Let’s get back to the basics

A typical business has dozens of events that happen in any given day. Events range from things like answering the phone, preparing marketing materials, attending networking events, completing a service for a customer, etc. Of these dozens of events, how does one determine which ones are truly important? At the most basic level, a business has something called events. Events are the happenings in the business. Events become transactions when something of value is exchanged. In other words, every business has events but not every event becomes a transaction. As a small business owner, you need to understand the relationship between events and transactions in your business. Events that lead to transactions should be captured as part of your financial records. Capturing important events in your business helps with the planning and budgeting process. A business with lots of events but no transactions will eventually go out of business.

I wish the problem of capturing events in your business was an easy one. The decision to capture certain events in a business is a personal one and should be based on what drives revenue. For example, a small sized graphics design business may decide to capture the number of proposals as an important event in its business. Overtime, the small business owner will see a correlation between the number of proposals they put out and the number of sales they make (a transaction). On the other hand, another small business owner who get leads mostly from attending networking event will want to track networking events as important events in the business. For this small business, sales transactions are linked to networking event. In my examples, both small businesses work in the same field, but yet have different metrics based on what is important to their success.

In summary, your financial records should not only consist of past events. While this could have some usefulness for planning, it is not as useful as keeping track of predictors of revenue. Learning to capture useful events in your business is important as it a better predictor of growth.