I have to be honest. I didn’t start out today looking for a ukulele-version of Queen’s Bohemian Rhapsody. As a matter of fact, when I saw the post on TED (www.ted.com), I was attracted to it more for its novelty than for my expectation of great music. After all, who hasn’t endured an Idol wanna-be’s screeching attempt to resurrect Freddie Mercury?
“Why not?”, I thought. So I clicked on the link to hear Jake Shimabukuro play the rock classic on his ukulele.
I was transfixed by the beautiful sound coming from what is so often considered to be a toy or a token Hawaiian souvenir. The tone of the instrument was beautiful, full and rich, with masterful fingering played by the artist who held it. The simple ukulele had become magnificent.
You see, I had put the ukulele in a box labelled “For Luau Only”. That’s where it belonged, didn’t it? In a Don Ho music special from my youth. Or, more recently, as a pleasing , but simple sound produced by the late Izzy. It’s not that the music wasn’t good, but that it wasn’t meant for Queen.
And I could relate to the ukulele. Many times, we have fought to get out of the “CPA” box that others are quick to put us in. Everyone knows what a CPA does, right? Business owners hire us, bankers rely on our services, attorneys bring us in for assistance, based on their own notion of what a CPA does. Their perception may even be quite flattering, but it’s incomplete.
What Bohemian Rhapsody is to the ukulele, our Business Profitability Service is to a CPA firm. The service is often unexpected, but the reaction is nearly always extremely positive. We show the owner (or the banker) the business’ financial history, just like they expect to see. (“OK, Don Ho, I’ve heard this before.”)
But, then, we show them insights they haven’t seen before. Possibilities open up to new areas of improvements through pricing strategies, growth opportunities, cost controls, working capital management. We involve their team so they have buy-in and enthusiasm. Everyone knows what to do and how to get it done.
As I’ve previously established, I’m a rabid baseball fan and have been for nearly half a century. (Oh, that hurt!) I love the pace of the game, the finesse skills of the athletes, and the strategy involved in pitch selection, positioning, player substitutions, etc. Don’t even get me started about the designated hitter rules.
I’ve always loved reading and analyzing baseball statistics. Each day when I open the newspaper (I’ve already established my age so, yes, I do read a newspaper), I’ll skim the front page to make sure that global annihilation is not imminent and then I’ll peruse the sports page, particularly, the box scores and stats leaders. Baseball is loaded with measurable statistics. At Bats, Runs, Hits, Runs Batted In, Home Runs, Strikeouts, Walks, Earned Runs, Innings Pitched. (In short hand, AB, R, H, RBI, HR, K, BB, ER, IP.) These measurements are then used to create other stats, such as Batting Average, On-Base Percentage, Slugging Percentage, Earned Run Average (ERA), Walks + Hits per Inning Pitched (WHIP), and on and on.
The obsession with statistics in baseball has led to an entire field known as sabermetrics, “the search for objective knowledge about baseball.” It is the quest for the holy grail when comparing players from different eras or different leagues (“Who was better, Willie Mays or Mickey Mantle?”) or to predict the future value of current players (“What is Pablo Sandoval’s future value based on his current production?”) Sabermetricians have even come up with new statistics, such as OPS (On-base + Slugging) and Runs Produced.
My interest in baseball stats comes from the same curiosity that drives me to look at business metrics. Every business has certain measurements or statistics that can be used to measure the performance of the company or individuals within the company. There are also measurements that can help predict the future profitability of the company. The key is to find the right metrics. Sabermetrics for business. It’s not quite the search for the holy grail, but it is critical to find the right mix of drivers.
You see, by identifying the business’ key performance indicators (KPIs), we can address several critical questions, similar to the Mays vs. Mantle question above. How does this period stack up against last period? What trends can we spot in revenue and expenses? How do we compare to the industry as a whole?
While these are interesting questions, KPIs can be even more useful as predictors of future outcomes. Just as baseball owners look at critical stats to see which areas need the most improvement, business owners need to know which KPIs to improve in order to give them a better chance of improving profits and cash flow.
We are fortunate to have several tools that allow us to analyze KPIs across multiple periods against industry averages and to use that analysis to predict and plan for future outcomes. Whether we’re looking to improve cash flow from operations, net profit before taxes, or debt-to-equity ratios, we can analyze a company’s performance to determine where to focus the business owner’s attention and to develop strategies to implement the necessary tactics.
My parents probably thought I was wasting my time reading the sports page so much. Little did they know I was building my professional tool chest.
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