Your Path to Business Success #9: Increase Certainty using a Balanced Scorecard

As a small business owner, you're juggling a million things, leaving you feeling overwhelmed, unproductive, and uncertain. You're not alone. Two years ago, we started working with a small business owner who was generating more debt than income. He was growing increasingly frustrated by how hard he was working and how little return he was getting for his efforts.

Your Path to Business Success

Over the last two years, we have executed the 4 Disciplines of Execution (4DX) approach to turn his business around. The 4DX approach calls for leaders to focus on the wildly important, act on lead measures, keep a compelling scorecard, and create a cadence of accountability. The balanced scorecard we developed after our first two sessions, along with the weekly scorecard we made from that document, has helped to give his business more focus and consistency. Updating this weekly scorecard, reflecting on wins, and developing solutions to address misses to goals has led to back-to-back years of double-digit earnings growth. The owner is now making over 6 figures a year, and he has the 4DX, Balanced Scorecard, his mindset shift, and commitment to continuous learning to thank for more profits and less stress.

Many entrepreneurs struggle with prioritizing tasks and making strategic decisions. The balanced scorecard is a powerful tool that can bring clarity and control to your business. Major consulting firms like Boston Consulting Group and business schools like Harvard teach business leaders how to use this tool to drive higher levels of growth. You do not have to hire a big-time consulting firm or get an MBA to use this concept. Throughout this article, I will share how to set up a balanced scorecard.

Financial Goals: The Foundation of Success

Financial goals provide a snapshot of your financial health. While you have autonomy in choosing your specific targets, consider these three key metrics:

1. Revenue: A strong indicator of how well your offering resonates with the market. Rising revenue suggests growing demand for your products or services.

2. Margin: This reflects your business's efficiency. Increasing the percentage of revenue converted into income can help you achieve profitability goals with fewer inputs.

3. Payroll as a percentage of revenue: Labor tends to be a company's most significant expense. Paying attention to the percentage of revenue that goes towards labor can help you determine if you are getting the most out of your labor spending.

Pro tip: Review your financial performance for the past year and establish challenging but achievable targets.

Customer Goals: Converting customers into profits

You need customers to achieve your financial goals, but not all customers benefit your business in the same way. Establishing customer goals can help you focus on the customers who will fuel your financial goals.

l. Define these three customer-centric goals:

Number of Customers: Determine the target number of customers you need to serve to achieve your financial objectives. This helps you visualize your lead generation needs.

Customer Frequency: How often do you want customers to purchase? This helps you strategize for repeat business and determine how many customers you need overall.

Customer Satisfaction: Measure how well your product or service meets customer expectations. You can use metrics like net promoter scores.

Pro tip: Calculate the lifetime value of a customer to help you determine how much you should be willing to spend to acquire a new customer.

Process Goals: Streamlining Operations

Process goals focus on the activities that drive your customer goals. Consider what processes you need in place to achieve financial and customer goals. A few to consider would be:

Customer Acquisition Activities: Set goals around marketing efforts, such as social media impressions or website traffic.

Operational and Execution Activities: Focus on delivering consistent product and service quality. Establish goals that help you identify and improve the quality of your products and services.

Business Activities: Set goals for internal processes like financial reviews or stakeholder meetings to ensure you're dedicating time to key business drivers.

Pro Tip: Consider your current systems and identify the bottlenecks that impact your ability to attract and retain customers. Establish metrics to help you identify if you are removing those bottlenecks.

People Goals: Investing in Your Team

Our Power6 Leader program teaches business owners the success equation of culture x processes = results. Setting goals around selecting, developing, and inspiring your team will help you build an organizational culture that can leverage the processes you have in place to achieve your business goals. We encourage goals around the following:

Professional Development: Set goals for the amount of time you will dedicate to professional development to ensure you and your team have the knowledge and experience to lead effectively.

Performance Conversations: Evaluate current team gaps and work with them to develop individual development plans to help them grow the skills, mindset, and experience they need to thrive.

External Partnerships: Identify key external relationships, such as with marketing experts, coaches, lawyers, or accountants, and set practical goals for selecting and managing these key partners.

Pro Tip: Make a list of all your employees and key partners. Write down their strengths, weaknesses, and capabilities. Reflect on where you have gaps and how you can better leverage the talent around you.

Putting it All Together:

By setting these 12 goals and assigning metrics, you will gain clarity on your business objectives and how to prioritize your time, money, and resources. Once your scorecard is built, establish a routine for reviewing your performance and identifying ways to achieve your goals. Each time a new opportunity presents itself, ask, "Where does this fit into my scorecard?" If it does not align with helping you achieve one of these 12 goals, you should ask yourself if you should pursue this opportunity.

Creating a disciplined approach to running your business will help you stay focused, measure results more effectively, and learn faster. The Balanced Scorecard provides a framework for strategic decision-making, allowing you to move from feeling overwhelmed to feeling in control. It's a powerful tool for any small business owner seeking sustainable success.

Thank you for reading our latest blog. Hopefully, you have a better understanding of a balanced scorecard and how it can help you with clarity and direction. If you are looking for help establishing your goals, start by going back and reading our previous post. Over the last few weeks, we have covered each of these topics.

If you have any questions, or want to sit down and discuss your current strategy, email Executive Coach Dorian Cunion at dcunion@yourpathexecutivesolutions.com

Download this free resources to get started on your balanced scorecard.

5 year plan .pdf.pdf

Download PDF • 220KB

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One of the suggestions we provide clients is to leverage as many free resources as possible. If you do not have a SCORE mentor, visit their website, check out their resources, and find a mentor. Richmond | SCORE

Verizon Small Business Ready is also a great free resource you should leverage to help you understand different business concepts. Here is a link to their website Verizon Small Business Digital Ready - Landing

The SBA, and The Department of Small Business and Supplier Diversity also provide great resources for small businesses.

We are always here to help you on your path. Whether you are looking for thought or accountability partners, need help overcoming a mental block, or mastering a new skill, we will provide you with the guidance and support you need to achieve your business goals.

Your Path to Business Success #8: Why Your Business Needs A Balance Sheet

Imagine trying to assemble a complex puzzle in the dark. You might be able to connect a few pieces, but without seeing the whole picture, you're likely to make mistakes and end up not achieving your goal. A balance sheet is like turning on the light, allowing you to see all the pieces and how they fit together. With a clear view, you can strategically assemble the puzzle and create a complete picture of your financial health.

Your Path to Business Success

What is a balance sheet?

A balance sheet is a financial snapshot of your business at a specific point in time. It shows your assets (what you own), liabilities (what you owe), and equity (the difference between the two).

Example of a balance sheet

Why is it important?

A balance sheet is like a financial snapshot of your small business, giving you a clear picture of its financial health. It shows you what you own (assets), what you owe (liabilities), and the value of your business (equity).

This information is crucial for making informed decisions about your business, such as investing in new equipment, taking on debt, or expanding your services. For example, a mental health practice could use a balance sheet to determine whether it has enough funds to hire another therapist or open an additional location.

Lenders and investors rely on balance sheets to assess your business's financial stability and creditworthiness. By regularly reviewing your balance sheet, you can track your progress, identify areas for improvement, and ensure the long-term success of your business.

Pro tip: Set a goal for writing down all your assets and liabilities. Getting them on paper is the first step to having a clear picture of your business's profitability.

How often do you review your balance sheet?

• I do not have one
• Once a month
• Once a quarter
• Once a year

How can you use it to make decisions?

1. Identify and manage assets: A balance sheet helps you understand the value of your assets and make informed decisions about buying, selling, or utilizing them effectively. If your business is struggling with cash flow, selling underutilized assets might be a good way to generate some cash.

2. Monitor and control liabilities: By tracking your liabilities, you can manage your debt levels and make strategic decisions about repayment. Debt can be a good thing if it is fueling your growth. Developing a strategy around leveraging debt to grow revenue is critical to a successful business strategy.

3. Assess your equity position: Your equity position reflects the overall value of your business. Monitoring it helps you understand your financial stability and growth potential. Your equity goals will vary based on your growth stage. Newer companies tend to have lower equity as they invest in growth. As your company matures, you will want to see your equity grow. The balance sheet will allow you to monitor progress over time.

   
   

Pro Tip: Review the interest rates on your current liabilities. Which borrowing sources carry the highest interest? Eliminating these liabilities will help you reduce your debt burden and improve your business's profitability.

How do I Build A Balance Sheet?

Building a balance sheet for your small business involves a few key steps.

1. Start by listing all your assets, which include everything your business owns, such as cash, inventory, equipment, and accounts receivable.

2. Next, list your liabilities, which are all your business's debts and obligations, such as loans, accounts payable, and any other outstanding debts.

3. Finally, calculate your equity by subtracting your total liabilities from your total assets. This will give you a clear picture of your business's financial health.

Regularly updating your balance sheet helps you track financial progress, make informed decisions, and ensure long-term success. If you need assistance, consider consulting with a financial advisor or accountant to ensure accuracy and completeness. Accounting software like Quickbooks can make it easy to build a balance sheet.

Don't leave your business in the dark.

Take the time to create and regularly review your balance sheet. It may seem daunting initially, but the insights you gain are invaluable. Like turning on the light to solve a puzzle, investing time in your balance sheet will give you the clarity and control to navigate your business toward success.

Need help?

If you're struggling to create or interpret your balance sheet or simply looking for a thought partner to guide you, Your Path Coaching and Consulting is here to help. We can assist you in building the financial acumen and routines necessary to improve your business's profitability.

Schedule a free consultation today to discuss how we can help you achieve your goals.

Get help understanding financial reporting

Remember: A balance sheet is not just a financial statement; it's a roadmap to your business's success.

Thanks for reading our latest installment of Your Path to Business Success. This series is designed to help business owners have their best year yet. If this is your first time reading, check out the other blogs in this series. Each touches on a different topic of business acumen. Knowledge is key to growth. We are here to help you gain the knowledge, skills, experience, and network needed to achieve your professional goals. If you have any questions about anything covered here, email executive coach Dorian Cunion at dcunion@yourpathexecutivesolutions.com

Looking for Additional Resources

Reach out to the experts from our network.

CPAs

Lisa Moody, Discover the Factor https://www.discoverfactor.com/

BJ Lanier, Nova Accounting bj@novaaccounting.com

Bookkeepers

Ashley Cloude, Cloude Accounting, ashley.cloude@gmail.com

Sabrina Trimiew, MarBey Accounting, sabrina@marbrey.co

Zach Broaddus, Profit Map, http://broaddus.biz/

Carina Epps, Everlife Accounting Group

Fractional CFO

Scott Geller, PathPredict http://www.capitisadvisors.com/

Carina Epps, Everlife Accounting Group CFO Services

Your Path to Business Success #7: Reduce Anxiety by Fixing Cash Flow

Cash flow is the number one challenge that small business owners face. SCORE, an organization that mentors small business owners, reports that 82% of companies fail because of cash flow issues. It does not matter how great your idea is, how much talent you have assembled, or how much the market needs your product; if you cannot pay your bills, you will not be in business long.

Reduce Anxiety by Fixing Cash Flow

In this article, we will cover the top three activities you need to engage in monthly to ensure the profitability of your business.

Cash Flow Activity 1: Expense Management

Operating cash flow is the movement of money into and out of a company over a time period. To fix your cash flow, you must start understanding your expenses. No matter how complex, all businesses have two basic expenses.

• The fixed expenses are the expenses you must pay whether you serve 0 customers or +1000

• Variable expenses increase as you serve more customers. 

To correctly manage your cash flow, you need to define how much your business spends on existing fixed expenses such as rent and utilities and how much incremental expense you incur for each new customer you serve.

Example: An in-person mental health practice will have overhead costs for rent, utilities, website, and office furniture, regardless of the number of clients it serves. These are your fixed expenses. As the business acquires clients, variable costs like art and office supplies will be incurred.

 Key Terms:

• Fixed expenses: are costs that remain constant regardless of the level of production or sales.

• Variable expenses: are costs that fluctuate based on the level of production or sales.

Pro Tip: Work with a bookkeeper to set up your accounting software so that it is easy to see which expenses are fixed and which are variable. Segmenting your expenses will help you better predict future operating costs.

Cash Flow Activity 2: Forecasting Revenue

After you define and identify your fixed and variable expenses, it is time to shift your attention to revenue. One of the first things you will want to do is break down your revenue by type and source.

• Type refers to what you are selling

• Source refers to who is purchasing that product or service.

You should be as general or as specific as you need to be to make smart business decisions.  

When it comes to type,

• If you only sell a few goods or services, you can look at things at the item level.

• If you sell a lot of different items, cluster them into categories.

Monitoring previous sales trends is one of the best ways to predict future revenue.

When it comes to source,

• If you work with fewer than 10 customers, keep things simple and consider your business from the individual customer's perspective.

• If you serve more than 10 customers, segment your customers into different types to make it easier to analyze your information.

Take the time to understand who is buying what, when they are buying it, and how frequently you believe they will be making additional purchases. This information will help you forecast future revenue.

Example: If you are a print shop, list the different types of products and services you sell. You will likely want to create categories such as paper products, promotional goods, signs, etc. Next, you will want to segment your customers into business versus consumer. Finally, you will need to create sub-segments inside of those two classifications. You can classify the sub-segments based on important variables, such as geography, industry, or another characteristic that will help you understand your most profitable customers.

Key Term:

• Product categories: are groups of products that share similar characteristics and serve similar needs or purposes.

• Customer segmentation: is the process of dividing a broad customer base into smaller, more manageable groups based on shared characteristics.

Pro Tip: Go beyond tracking your sales and track your prospects. By monitoring the top of your sales funnel, you can better predict the amount of future revenue your business will generate.

Is your P&L statement easy to understand?

• Yes
• No

Cash Flow Activity 3: Understand Buying Trends

All businesses are both cyclical and unpredictable. To correctly manage your cash flow, you must differentiate cyclical patterns, meaning ebbs and flows of revenue and expenses that you can predict from unpredictable ones.

To understand trends, you will want to review data based on different time horizons. If you have been in business for over a year, you will want to compare your performance this year to last year. Most companies will see similar revenue and expense patterns from one year to the next, and it is beneficial to understand how seasonality impacts your cash flow.

You will also want to look at revenue and expense trends by week. Some industries are impacted by customer cash flow throughout the month. Sales might be higher or lower during the first or last week of the month. You want to understand these trends so that you can plan accordingly. 

Example: Individuals do their taxes every year around April 15th. Low-end retailers understand their customers and plan special promotions to capture additional sales during this time because they know many of their customers receive tax refunds around this time. Understanding how annual events like paying taxes impact customer demand is critical to accurately anticipating changes in revenue and expense.

Key Terms:

• Cyclical buying patterns: recurring trends in consumer purchasing behavior that follow a predictable cycle over a specific period.

• Time horizons: the time an investment, project, or plan is expected to achieve its objectives.

Pro Tip: Connect with other people in your industry. Ask them about their experience with sales cycles so you can determine if your business follows industry trends or is an outlier.

Summary

To wrap up, remember that healthy cash flow is the cornerstone of any successful business. Tracking and analyzing your expenses and income streams is a necessary monthly task. By understanding the patterns within your cash flow, you can gain financial awareness and improve it. If tracking and analyzing financials is no fun and drains all of your energy, look into hiring a bookkeeper or accountant who can fill this gap for you. If you have this but are still struggling, consider working with a business consultant or hiring a CFO. Your decision-making is only as good as your information management systems and processes. By organizing your revenue and expense data, making it easier to understand, and developing a routine around reviewing it, you will position yourself for better profitability.

Thank you for reading the latest installment of Your Path to Business Success series, designed to help small business owners make 2025 their best year. If this is your first time reading this article, we encourage you to go back and read the other articles in this series, which include topics on crafting a vision, goal setting, and conducting research.

If you have questions regarding any of the topics discussed or would like help implementing these tactics and strategies to your business, email executive coach Dorian Cunion at dcunion@yourpathexecutivesolutions.com

Schedule a call

Go Deeper

Common Fixed Expenses

·  Rent or Lease Payments: Costs for office space, warehouses, or retail locations.

·  Salaries: Regular wages for employees, especially those on fixed contracts.

·  Insurance: Premiums for various types of insurance, such as liability, property, and health insurance.

·  Depreciation: The gradual reduction in value of fixed assets like machinery, equipment, and buildings.

·  Utilities: Basic services such as electricity, water, and internet, which often have a fixed component.

·  Loan Payments: Regular payments on any business loans or mortgages.

·  Property Taxes: Taxes levied on property owned by the business.

·  Software Subscriptions: Costs for essential software and services that are billed on a regular basis.

Common Variable Expense

·  Raw Materials: Costs for the materials needed to produce goods.

·  Direct Labor: Wages for employees directly involved in the production or service process.

·  Sales Commissions: Payments to sales staff based on the volume of sales they generate.

·  Shipping and Delivery Costs: Expenses for transporting goods to customers.

·  Utilities: While some utilities have a fixed component, others can vary with production levels, such as electricity for manufacturing.

·  Packaging: Costs for packaging materials used to prepare products for sale.

·  Marketing and Advertising: Expenses for promotional activities that can vary based on the level of marketing efforts.

·  Maintenance and Repairs: Costs for maintaining and repairing equipment, which can vary with usage.

Common cyclical trends

Seasonal Trends: Increased sales of winter clothing during colder months and summer apparel during warmer months.

Holiday Shopping: Spikes in consumer spending during major holidays like Christmas, Thanksgiving, and Black Friday.

Economic Cycles: Changes in purchasing behavior based on financial conditions, such as increased spending during economic booms and reduced spending during recessions.

Cultural Events: Increased sales of specific products during cultural or religious events, such as Diwali, Chinese New Year, or Ramadan.