• Performance management is a critical management tool for all businesses, especially small businesses starting up. Many types of performance management styles are used in businesses depending on the size and scope of their operations. Small businesses should usually keep their methods simple at first, changing them as their business grows. While it may be difficult for small business managers to understand performance management methods, it is essential that they learn the different techniques to ensure success.
  
  

Business Planning & Goals

• Most small businesses start with an idea that is translated into a written business plan. This business plan should include a reasonable set of goals for the early years of business operations. Managers should also have a way to measure these goals during these early years; any changes in achieving these goals, whether better or worse, should be tracked so changes can be made if necessary. Goals should be clearly defined and include guidelines how they will be achieved by the small business. This creates internal motivation for the small business owner, compelling him to achieve these goals and make his business a success.
  
  While business planning and goal setting is a basic performance management technique, it is an essential part of the small business process. Companies without plans or goals may have trouble succeeding.
  
  

Benchmarking

• Benchmarking is the process of measuring a business against top competitors or the overall industry. This performance management tool is useful because businesses can find their weaknesses compared with other companies and specifically work on improving these areas. Benchmarking may use financial ratios to compare the strength of a company's financial statement against the industry standard. Testing business operations may be difficult using benchmarking since measuring a competitor's operational standards can be highly subjective using only externally gathered information.
  
  

Balanced Scorecard

• A balanced scorecard is the next step of performance management. As small businesses grow and expand their operations, a balanced scorecard measures four critical business areas and defines the success of each area. The four scorecard areas are: financial, business processes, learning & growth, and customer relations. The scorecard lists the objectives to achieve, measures to achieve success, specific target values and initiatives used to achieve goals for each of the four sections. A table may be created to list the specific goals for each section, such as a .05% increase in net income (financial), 5% reduction in materials cost (business process), or 10% reduction in employee turnover (learning & growth). These are tangible goals small businesses can measure using the balanced scorecard.