By Jeff Razafsky, Senior Consultant, Taylor Business Group
While unquestionably a critical number, the checkbook balance reveals little about the health of a business. For example, it doesn’t tell you which of your products and services are profitable or what areas of the business merit additional investment. Measuring a business’ performance from its checkbook is like driving a car having only a gas gauge.
"If you do not know what and how to measure your performance, both financial as well as your activity levels, how do you know what areas to work on your business to make it better?” There is a need for collecting financial and operating data in appropriate detail. Of course, once you have your numbers, you need targets, i.e., benchmarks, for comparison. For revenues and profits, benchmarks represent minimum acceptable performance. For expenses, benchmarks represent the “do not exceed” number.