3 Reasons Why Your Small Business Can Benefit from Analytics
So, why should you as a Small Business owner care about Small Business Analytics? Today we are going to dig into 3 compelling reasons why.
Let’s build on that foundational knowledge and use the information from the three financial statements and learn how to do some basic Small business analytics.
We’ve all heard the timeless Deming wisdom that you can’t manage what you can’t measure. Although applicable in many areas, this is especially true for Small Business.
Many times the measurement focus in small business is on productivity or manufacturing metrics. While these metrics have a direct impact on the financials of the company, it is important to not to lose sight of the overall financial health of a business’ financial statements. That is Small business financial analytics comes into play.
For many companies, the reasons given for not employing a necessary Small business analytics practice fall into one of several categories:
Lack of time:
“I’m focused on the day-to-day.”
Perceived learning curve:
“I hate Excel, and I don’t know the first thing about finance!”
“We are doing well –why change?”
While the reasons above are all valid on some level, they don’t need to be the obstacle to implementing a beneficial and actionable practice into your business. But why do it?
What are the potential bottom-line impacting benefits to implementing a financial analytics program in your small business?
Reasons to Implement a Small Business Analytics Process
Below are three solid reasons why.
1) Increased Visibility
Keeping with the measurement theme – financial analysis and its associated metrics allow for a deeper look into the overall financial health of the business. By knowing and understanding your organization’s profitability, liquidity and leverage ratios, which we will cover later on in more detail, you can compare your business to industry benchmarks to see how you truly stack up. This comparison can shed more light on your business and expose the actual financial position of your business.
Without visibility into your finances, you are indeed running your business blind. In effect, the business is running you, and ultimately you are not in control of the company. The excuse of lack of time or knowledge may eventually be the reason for the failure of the business. It is never too late to learn how to achieve financial visibility. This visibility ultimately leads to peace of mind and confidence that your business is running at its peak potential.
2) Develop a Financial Roadmap
Financial Analysis makes understanding the financial future of your business less of a guessing game and places more control in your hands. The output of the financial analysis can be used to create an economic roadmap for your business.
Think of a financial roadmap as a set of goals or achievements that you would like the business to achieve over a set period. Examples include becoming profitable or increasing market share by X%.
The key to a sound financial roadmap is that it is both actionable and specific. By setting tangible and exact goals for the business, you create a focused target on the horizon to aim.
A financial roadmap is a direction in which you as the owner are steering the business towards. This financial roadmap coupled with a solid strategic plan can create an actionable program that you and your team can execute.
Using this financial roadmap in your budgeting process (will be covered in-depth later) will allow you to set targets for the financial metrics that drive your business and keep expenses in line. With these goals in place and a plan to track them consistently, you are well on your way to defining the financial reality for your business.
3) Uncover Hidden Potential
How would a 5% expense reduction impact your company’s bottom-line? Would taking out a small business loan allow you more runway to grow your business? If you took that credit would you be able to pay it back?
These are all questions that are very difficult to answer without intimate knowledge of your organization’s finances. By not analyzing your finances, who knows what kind of money you are leaving on the table and what missed opportunity is impacting the potential of the business.
You never know what implementing a consistent and actionable financial analysis practice into your business may do. One thing that it is guaranteed is that you will learn nuances of your business that you didn’t know. It’s up to you how you will capitalize on those.