Assessing your firm with the balanced scorecard


The balanced scorecard is a management tool that has been used since its original development in 1987. Art Schneiderman first developed it while working for a mid-sized semiconductor company to bring together both financial and non-financial data for analyzing the company’s performance.

The balanced scorecard specially focuses on performance management by considering both financial metrics such as sales, profitability and cost control, and non-financial metrics such as process, growth and learning. The tool is meant to assist management in assessing a company’s performance in line with strategic objectives.

So how do you implement this in your small practice? To begin we must look at the firm from four different perspectives:

1. Financial metrics and performance

What are the key performance indicators? This step should be the easiest for accountants, but I find that many of us operate like the professional handyman whose house is falling apart. We don’t necessarily set and drive sales goals, analyze our profit by project, or consider our net profit or cash flows on a regular basis as a means for making business decisions.

Every firm is different so it is important to develop the key performance indicators in line with your organization. A firm in growth mode may be looking at new business or sales growth as a KPI while a more established firm may be looking at cost controls or profit by client.

2. Customer

Outside of profitability by client, we need to also look at metrics like customer satisfaction. This piece of the balanced scorecard analysis really relates more to the relationship with customers. This also can include identifying who the ideal customer is and developing that avatar to understand what type of clients the firm is looking to attract.

Always make sure that the analysis is done with the strategic vision of the firm in mind. For example, if the firm is not looking to add service lines or achieve significant growth, the ideal customer is probably not one that is in an industry the firm currently does not work with.

3. Learning and growth

The second non-financial metric focuses on education for you and your team. Beyond requirements like CE and CPE hours, this can mean learning to implement new technologies or new processes to help improve efficiency or customer satisfaction (see No. 2 above). This piece of the firm also requires an understanding of employee satisfaction and looks at metrics like employee retention rates. Retention can tell you a lot about your practice and allude to its future health.

4. Internal

This piece looks at firm processes and it’s the place to analyze efficiency and productivity such as how many new proposals are being signed or new projects being onboarded. It can also look at time studies such as how long it takes to prepare a tax return from the time it comes in the door to the time it reaches the customer and does that drive our customer satisfaction or meet our project profitability goals (see numbers one and two above).

If your practice is lacking in defined processes in one area or another, this is the opportunity to design those and roll them out with your strategic objectives in mind. As the adage goes, “If you don’t know where you’re going, any road will take you there.” Use this piece of your scorecard to ensure your destination is defined.

Looking at these various areas of your firm’s scorecard provides a holistic overview of the organization from inside out. The scorecard helps to focus on the key points that are the most critical for our sustained success and future growth.

Lastly, however, we have to keep in mind that doing this analysis without clearly defined strategic objectives and vision is not helpful.

Leaders within the firm need to first make sure that a common vision for the organization is made clear. When doing the balanced scorecard analysis, everything needs to come back to answering the question, “Does this support our strategic vision?”

Like what you’re reading?

Subscribe to our FREE newsletter and we’ll deliver content like this directly to your inbox.