What Every Business Owner Should Know About Scorecards
When running a business, it’s easy to let your heart and gut drive your decision-making and forecasting. If you aren’t measuring actions and results, forward progress is difficult and unpredictable. A guessing game of sorts. Defining important metrics that you’ll keep an eye on, tracking them over time, and continuously analyzing them will help you monitor the health of your business.
I have taken this to heart in all the companies I run. And that’s something that, while it might seem tedious and repetitive, I pay a lot of attention to. I can look at them and see ahead at what’s coming or uncover why something happened.
How have I done this?
Through creating scorecards for every system in my business.
They allow me to quickly monitor our progress, make any necessary changes we deem necessary, and execute them going forward. But before I tell you all about them, let’s first take a step back.
What are Scorecards?
Scorecards are documents used to track how your business is performing over a period of time.
But it’s not just about measurement.
They are also management tools that help guide your actions and help you achieve your company’s goals.
Basically, they let you, the business owner, see “ahead of the curve” at what might unfold and back at the reason behind things.
As many fellow entrepreneurs, I didn’t take enough time to define, fulfill, and audit them at first.
In some ways, I felt like I was blind. I kinda knew we were going the right direction, but I had no way to know for sure.
I knew we needed to sell more and our revenue was going up. But I couldn’t say with confidence that would happen because I wasn’t tracking my marketing and sales activities well enough.
When I started working with my coach, however, I started taking these scorecards more seriously.
We now track financials and Key Performance Indicators (KPIs) through scorecards for every system within my company:
But Why Are They So Important?
Scorecards tell you how your business is going. Where it may be off-track, and where you may need to make adjustments so that each system is working efficiently.
But here’s the thing:
You can see the future with them.
No, I don’t mean they are literally a crystal ball. But they do illustrate, metrically, if something may go wrong down the road.
Scorecards are especially useful when measuring leading indicators. Through them, you can see what will happen weeks, months, and even years in advance.
Leading indicators –and I’ll make an article on them specifically– can help both your decision-making and forecasting.
Let’s say you check out your financial scorecards and realize that you have under-collected money from your customers. What does that tell you?
That you might run into a cash-flow problem in the near-term. So you might have to take out money from your retained earnings to make payroll.
Much better to know now than in a month when the water is up to your neck, right?
Another question I often get is—
How Often Should You Look at your Scorecards?
And it’s interesting because I’ve seen everything on the spectrum. Some business owners review them once a month. Others once a quarter. Others once a year. And others, well, never because they don’t have them (they don’t usually last though).
I personally checked almost all of them on a weekly basis. As we’ve grown larger, I’ve started checking some of them monthly. I have a management team that I trust so I don’t have to monitor each week.
Maybe that’s just me. But I would rather make sure I’m up to date on our numbers before it’s too late.
Scorecards and the New Business System
One of the best ways I can think of to share the importance of scorecards is through the New Business System.
The New Business includes the people, tools, and processes that work to generating leads and close clients.
Back in the day, I used to do what many other entrepreneurs do. I tried to go out and sell as much as I could –but I wasn’t tracking anything other than the most basic stuff.
At the end of the year, I’d look at our numbers and say: “Oh, I closed this much business. I thought it would be more/less.”
Now, I look at this whole system differently—
It works like a funnel: generate leads → qualify them → close them. Since I have tracked our average closing and qualifying rates and deal value, I know exactly that…
If I want to make $4M in revenue, I’ll need to generate X number of leads. And then, I can break those leads down per quarter/month/week.
A quick glance at my scorecards will tell me if I’m on track for the time period I’m checking out. If we have to generate 10 leads this week and we’re at 20, things look good ahead. But if we’re at 3, something’s not working.
So, your scorecard isn’t just a tracker. It can tell you what you need to do to hit your goal and helps show if you are on track to hit your goals or not.
Who owns the Scorecards?
Each company and industry should have its own scorecards that need to be filled in, measured, and analyzed. But who is responsible for them?
In the early days, it was just me. I’d be the one tracking how much business we closed, what was our customer LTV, etc.
But, as we grew and I started working ON the business, things changed.
Now, every scorecard is owned by someone. There is an individual responsibility to track, quantify, and evaluate it.
For example, the Head of Sales could be responsible for the New Business Scorecard. Or the CFO for the Financial Scorecard, etc.
Along with the management team, my job to be aware of the big picture trends. See what’s going well and what are the weak links that need to be adjusted. But I don’t go in and work on each individual KPI anymore.
Scorecards Are Crutial
- Scorecards tell you how your business is going, where it may be off-track, and where you may need to make modifications so that each system is working efficiently.
- By tracking leading indicators, you are now able to forecast future trends easily which also helps your decision-making. You can see this by reverse-engineering the New Business System.
- As you move from IN to ON the business, you’ll delegate ownership of each scorecard to your team. I still check them weekly to see how we’re performing and what needs to be adjusted.