About Keeping Score In Small Business

Imagine you are at a baseball game and the scoreboard is not working. Imagine further that neither of the managers is keeping track of balls and strikes, or outs, or runs. How would the manager decide when to bunt, swing away or steal? How would the players know which base to throw to? Further, if no records are kept, how would they know who their best hitters are? How does each hitter do against right or left handed pitching? I don’t think either of the managers of these teams would be in a position to devise an effective strategy for winning the game. If the talent of each team is roughly equal, strategy will determine the outcome of the game. In fact, the weaker the talent of any team is, the more important strategy becomes.

Of course, this does not happen in the real baseball world. But it certainly happens in the small business world.

Accounting is nothing more than keeping score. It is a virtual certainty that the failure to measure results in a timely manner will result business owners discovering what has happened after it’s too late to do anything about it.

Keep in mind that measuring results goes well beyond basic accounting activities. For instance your company may be quite profitable and successful and the owner may enjoy a flexible entrepreneurial work schedule. The company spends a significant amount of money on advertising but there is no method in place to measure the amount of business derived from each type of advertisement. As long as the company keeps making money no one is concerned. However, there may be money being wasted on advertisements that are ineffective or do not generate enough business to justify the cost. If, at some future date, it becomes necessary to reduce advertising expenditures, how will the owner know which campaigns to eliminate? It’s too late to obtain the information necessary to evaluate the alternatives.

There are many easy to use software products available that require no accounting knowledge. They will allow you to know what has happened in the past, what is happening now and, if used effectively, will allow you to know what will happen next.