by Tim Fulton
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 at all. If anything, it has deteriorated over time. But then it is hard to tell because…I don’t keep score.
When friends ask what I normally shoot when I play golf, I usually respond with: “mid-90’s.” That sounds pretty good and seems about right. The funny thing is that when I do actually keep score, I usually shoot in the high 90’s to low 100’s. In other words, I don’t score as well as I presume I do.
Many small business owners manage their business just like I play golf. They don’t keep score. Their reasoning is very similar to mine as well. 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. When I ask a 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 or not they should be keeping score in their business. 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 check the 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 can remember being in his office and always seeing a small piece of notepaper (this was before “Post-Its”) in the upper front corner of his desk. On that piece of paper there were three numbers scribbled down. 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 (3) 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 to me 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 guesswork here.
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. They were timely. They were accurate. They were critical to his ability to successfully manage this multi-million dollar operation.
What numbers should you receive every day? You decide. Possibilities include sales figures, bank deposits, inventory levels, employee timesheets, production reports, accounts receivable, accounts payable, and profit margins. Every industry has different areas of performance that need to be looked at regularly.
I think three is the magic number. Pick any three of these numbers and watch them every single working day. That is your mini-report card for the day. That is your scorecard. Set reasonable standards for each figure and be prepared to take action when necessary.
Keep score for your business and watch it improve and grow.