Several years ago I was attending an important high school basketball game between two local rivals when the scoreboard suddenly went off early in the first quarter. Play was halted and officials and technicians spent several long minutes trying to get it operating again. As the fans waited the coaches were called to the scorekeeper’s table and a brief discussion took
place. A game official explained to all present that the game would proceed without a scoreboard. Personal fouls and other key statistics, such as the exact time remaining in the game, would only be available to the two coaches and even those important facts were available periodically. The fans would be informed of the score from time to time throughout the game.
As the game began again I tried to keep score but found that I was often wrong. The game appeared to be a close one, but I wasn’t sure of anything and quickly lost count of the personal fouls on some players. The scorekeepers, unaccustomed to keeping the statistics in this manner, did a poor job of communicating to the coaches and fans. The first half ended with a player just dribbling the ball within easy shooting distance of the basket.
Sometime in the second half the star player of our team left the court, having fouled out, and even his coach seemed surprised. Finally the game ended with the whistle of the lead official. We all waited anxiously for the score and it was announced that the team I was cheering for had lost by one point!
It has been my experience that many small business owners track the performance of their business in much the same way, without a scoreboard. They periodically check sales volume, or the bank balance, but rarely have accurate financial statements so that they can really know if they are making money. They get their “quarterlies” from their accountant, financial statements hastily (read: inexpensively) prepared without many required accounting adjustments, glance at them and go back to work. Eventually the accountant prepares the financial statements at year end and the business owner anxiously wants to know “how did we do?” These statements usually include large year-end or tax adjustments, so the sum of the income from the quarterly statements isn’t anywhere near the year-end net income. There might even be a celebration if the bottom line is a small number or a loss because that means there will be no taxes due! Finally, this all takes place several months into the next year, so the next game is actually into the second quarter before the score of the last one is officially announced.
One of the most vital (definition: extremely important, needed by your body in order to keep living) tools of a small business owner is an accurate, monthly set of financial statements, the scoreboard of small business. Accounting professionals and small business advisors are the scorekeepers. We keep the books. We know the trends. We can read the momentum of the business and adjust accordingly. As the small business advisor it is critical that we insist that our clients learn to understand financial statements and use them to guide their business decisions. If they don’t understand the financial statements and if we don’t present them to our clients, they are playing the game with the scoreboard off.
Who knows, they might win if we light up the scoreboard for them!
Guy V. Morris is a principal in the firm of Morris & Dredge in Salt Lake City, Utah. He has spent his career helping small business owners understand their financial statements and utilize them as a tool in their business. He counts his family, fly fishing and love of numbers as his passions in life. He is also an avid reader of “anything that has to do with business”.