The purpose of tracking how your business is performing against your business plan is to gather, compile, and analyze performance information in order to meet or exceed your goals and objectives. Choose the information to collect based on three considerations.
- The information must be useful to you as you make ongoing decisions about the operation and direction of your business.
- The process of gathering and processing the information must not involve the expenditure of time or effort that outweighs the value of having the information.
- The information has to be available in time for it to be meaningful.
Realistically, most businesses require certain systems as a condition of doing business. Imagine running even a small retail establishment without a cash register. It's possible, but not much fun and very inefficient. Similarly, if a business has periodic bills to pay (e.g., rent, utilities, employee wages, etc.), there will probably be at least a rudimentary bookkeeping system in place. Add in federal tax withholding and payment rules, sales tax payments to the state, and other regulatory requirements, and the base recordkeeping requirements grow further.
Fortunately, you can rely on the systems you put in place for these other purposes as a source of performance measures. If possible, try to integrate all of your performance measures into the routine of your business. For example, if a lender requires monthly statements of income and expense, use them to monitor performance. You may want to track information the lender doesn't want, but you can piggyback that data gathering onto your required reports.
Establish some performance measure for those parts of your business whose results aren't directly reflected in financial operating results. For example, a local pizza place set up its cash register so that it keeps a running count of how many times a particular customer has placed an order. That information can be used to measure how effective the business is at retaining long-term customers. Similarly, employee morale can be measured, in part, by employee turnover. If you see that your business has turned into a revolving door for employees, with most coming and going in a short time, it's a good sign that you should look at things that might affect morale.