ways you can think of profit, but for now let’s focus on two. The financial view is reflected in the financial statements and the business performance view is when you see what your employees are seeing.

As accountants, we’ve always focused on outcomes, which is looking into the past. Profit is an example of a lagging indicator, which is something historical and shows what happened. The Financial View is reflected in financial statements.

But here’s the thing, businesses are a combination of processes: how to get clients, how to keep them happy and how to make sure everything gets done when it’s supposed to. The Business Performance View reflects day-to-day activities.

If you want to impact outcomes, the focus needs to be on your employees and your processes.

People X Process = Profit

With this mindset shift, business owners begin focusing on leading indicators, which are predictive and look ahead to spot trends.

It’s important to see HOW much money you made (or didn’t) but it’s equally important to understand WHY you made it. KRD Insight can help understand how your people and your business processes coordinate to explain why the results are the way they are. With that insight, we can help change it.

Contact KRD Today

How are you turning financial data into insights? KRD can help. Contact us today at 847-240-1040 or contact us online to begin gathering meaningful insights from your company’s financial data.

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    Office: 847-240-1040
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