Developing the best guidance and strategies for clients is challenging enough. But communicating your ideas can introduce a whole new layer of complexity.
Fortunately, there's an easy way to simplify your messaging and communication with them. It's as simple as focusing on key drivers, a vital concept for advisors to understand when working with clients.
Let's take a look at how they can help.
The first step to making the most of key drivers is getting a firm grasp on what they are and how they relate to a client's business.
In the simplest terms, key drivers are the most important factors that make the most impact on business outcomes. While many things factor into overall business performance, key drivers are the handful that can significantly alter the success or failure of an organization. They help tell the story at the core of any business, as they help drill down to and clarify the true heart of the operation.
They're distinct from the similar concept of KPIs, or key performance indicators. Key drivers are generally used to plan for the future, like in annual planning, and plotting out the best path for improving a business. KPIs are more backward-looking and are used to evaluate whether a company is meeting its goals.
Key drivers are also, by definition, related to the core of business performance. KPIs can span a wide range of data, including non-financial indicators.
The trick to figuring out what a key driver is versus an ordinary input to any business is to focus on the most relevant and actionable ones. The reason for relevancy is obvious; they can't be "key" unless they have the largest impact of any other factors. However, it's also important to remember the second part, as well.
For example, the overall state of the economy is a huge concern for almost every business. However, there's nothing individual companies can do to alter it. On the other hand, actionable things like the cost of goods sold, sales volume, and employee efficiency can all be influenced by decisions from company leaders. These will naturally vary from company to company, depending on factors like:
It's always worth remembering that clear, straightforward communication is the primary goal for an advisor. Identifying and using key drivers is one of the best ways to do that, helping clients focus on the most critical business factors. Here's why.
Sometimes, it can be difficult to motivate clients to make necessary moves if they can't see the exact way it'll benefit them. By focusing on key drivers, the goals and plans are, by definition, as directly connected as possible to the outcomes that businesses are looking for. This allows advisors to make more persuasive cases from the same data.
It’s one of the most impactful ways to clarify communication by breaking things down into the most fundamental and essential components.
In the hectic world of running a business, it can be surprisingly easy for leaders to develop tunnel vision, either by focusing on one metric or measure above all others with managers or supervisors concentrating only on their specific part of the business, as opposed to overall operations.
By identifying key drivers, it's easier to keep the entirety of the financial picture clear. It may surprise many organizations what they may be missing or the opportunities that present themselves from taking this broader view.
Business isn't a black box with mysterious processes leading to unexpected results. An emphasis on key drivers proves this by linking the direct cause and effect of decisions about business direction, projects, and other factors.
This can also be an extraordinarily empowering revelation for business owners who feel lost about their direction or stuck in a rut. Advisors can use the company's key drivers to show how straightforward it can be to get back on track or continue current success.
Advisory services don't need to be complicated or opaque. In fact, they should be the opposite! Using key drivers to simplify communication is one of the best ways to achieve this.
Luckily, advisors are getting more help than ever in identifying and analyzing businesses with the help of new tech tools, including leading financial analysis software. It's a critical part of telling a compelling story that not only gets clients to understand your points intellectually but also makes it intuitive and easy to see visually.
Advisors should remember these crucial principles and tools, and they may be shocked at the improved outcomes for their clients - and their own business, too.
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