How do you keep score?

Can you imagine watching a footy game without knowing the score?  Watching the play might be interesting for a while, but if you didn’t know the score, how pointless would that be?

How do you keep score in business?  How do keep track of improvements in tactics and game-plans, how do you know if your performance has improved one year to the next?

As we rapidly approach the end of the financial year, many business owners look to their financial statements (mainly their Profit & Loss* and Balance sheet) as their main scoreboard, and will either celebrate victory or commiserate their losses based on those ‘final results’.  But those bottom-line figures only tell us a small part of the story.

In football, the final score tells us who won the game.  But it’s the other stats that paint a far more informative picture – tackles, tries, conversions, errors, effective possessions and so on tells us how the teams actually performed... which gives the coaches valuable information on which to make corrections, adjust the game plan and inform decisions for the next game.

The financials in your business should do the same thing.  Unfortunately, most business owners track their financials only for compliance purposes – sure, the ATO is happy... but how do you know how you really performed?

Stats like average spend per client/customer, profit margin, customer acquisition, sales conversions, client retention and trend information all paint a far more informative picture of your business than just the bottom line.... especially in the current context when the economy has changed (comparing bottom-line figures from this year to last is meaningless, as the external environment has changed – you’re comparing apples with lemons).

My ‘better business tip’ for this week: use the end of the financial year to forensically investigate the performance of your business.... and structure your 2009/2010 accounts to give you the score on a regular basis. 

* (I’ve always thought it’s funny that we call it a profit AND loss – it’s should be a profit OR loss.)

Cat Matson is the Director of Client Development at Alito, a mentoring, accounting and consulting practice for SME’s looking for integrated and robust advice about managing and building their businesses.  Find more information and resources at www.alito.com.au or contact Cat – cat@alito.com.au or 3289 5500.