I am certain you have heard the expression, “you can’t manage it if you don’t measure it.” Some will tell you that in business, you can’t measure everything; that isn’t true as you can measure what is important and what adds value. As you develop your Simple Business Plan, you will need to ensure that it adds value. To do that you will also need to develop a Business Scorecard.
What exactly is a Business Scorecard?
A business scorecard is exactly what it sounds like. A collection of numbers or data that tell you how you are doing. Some may refer to it as a report card, a dashboard, metrics or data. It doesn’t matter what you call it as long as you know that it will tell you how your business is performing. Just like in sports where you keep score, you’ll keep score in your business. For our purposes we will call it a Business Scorecard; you may call it anything you wish.
It would not be uncommon for me to hear, “My Accountant (Bookkeeper) gives me an Income Statement (P&L), and that is all I need. The challenge you have with a financial statement like that is that it tells you after something has happened; not before or while. I have had client businesses receive their financial statements as late as 90 days after the reporting period. That provides absolutely no value to the Business Owner.
There is no hard rule about what you should put into your Business Scorecard. What is important is that:
- You have one
- You use it
- It provides value to you
What is also important is the structure of your business scorecard. First and foremost is how often it provides data. While real-time is great, the odds are significantly against your being able to do that for many reasons. However, having the information in your business scorecard every week will help you manage more actively.
I always recommend putting weekly sales totals in a Scorecard. I define sales as the check has cleared, and the product or service has been delivered. You may define it as paid for orders. Regardless, recording sales weekly, sometimes called revenue, will help you make the necessary adjustments early enough in the month should something not be according to plan or projections.
You may also want to add orders in the process to demonstrate a pipeline. You may want to track Customer Satisfaction, how fast you turn over your inventory, the relationship between your cash and your Accounts Payable, and so on. The important part here is that you have a frequent delivery of data that is important to you and that you use that data to manage your business.
Another important factor is how much data. I have seen Scorecards with 20 plus different individual pieces of data. I have seen them with one. Neither is appropriate. A Good Scorecard will have 5-7 Data points. This ensures that you receive the right amount of information and that you aren’t basing decisions or off of too little or too much information.
Identifying the information you need in your Business Scorecard will take time and thought. You will not only have to think about what is important to you but also want is important and realistic for your business. Once you’ve decided, start measuring. If necessary you can always make changes later should you find the information isn’t exactly what you need.
Next week we’ll address Process as we help you design, develop, and execute your business plan.
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