Feature:
It’s Time to Keep Score of Your Business

I enjoy playing golf but it can be a very frustrating game. For that reason, I typically do not keep score when I play golf. I find that it makes the game more enjoyable when I leave the scorecard and the half-pencil in the clubhouse. I have also found that over the past three decades that I have played golf; my game has not improved. If anything, it has deteriorated over this time period. But then it is hard to tell because I don't keep score.

Many small business owners manage their business just like I play golf. They don't keep score. They say it just makes running their small enterprise that much more frustrating if they must look at monthly financial statements or weekly sales reports. In addition, since they work in the business every day they know how the business is doing. What other information could they possibly need?

When friends ask what I normally shoot when I play golf, I usually respond with: "mid-nineties." That sounds pretty good and it seems about right. The funny thing is that when I do actually keep score, I usually shoot in the high-nineties and low-hundreds. In other words, I don't score as well as I presume I do.

Many small business owners think the same way. When I ask the business owner questions about profit margins, sales figures, specific ratios; I will either get a blank stare (bad sign) or a rough estimate. Upon examining their financial statements, I usually find that their "rough estimates" are overstated (sometimes dramatically).

I tell small business owners that the question is not whether they should be keeping score of their business or not. What they are operating is not a leisurely walk in the park slapping a silly white ball from tee to green. This is their livelihood. This is their dream. This is their business.

Instead, I inform them that the key question is what to keep score of? What should they be measuring and monitoring on a regular basis? How can they keep a pulse of their business on a day-to-day basis?

My dad was an entrepreneur. He was not the owner of the business but he had to think like an owner. He was in charge of operating a large warehouse distribution center. I remember being in his office and always seeing a small piece of notepaper in the upper front corner of his desk. On that piece of paper there were three numbers. On one occasion I asked my dad what those numbers were. Little did I know at that time that I was about to receive one of the best business management lessons I ever received in or out of business school.

My dad responded that his bookkeeper brought him this sheet of paper every day with three numbers written on it. The numbers included the past day's total sales, this day's bank deposit and the amount of accounts receivable outstanding that particular day. He explained that those three numbers gave him the "pulse" of the business each and every day. This is how he kept score of his business. Through his experience in managing this business, he knew what to look for in these numbers. He knew what was "below-par, par, and above-par." He knew when his business "game" was on and when it was off.

No one-day's number would cause a panic. He was more concerned with patterns. Were sales increasing? Were receivables under control? He had a mental chart of each of these figures and would take action when action was necessary.

In addition to these daily reports, he would also receive weekly sales and inventory reports. He paid close attention to the monthly financial statements when they arrived. However, it was those daily reports that he relied upon most and allowed him to best keep score of his business.

What numbers should you review every day? Possibilities include sales figures, bank deposits, inventory levels, employee timesheets, production reports, accounts receivable, accounts payable and profit margins.

Pick any three of these numbers and watch them every single working day. That is your scorecard. Set reasonable standards for each figure and be prepared to take action when necessary.

For more information about your three numbers, contact Tim Fulton, Vistage Group Chair, at 678-427-9436 or via email at tim.fulton@vistage.com. Learn more about Vistage at www.vistage.com.