Like a yardstick and divining rod in one, your scoreboard is a critical predictive tool for business-owners.
Interpreted correctly, it can help you avoid trouble up ahead and plan for future success. By ‘scoreboard’, I mean your business’ Profit & Loss Statement (P&L), Balance Sheet and Statement of Cash Flow, and how they relate to one another.
The three are inextricably linked and together provide a consolidated view that explains why even though your P&L says you made $100,000 profit, your bank balance may say otherwise. Monitoring your scoreboard helps you gain context around your operations and plan your next move. You should never take your eye off it for long. Tough when you’re in the thick of it running your business, but absolutely worth your attention in terms of clarity and lessons learned.
5 Things Your Scoreboard Can Tell You:
1. If there’s an iceberg up ahead. When you can foresee problems, you can develop pre-emptive solutions.
2. What you need to know to make big decisions. Too often, business owners rely on ‘guess-timatrics’. When you know the score, you can ground your decisions in reality.
3. Where there’s room for improvement. Analysis allows you to pick up on things that aren’t working and fix them.
4. How far you’ve come and where you’ve back-tracked. The scoreboard provides an overview of your peaks and troughs.
5. Seasonal trends and their impact. Over time, you’ll be able to identify any telling patterns and interpret them.
State Of Play
Ninety-six per cent of businesses don’t make it to their 10th anniversary. Not because there’s anything wrong with their offering, but because the financial side gets away from them. Business longevity is what checking the
scoreboard is all about. On that note, for the scoreboard to operate effectively you need to be painstakingly accurate with your data. Remember how well guess-timatrics works! Garbage in = garbage out. Double-check your sums and get a second pair of eyes on figures where possible.
“If you can’t read the scoreboard, you don’t know the score. If you don’t know the score, you can’t tell the winners from the losers.” – Warren Buffet
Clients often ask me how frequently they need to check their scoreboard. I say WEEKLY is a good rule of thumb. Get all the reports up at the same time every week so it becomes routine. The better you understand your scoreboard, the deeper your knowledge of where your business stands, and the more lead time you have to avert any crises.
Need help getting started? Efficiency Partners works with business-owners to help them understand their
scoreboard as part of our Management Accounting Services package. We sit down with clients on a monthly basis and go through the reports step by step.
Call 07 5441 1500 to find out how we can assist with your scoreboard.