One of the most challenging activities in small businesses, believe it or not, is the way owners track their revenue. I consider three factors to be a deterrent to an effective practice of revenue tracking.
- False confidence: Business owners often just assume they know where they are financially. As cash and revenues flow, small business owners often “feel” the flow of cash into their register to be good or bad. As long as they have the money to pay bills when due or defer bills when they do not see a need to, they frequently see no need to follow a strict practice to track, by day or by transaction their sales. Even businesses with Point of Sale (aka: POS ) frequently do not fine-tune their protocol for tracking revenue. By and large, it has been my experience in consulting with small and large businesses that they frequently fail to track the details of the transaction that can provide important information for future decision-making. It has been my experience that businesses with POS software are often like a student who has been given a violin. Simply possessing a violin does not necessarily guarantees that the student will play the violin with dexterity with a keen understanding and ability to express music. The constant effort for businesses to track revenue is the back bone of our financial system, a common practice in accounting, and a golden opportunity for marketing, but many times is extremely challenging for small businesses, simply because owners feel like they are doing well by just “having a sense” of their daily, weekly or monthly sales.
- Lack of experience, resources and knowledge are other reasons why some small business owners do not track revenue properly. Small business owners typically have the drive to excel. They are entrepreneurs. Their area of expertise and focus for business trade is where it supposed to be. This dedication to the trade, many times, however, requires all of the small business owner’s time energy. So much so, that frequently, at the end of an accounting cycle, they provide receipts, bank statements and whatever written notes and documentation they are able to gather to “book keepers”, not necessarily professionals in the trade of accounting to do the calculations for them. Other times the operator of the small business does not have the capacity to hire an appropriate full time accounting staff member or the time and energy or know how to otherwise put together accurate and timely financial reports, so the key financial data is lost or falls behind. Important information that could have been garnered and used to improve revenue gets lost.
- Sense of ownership. Surprisingly, perhaps, the small business owner’s sense of pride and ultimate authority of ownership is often the third deterrent that I have encountered in small businesses growth by failing to have detailed revenue tracking system. The owner of the business has typically faced many challenges, sacrificed a great deal and overcome many setbacks in building his/her business. Their sense of ownership gives them a well-deserved sense of ultimate authority over all occurrences that take place in their business. Many times they feel empowered to say, “This is my business and I do as I please.” without realizing that by following some simple standardized business tracking procedures, such as keeping a daily and accurate record of transactions is to their benefit.
It is in the accurate measurement and understanding the transactions that constitute this relationship between consumer and business that allows for financial stability and growth in business. Information, gathered and analyzed properly, can give the small or large business owner tremendous marketing and operational advantages. Once in business, is not the bank that has the money, but the customer that finance the business with the acquisitions of services and products. It is in the understanding and the measurement of this transaction that resourceful information can be gathers.
POS track time, items, method of payment and location within the business, but if the business does not utilize POS system; a more detailed and systematic method of tracking revenue can and should be developed to similarly gather information regarding transactions. A solid system of revenue tracking also prevents others from benefiting indirectly from the transaction of services and products. Easy and handy cash is a temptation for the person who working at the register or in a position to directly interact with the customer without recording a sale or financial transaction. This can only be prevented if a clear protocol is set in place to track revenue. Similarly, the business owner him or herself also needs to abide by a strict tracking protocol so as not to fall into the trap of using cash from the register or leveraging sales transactions for immediate and undocumented use.
The main solution to the problems created by these difficulties is the general conviction that ALL sales/service transactions must be accurately inputted tracked and processed into one system that accounts for all revenue, and which also, at the same time, provides as much relevant and detailed information as possible regarding the product/service, the customer and the transaction. Sequential numbers, steps, protocols, procedures, reports, and other detailed documentation of all transactions contribute to an overall culture of honesty and accuracy that helps to sustain and grow the small or large business, over time.