As a financial planner, I spend a lot of time around numbers--tax numbers, investment numbers, planning numbers, business numbers. In fact, some people have accused me of being a "quant." A quant is someone totally focused on hard numbers and analytics, someone who may not pay enough attention to the softer, subjective side of things. Since my "accusers" include members of the profession, it's time for my public confession....I am all about the numbers! Now, it's time to tell you about them too.

MAJOR AND MINOR

All numbers in the financial services industry are not created equal. In my firm's business model, some numbers are more important, some less. (Regardless of importance, however, I have instant access to and can review any number our firm generates from anywhere in the country, 24/7.)

What are our major numbers? Cash flow, profits, business activity. For example, I review our income statement and balance sheet at least twice a month. Lots of minor numbers make up an income statement, but if there is an exception, it shows up and I can look into it. That's preventive financial medicine, so to speak.

Each month I carefully review a full set of financials, including an income statement, balance sheet, disbursements, receipts, sources and uses of cash, payroll and the bank reconciliation. For our board meeting three times a year, I compare current year-to-date income statements with previous years to discern trends or significant changes--good or bad. Substantive changes in line items over time are a major financial issue--and if there are any, I'd better have an explanation ready for the board.

Some have suggested that a firm our size needs a CFO. We've reviewed proposals to have an outside CFO manage our accounting functions, but it is just not warranted for our firm, nor probably yours either. Unless you are doing sophisticated financing involving debt or equity instruments or providing sophisticated financial consulting for clients, a CFO is way too much horsepower. We use Peachtree software, which provides all the accounting functions we'll ever need, including payroll. Our accounting department uses it to manage the books and payroll for several of our client's firms. If you have no expertise in this area, consider a part- or full-time bookkeeper, with an annual review by a CPA firm. Our books are audited annually.

Another major number is profit. I project our profits 12 to 18 months in advance, based on our modeled expenses and income. If the projected bottom line doesn't track each month, I look to see what happened and why.

Jim Collins, in his book, Good to Great, says that great companies focus on measuring one key economic denominator. For us, that number is net profit per employee. It simultaneously indicates several things: operational efficiency, appropriate staffing levels and overall financial health. Our particular business model strives to keep that number above $100,000. If we do, it indicates that all parts of our business are working effectively.

More important information comes from tracking prospects: where they come from and what happens after the initial call. You also want to keep track of qualified prospects--how many come in for a meeting, from what source and the conversion rate (how many become clients).

We also conduct trend analyses. For example, in the past five years, client referrals have averaged 44% of total qualified prospects, but in 2006, that number is only 26% of total prospects. This trend is a major number--and raises a major question that needs to be answered.

In 1984, I started keeping records and analyzing how many phone calls I made each day, week and month; how many meetings resulted; and how much of each product and service I sold as a result. By 1986, I could generally tell you how much I was going to make three months later, based on how many people I was willing to call and prospect each month. I could spot trends in my activity and track growth rates, but more important, the numbers were brutally compelling. If I wasn't putting forth the requisite effort, not much happened. The same is true today.

Heard all this stuff before? Maybe, but how often do you actually dig these numbers up and question their meaning and implications? It's like looking at yourself in the mirror without clothes--do you like what you see or is it time to do something about it? Is it time to start counting your numbers more carefully?

OUTSIDE NUMBERS

There are other important numbers that impact your business success. Interestingly, these numbers are outside your firm. Early in my career, I started attending meetings held by the IAFP and ICFP, predecessors of the Financial Planning Association(FPA). My knowledge and skills increased in direct proportion to my attendance. Today, I require all CFPs in our firm to join the FPA and attend all local chapter meetings.

Those who regularly attend professional meetings and conferences have a better shot at business and professional success than those who don't. Even if you are confident that you know everything and don't need to go to these meetings, what kind of example do you set for the newer professionals in your office? It's hard to tell them to go if you won't.

We have a career program at our firm, which specifies experience, training and education requirements for advancement. To become a client relationship manager in our firm--a capstone position in our profession--individuals must be involved in the local FPA chapter and serve on the board, a major number for them. Service broadens their perspective and gives them an exceptional opportunity to interact with other career professionals. Individuals who serve as the head of a committee or organization develop supportive insight, collaborative decision-making ability and the skills to recognize and work with different personality types.

I'm not exempt from these numbers either. I've served as president of my local FPA chapter and I continue to attend meetings. I also serve as a member of the board of trustees for the Foundation for Financial Planning (FFP). The FFP connects the financial planning community with people in need, offering pro bono advice and outreach services. This work continues to broaden my perspective while my participation helps the industry and people in need. This sort of service allows me to be counted as someone who is trying to give back in ways I can't do on my own. It also sets an example for younger professionals to follow.

THE BOTTOM LINE

If you look at your numbers and they don't tell you a compelling story, it's time to think more like a quant. Dig deeper and look at the inside and outside numbers.

Don't have much data to work with? Start keeping it and make projections to compare with actual performance as you move forward. And if you aren't being counted in your local or national professional volunteer efforts, make a deal with yourself to attend the next local chapter meeting. Find someone at the meeting who is keeping numbers and ask them what you should be measuring. If you really want to learn and grow, get involved in the organization. Finally, invest in your industry by making a pledge to FFP at www.foundation-finplan.org; this in turn makes your business stronger.

Glenn G. Kautt, CFP, EA, is an active financial planning practitioner and president of The Monitor Group, a wealth management firm in McLean, Va. He can be reached at kautt@themonitorgroup.com.

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