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If your financials were a scoreboard, would you be winning or losing?

If your financials were a scoreboard, would you be winning or losing?

Who doesn’t love the rush of victory? You know, that moment when you beat your personal record, when your team pulls out the narrow victory, or when the underdog delivers the crushing blow to win the match. The look of grown men or women acting like little kids jumping up and down and celebrating.  That feeling of being on top of the world is an awesome high.. It’s the feeling of winning — something every business owner should be trying to experience.

Every business owner deserves their day in the ticker tape parade but it takes a lot more than beast mode hustle to put points on the board.

If you want to win — in sports or in business — you have to crunch the numbers.

Knowing how you’re doing is absolutely essential for the growth and sustainability of any business. In business and in sports, what separates the men from the boys and the women from the girls are the stats — the clearly defined goals, specific metrics and key performance indicators (KPIs) that prove what you’ve accomplished and predict how far you could go. Sports teams have the analytics nerds and businesses have accountants. In many ways, the roles are the same, us nerds help you keep score.. We’ve worked with some business owners who are successful in spite of themselves, but that’s not the best way to approach things.  You may hit a golf ball straight once but winging it and then trying to qualify for US Open is probably not the best advice.

We’re not saying that it’s easy. Many business owners avoid or procrastinate because It can be tedious, challenging, even grueling work. But each goal is like a step, even though it’s tough, it’s a step forward — higher and further than you’ve gone before. Each step makes you stronger and before you know it you’ll be outrunning the competition straight to the top.

Here are some ways we try and help our clients create a scoreboard  and how to keep score (KPIs).

Decide the Value of the Players and the Points

Imagine for a moment that you’re in a heated competition, pursuing a goal with the intent to win, but you have no idea if you’re actually winning, losing, or if you’re even a threat to your opponent. It would be like playing Monopoly without knowing the value of homes vs. hotels or playing football without knowing the difference between a touchdown and a field goal. If you don’t know the how to keep score how can you know if you’re winning or losing?

Now imagine running your business like that. My guess is that you may not have to guess. Most business owners aren’t tracking their progress let alone any kind of proactive goal setting. You know it’s important but you’re already running hard and stopping now may seem like a setback. But what business owners must remember is that stepping back isn’t a setback — it’s a strategic step forward that shows you the numbers you need to win.

Determine the Scoring System

In business, financials are the scoreboard. The numbers let us know how our business is doing good or bad, win or lose. Looking at the numbers gives us our batting average, field goal percentage, or number of RBIs.  It also give us something we can use to compare ourselves against others. Like Wins Above Replacement (WAR for those baseball stat nerds) It can prove we are on the right track or it can alert us to potential problems that need to be addressed in the short-term and long-term.

The problem is that many business owners don’t know how to read their financials, don’t have their numbers up to date, and don’t have any clearly defined goals. Are you playing the game without a scoreboard?

If financials are the scoreboard, are you winning or losing? How does your business stack up where you want to be or against your competition? If you cannot answer these questions, you will struggle to feel like your winning, much less know that your kicking your competitors butt.But this doesn’t need to be overwhelming, we can explain the numbers and help you determine the right  scoreboard for your business that advances your business ahead of the competition.

Define the Goals

Goal setting is a topic that most leaders look at as a chore that you do and then put in a drawer or in a folder and dont pull out until the next time you do it again. Any number of business coaches and experts discuss the benefits and the maybe even the how to’s, yet most business owners still lack the focus necessary to stay on plan.

Goals and KPIs are the foundation to knowing how your business is doing and where it is going.   We suggest the idea of having one BIG goal (OK no more than a couple). Then we recommend creating small incremental action steps or focused measurements, KPIs,  to help you stay on track. The process of setting that BIG goal is important as it causes you to really look at where you want to go, formulate a plan, and then set the plan into motion.

It’s also important to have a compelling reason behind the BIG goal. Simply choosing an aggressive sales goal may motivate some people, but many want something more than just hitting the numbers. Look for ways to tie it to your businesses vision and values. The BIG goal will become a reality when you connect it to your team’s goals. If they are invested because they feel like they will benefit personally, then they will work harder to help you achieve the business goals.

Detail the Metrics

You, like many business owners, may feel overwhelmed by financial statements, KPIs, dashboards, spreadsheets, and lots of numbers “What numbers should I be looking at?” “What do the numbers tell me?” A lot of the business owners we work have a ton of questions.  They often don’t even know where to start. . They know that they should be looking at their numbers but often don’t have the time to try to figure it out on their own or even if they did where to start.

Some of the metrics you want to look at include

  • Projected cash flow for the next 30/60/90 days
  • Sales by product type
  • Sales forecast for next 30/60/90 days
  • Inventory turns over the course of a year
  • True labor burden as a cost per hour
  • Margin on your top 10 sales items and bottom 10 items

We help our clients determine the right scorecard for their business and then help them keep track of the score.

Discover Lead and Lag Indicators

In sports there are a variety of statistics. Many of these numbers give coaches an indication of how well players are performing which affects how the team performs. In basketball the coach looks at shooting percentages. Three point versus free throw percentage as an example. These are lead indicators that help the coach understand what decisions he needs to make in an effort to win as many games as possible. The number of wins is the lag indicator, it’s the result the team is trying to reach.

Some of the numbers you want to consider can be considered lead indicators. Number of sales appointments per month.  Number of unique visitors to your website. Number of tables served at lunch. This may be activity-based data that’s letting you know what your trajectory is. Your lag indicators are the numbers they’re going to let you know if you’re there or not.

Track the Metrics

Once your goals are set and you have an idea of what metrics you need to track, the next thing to tackle is how to get the information so that it doesn’t take the gazillion hours to read and the data is meaningful and actionable.

You should have a sound set of financials such as your P&L, balance sheet, cash flow reports, and possibly a scorecard so that you can make great decisions.. Your scoreboard may also have metrics you’re looking at in your sales and marketing program, or customer service scores to let you know how you’re doing.

We help our clients keep score and work with them to make sure the scoreboard is tracking the right things. We recommend use some awesome tools that let us pull data, and helps keep score including KPIs in a variety of ways. Two of the tools that we recommend are Fathom and Klipfolio.

Running a business is hard. Especially when you’re having to do it in the dark. Setting up your scoreboard can go a long way to helping you run your business more effectively and more efficiently so you can focus more on running your business and enjoying your life.

Drop us a note if you have questions about keepings score, KPIs, dashboards, or any of the things from this article.

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