The Connection Between Finance and Business: Where Metrics Should Live
Finance and business are two sides of the same coin, both essential to driving an organization forward, yet fundamentally different in their roles and metrics. Finance is about money, but not as an end in itself—money is the fuel that powers the journey. The business, on the other hand, is about the destination: a vision, an objective, or a mission that transcends financial outcomes. Whether that goal is sending people to Mars or making TV viewing more enjoyable, the interplay between finance and business determines whether that journey succeeds.
So how do finance and business work together, and where should each focus its efforts when it comes to tracking and managing metrics?
Finance: The Perpetual Motion Machine of Business
Finance’s role is deceptively simple yet profoundly important: it ensures the fuel (money) is available, optimally allocated, and effectively turned into more fuel to keep the engine running. Finance tracks the inputs and outputs of the business machine. It’s the ultimate equalizer, normalizing metrics into a universal language that allows organizations to compare performance not only across lines of business but also across industries and geographies.
In practice, finance focuses on:
• Asset Allocation: Ensuring the organization’s resources are distributed to areas that maximize returns.
• Cost Management: Keeping spending in check while ensuring investments align with strategic priorities.
• Profitability Metrics: Revenue, gross margin, EBITDA, and net income—all of which quantify how effectively the business is turning fuel into results.
• Cash Flow: Tracking liquidity to ensure the business can operate smoothly and invest in future opportunities.
• Capital Structure: Managing debt, equity, and funding to maintain a healthy balance sheet and finance growth.
Importantly, finance lives outside the “black box” of the business mechanics. It monitors the inputs (money going in) and outputs (money coming out), ensuring the equation balances. But it doesn’t dictate how the machine operates internally—that’s where the business comes in.
The Business: Steering Toward the Destination
The business exists to achieve a mission. Its metrics are rooted in the inner workings of the machine—the processes, decisions, and strategies that take the fuel provided by finance and turn it into tangible outcomes. Unlike finance, which focuses on money as the end product, the business tracks metrics tied to progress toward its mission and competitive positioning.
Key business metrics include:
• Operational Metrics: Efficiency indicators like production throughput, uptime, and cost per unit that reflect the performance of internal processes.
• Customer Metrics: Retention rates, customer acquisition cost (CAC), lifetime value (LTV), and satisfaction scores that gauge how well the business is serving its customers.
• Market Metrics: Share of market, competitive positioning, and brand strength that reflect the business’s ability to outmaneuver competitors.
• Strategic KPIs: Metrics tied to long-term goals, like the number of Mars-bound rockets launched or the percentage of customers engaging with a new streaming platform feature.
These metrics are the mechanics of the black box: the engine, the transmission, the wheels. They measure how efficiently and effectively the business is converting fuel into progress, anticipating and addressing bumps in the road, storms on the horizon, and rival cars on the highway.
The Intersection: Translating Mechanics Into Financials
While finance tracks inputs and outputs, and the business tracks the mechanics, there’s a critical connection between the two. Business metrics are the leading indicators that feed into financial metrics. For example:
• Customer Retention drives recurring revenue, which impacts gross margin.
• Operational Efficiency reduces costs, improving EBITDA.
• Market Share Gains increase top-line growth, strengthening cash flow.
Finance serves as the translator, turning the business’s complex inner workings into a common language. It connects the dots between strategy and outcomes, helping leaders understand whether the machine is running as intended and whether the destination is achievable with the current allocation of fuel.
Where Metrics Should Live: A Partnership
The key to effective business management lies in clearly defining ownership of metrics:
1. Finance Owns Financial Metrics: These are the universal indicators of health, performance, and viability. Finance ensures the equation balances but doesn’t dictate how the black box operates.
2. The Business Owns Operational and Strategic Metrics: These are the drivers of performance, aligned to the mission and vision of the organization.
3. Collaboration is Key: Finance and business must work together to ensure alignment. Finance informs the business about resource constraints and financial realities, while the business provides insights into what’s working and where to invest.
A Unified Purpose
At the end of the day, finance and business share the same goal: achieving the mission. Finance ensures the machine has enough fuel and the resources are used efficiently, while the business focuses on navigating the journey and overcoming obstacles. Together, they form a perpetual motion machine, where money fuels the mission, and the mission drives the creation of more money to sustain progress.
By understanding the difference and connection between finance and business metrics, organizations can ensure both sides of the coin work in harmony, driving toward their ultimate destination with clarity and purpose.
