Data Holds the Answers, Finance Finds Them.
Data collection and management is fast becoming an integral part of every business regardless of size. Financial data analysis can be compared to creating an individual health report where the numbers relating to blood pressure and blood count give an indication of how healthy you are and how long you may live. Similarly, data around cashflow indicates how robust your business is. Yes, cashflow really is your business’s blood stream.
The good thing is that financial data is now easily collected. Many businesses use QuickBooks, Xero, FreeAgent or even the good old Excel spreadsheets for making accounting and invoicing easier. These systems are not only essential for good accounting but also collect the data vital to understand the performance of your business and make informed decisions to plan for future growth.
You have the data – but do you have the skills to use it to your advantage?
I encourage all business owners to look beyond the numbers in their annual reports. It’s one thing to use the data to track historical performance but it is another to use it to determine strategy and create growth. This is where the use of a business finance professional can really pay dividends as any costs incurred whilst hiring a consultant should be more than offset by the additional value created and the management time saved.
Don’t get lost in the data whirlpool
Data is your most valuable asset but at the same time can be your worst enemy if you get lost in the whirlpool of the ever growing information available. You need a keen eye and experience to know what to collect and what to ignore and then how to separate the valuable information from redundant background noise.
See the bigger picture
Business owners should always consider the impact of every decision on the business’s overall financial health but although this may be the intention, they can sometimes get lost in the everyday running of the business and fail to see the bigger picture. Strategic thinking loses out to fire-fighting.
According to a recent survey, only 40% of small business owners in the UK ever consult a Business Finance Professional. This reflects how many businesses miss the opportunity of looking at their financial data in depth and how much latent growth is still out there ready to be tapped if the right data is collected and analysed.
Scaling up and keeping a clear head
As your business scales up and expands or faces challenges, and you need to understand how to cut costs or reinvest the capital efficiently, it can be a tedious and overwhelming job for a non-finance manager to update business plans and produce something they can trust.
As a business owner, it is hard to be impartial and the amount of data available can distract you from what you want to achieve with the business. For these reasons it is often better to hire a financial consultant for your planning and analysis needs during periods of expansion and growth but even more so during challenging trading conditions.
Quick decisions vs Informed decisions: How to make the best use of your data
In the current environment, businesses are expected to be agile, make quick decisions, and scale up quickly if they are to be successful, or else they risk failing fast. In these conditions it is especially important to be able to find the answers amongst the data so that decisions can be both quick and informed.
Consider the small business that suddenly gets a celebrity endorsement and orders grow 100x overnight? Do they know if they can fulfill these orders and make a profit? Do they have a healthy enough cashflow to undergo this rapid expansion? Is it sustainable? Without understanding their numbers pursuing their dream is a leap of faith and many businesses have been know to get into financial difficulties without proper planning and data analysis.
The professional analysis of financial data helps businesses:
1. Improve their cost management and control unnoticed expenditure
2. Avoid falling into debt crises as cashflow challenges can be forecasted and attended to in time
3. Anticipate the impact of growth and prepare for it
4. Uncover ways to improve profitability
5. Learn where to focus their time and resources
Every decision taken within your business is going to affect your financial status directly or indirectly so regular analysis of the financial risks are beneficial for all sized businesses. Large corporations have whole finance teams to analyse their data but small businesses often do not have the time or inclination to make the most of their data and so are at risk of not maximising their performance, or worse.
To conclude, data is an asset only if you are able to use it in the right way to drive your business forward. It is important to choose carefully what data is relevant for your business. Do not just diligently monitor the data to see where you have been, use it strategically to see where you are going. If analysing data is not one of your key skills, consider hiring a business finance professional who can provide this expertise.