Finance Objective & Key Result (OKR)
Upgrade your finance reporting with powerful OKRs. See how finance objectives and key results can change your business.
What is a Finance OKR?
Finance objectives and key results organize your team and help you reach your milestones.
Track Finance OKRs
Track your finance data at anytime with Alluxo. Make better finance decisions, in less time.
Using Finance OKRs
Finance and executive teams use finance OKRs to make informed capital allocation decisions.
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What is a finance objective and key result (OKR)?
An objective and key result, referred to as an OKR, is system of creating milestones for your organization. More specifically, finance OKRs are milestones used by the finance team of companies. We are going to explore what are finance OKRs, how to set finance OKRs, and common examples of finance OKRs.
The finance department can be the biggest ally for founders, business owners, and CEOs. At the end of the day, all business decisions are made based on the capital and time available.
The OKR framework tells us to create a single Objective and then a set of 3-5 Key Results that relate to the Objective. For instance, your objective is to grow revenue by 25%. Meanwhile, you get there through your key results. Three key results may be increasing pricing 10%, converting more site visitors to purchasers, and expanding your product lineup.
At Alluxo, we look at finance OKRs having a direct impact on the financial health of a business. In our eyes, a finance OKR needs to directly tie to revenue, expenses, cash balance, or cash flow.
How to set finance OKR?
We think of finance OKRs as a series of stages to unlock. For example, someone might set an objective to "Get better at closing the books". This is OK. While it is well-meaning, this Objective lacks a definite end and it is not tied to an outcome.
A better objective would be to "Close the accounting books in 10 days". This objective is clear and concise. In addition, we can expand on what we can do with that extra time. By closing the books faster, we can take time to analyze gross or net profit margin. Notice how this finance OKR does two things at once: (1) it gets information available faster and (2) it allows for more time to spend analyzing data, instead of simply preparing it.
The Alluxo team also recommends picking simple key results. If you are looking to increase profitability, this can happen in a few ways. First, you can generate more revenue; second, you can increase your gross profit margin, so you have more contribution to expenses; and third, you can cut expenses. While it might be tempting to set a key result of "Cutting expenses by 50%", it may also be unfeasible.
Instead, if your objective is "Increase profit margin from 5% to 10%", then we recommend setting 3 key results, one related to revenue growth, one related to margin growth, and one related to cutting expenses. It is unlikely that your expenses are 50% too high, but there are always improvements that can be found by looking at the details.
We would also like to mention that finance OKRs should be specific. Setting a goal of increasing profitability works well for a small business, but may be too vague and too difficult to impelement at large corporations. You want to make sure you have the right ability to execute and meet key results.
Examples of finance OKRs
We have provided a list of finance OKR examples. If you have questions or would like to discuss setting finance OKRs for your business, feel free to contact the Alluxo team.
- Objective A: Reach $100,000 in June EBITDA
- Key Result A1: Implement inventory management software
- Key Result A2: Reduce outsourced design efforts by 20%
- Key Result A3: Send personalized emails to encourage repeat purchases
- Objective B: Grow monthly recurring revenue (MRR) to $150,000
- Key Result B1: A/B test email drip campaign that onboards users
- Key Result B2: Create 3 product videos to address the top 3 customer support issues
- Key Result B3: Schedule demos with every customer who signs up for the Pro tier
- Objective C: Reduce accounts receivable days outstanding to 30
- Key Result C1: Make all of our invoices 2/10 net 30
- Key Result C2: Automate our invoicing and follow-up through QuickBooks
- Key Result C3: Call each customer who has an invoice past 15 days
- Objective D: Get budget variance to less than 5% (budget to actual)
- Key Result D1: List all categories that have been overbudget 3 times in last 6 months
- Key Result D2: Work with each department leader to understand their budget needs
- Key Result D3: Evaluate how many one-off expenses last quarter were necessary
Who benefits from finance OKRs?
When creating an OKR, or any performance metric, it is important to consider the audience. A revenue metric for a controller or staff accoutant is very different than a metric directed for the CEO or Chair of the Board of Directors.
Below, we are going to explore how you should think about creating objectives and key results based on the position within the organization.
Controller or Director of Finance: These individuals understand the day-to-day operations of the business. In a smaller organization, they will be in charge of the entire company. In larger organizations, they will be responsible for a particular business unit (e.g., line of business or geographic region). When setting a finance OKR for the controller or director of finance, focus on something tactical and short-term.
VP Finance or CFO: The Vice President of Finance (VP Finance) or Chief Financial Officer (CFO) is the executive in charge of the entire finance department. As such, they need to strike a balance between understanding the day-to-day business realities and looking ahead to the next month or quarter. A VP Finance or CFO should understand how seasonability, a new product launch, or debt payments will impact the business. They should serve as the "right hand" to the CEO. As such, OKRs for vice presidents or CFOs should be higher level. The VP Finance or CFO should use OKRs as a way of understanding how their team does work, they should not be interacting with the key results themselves.
Treasurer: The Treasurer is an officer entrusted with the care of the company's funds. Often times, the CFO is also the Treasurer. For a Treasurer, it is important to understand the company's cash position and their need to raise additional debt or equity financing.
Board of Directors: The Board of Directors may have access to finance OKRs as well. In this role, they should have a dashboard that shows them the financial health of the business. Again, because board members are not involved in the business at a detailed level, it would be a mistake to provide them daily or weekly metrics. These more granular metrics should be available upon request, but OKRs for the board should focus on figures like total revenue, total expenses, revenue growth, profit and profit margin, and cash position. The Audit Committee in particular would be interested in having access to finance OKRs.