Whether a scratch player or a weekend duffer, golfers invariable keep score while playing a round. After each hole, they mark your score card with the number of strokes for the hole. They don't wait until they are on the 10th tee or at the 19th hole to record their score on each hole. Their playing partners may be suspect of their score if they did. If playing in a weekend tournament, they don't wait until you were teeing off on the back nine on Sunday to check their score from Saturday.

Many golfers use their score card to help them manage their round. Some golfers record the number of putts for each hole, if there tee shot was in the fairway and/or whether they were on the green in regulation. I know when I was playing on a regular basis, I would routinely calculate my score through the number holes played to determine what I needed to do on the remaining holes to shoot a decent score.

Many of my clients are golfers and can readily recant their last round in detail. But when asked how the business is doing they are not as quick to respond. Why? Because they don't keep score of their business they way they do their golf game. The don't use to their business score card - financial reports - they way they use their golf score card. They only look at their financial reports occasionally. Sometimes not until after their fiscal year has ended.

I have heard several reasons (excuses) for not using financial reports, but overwhelmingly many business owners simply don't know how their financial reports are structured and what they information they provide.

The following is a basic discussion of the two primary financial reports - Balance Sheet & Income Statement. Maybe this will help you better manage your business score.

BALANCE SHEET

The Balance Sheet summarizes the end results of the company's operation from the day the company is organized until the date the Balance Sheet is prepared. The Balance Sheet is divided into three (3) major sections: ASSETS, LIABILITIES and OWNER'S EQUITY

Assets are defined as anything companies own. These things might be physical assets such as buildings, trucks, inventories of products, equipment and cash. Or these things might be intangible assets such as goodwill, trademarks and patents. Assets also include anything owed to the company such as Accounts Receivable or Employee Advances.

Assets are subdivided into Current Assets, Fixed Assets, and Other Assets

CURRENT ASSETS: Include cash, Accounts Receivable and any other asset which can be turned into cash in the normal operating cycle of the business - one (1) year.

FIXED ASSETS: This category will consist of the actual fixed physical property, such as Vehicles, Equipment, Buildings, etc. which in most cases represent a major part of the company's wealth and are normally much more difficult to liquidate (sell) than current assets.

OTHER ASSETS: Include Notes Receivable, Prepaid Expenses, and intangible assets such as goodwill, trademarks, patents, etc.

Liabilities are defined as anything the company owes. This includes loans and payables. Monies owed on behalf of others also represent Liabilities to the company. Income Tax withheld from employees pay checks and sales taxes collected are liabilities to the company. . Liabilities are subdivided into two categories.

CURRENT LIABILITIES: Are short-term debts, which must be paid in the next operating period, normally within one (1) year from the date of the Balance Sheet. These include Accounts Payable, Notes Payable (current portion), Loans Payable (current portion), Accrued Liabilities.

LONG-TERM LIABILITIES Are long-term debt, which will not be paid off within one (1) year of the balance sheet date, is included in this category.

EQUITITY is defined as what the owner invested to start the company with and what has been earned or lost since or what the company is worth.

INCOME STATEMENT

The Income Statement presents information for activities, which have occurred over a specific period of time (usually monthly increments). The Income Statement is sometimes called the Profit and Loss Statement (P & L Statement) because it traces a company's profits or losses over a period/

The Profit & Loss Statement is comprised of three sections: Sales, Cost of Goods Sold and Expenses.

The Sales section represents the fees you have invoiced your customers for services you have provided. All items listed on your customer invoice should be posted to Sales accounts. This includes any type of discounts or refunds. They are reductions in sales.

The Cost of Goods Sold section represents the direct costs involved in producing sales. COGS accounts should be established by type of cost. This typically includes material cost, freight, labor and other cost required to perform the job. It is best to only include those cost used as hard cost in developing the job estimate/proposal. Properly defining your Cost Of Goods Sold accounts will enable you to track any variances in material cost.

The Expense section includes those expenses required to operate the business that do not directly relate to the production of revenue. These are sometimes referred to as Operating Expenses. These are more fixed in nature. That means they do not fluctuate in relation to sales. Rent is a good example of an expense. Your rent remains consistent regardless of the sales level. Expenses are referred to as overhead. The telephone bill may fluctuate from month to month but general doesn’t fluctuate based on the sales volume.

USING THE INCOME STATEMENT– YOUR BUSINESS SCORECARD

The Profit & Loss Statement should be produced after the close of each month once all transactions for the month have been posted. You should view the Profit & Loss both for the month and the year-to-date period. The results for a single month may not be reflective the direction the company is moving.

You should always view your Income Statement with percentages of revenue displayed. Percentages are much more meaningful than dollars alone. Percentages allow you to determine relationships. For example, you may have incurred $10,000 in direct labor cost for a month. Is that a good or bad result? It is hard to say. It depends on how much revenue was produced with this labor. If in your pricing methodology, labor cost should represent 30% of the revenue for a job, than $10,000 cost for the month is a good result if $33,333 or more revenue was produced ($10,000/$33,333 = 30%). If less revenue was produced, this is a bad result.

Gross Margin is one of the key percentages you should be tracking on your Income Statement. Gross Margin equals Total Net Sales – Total COGS. Gross Margin, sometimes referred to as contribution margin, represents the percentage (and dollars) of your income available to pay expenses and produce profit. Gross Margin is expressed as a percentage. Gross Profit is a dollar amount.

In reviewing you’re your Income Statement you should, look for changes in the percentages. Increases in Gross and Net Margin are good. Increases in cost and expenses may be a bad indication. You need to exam significant changes. Significant changes in your cost can impact your project pricing.

The key to using your Income Statement as tool is to treat it like your golf scorecard. Record your score for each hole (all transactions) immediately. Review your scorecard regularly. Make adjustments to game based on your results. Improve your handicap (profitability).