Keeping Score to Win

Today I will be watching the Super Bowl along with millions of others. I thought it is only fitting to add a little sports analogy to my business blog.

The Cardinals take on the Steelers tonight and the team that scores the most points will win. It's pretty simple, we tally up all the touchdowns, field goals, point after touchdowns (1 or 2 point conversions) and safeties. The team that ends up with the most points in the one hour of playing time will win (unless it goes to overtime).

In business, there are also scorecards. These are what I refer to as the holy trinity of financial statements -- the cash flow sheet, the profit & loss statement and the balance sheet. Unfortunately, too many small business owners do not pay close enough attention to these scorecards.

The problem is that too many small business owners try to operate their businesses on an intuitive basis. I was certainly guilty of this in the past, and that is the reason why I did not maximize my the performance of some very successful businesses. Some business owners tend to focus on only their cash balance in their checking account or their year end profitability. Others may track their inventory levels or accounts receivable balances or maybe they judge performance by how much they still owe to the bank.

Still the fact remains that business owners would be more successful if they developed a more holistic understanding of financial statements, and more importantly, some of the key performance indicators that dictate success for their particular industries. Sometimes, cash flow decisions can hurt profitability or vice versa and business owners should think about both aspects when making business decisions.

Forecasting successful operations means keeping score and establishing specific measures of success. Business is definitely a competitive enterprise and with competition their needs to be some performance measures. Keeping score means tracking transactions, whether it is through a manual ledger or a computer accounting system.

I encourage all small business owners to revisit their business plans and set up specific financial goals for the next few months. Keep score and try to exceed those goals.

One of the benefits of keeping score in your business vs. the sports world is that you can establish your own goals for winning. You can set the profitability measures, the cash flow balances and the net worth you hope to achieve. Still, you have to keep score to win.