This year, Kate Coles made a transition more common among accountants in practice. That is, from accountant to coach. She left industry to start Enhance finance, a coaching service for finance directors.
But Coles still has FD sensibilities and drawing from her finance experience at companies like Graze and Innocent Drinks, she told AccountingWEB about her key KPI: Cash conversion.
“Cash conversion is important as it measures how well a business converts theoretical profit into actual cash,” she said. “You have to have cash to survive. A profitable business with no cash will fail and a loss-making business (ie most startups) can survive if they have a healthy bank balance.
It’s formulated rather simply: change in cash over period divided by profit after tax for period. “I still use it fairly frequently to understand how well a company generates cash which is needed for growth, investment, survival.
“It’s also useful to understand the cash cycles in a business if there is a lot of investment. Most business people and a lot of accountants are too focused on profit and not enough on the other measures of business performance, cash conversion being one of these.”