From Guesswork to Numbers-Backed Decisions: 6 Reasons Small Businesses Need to Embrace Data Analytics
There is a season for business decisions made through gut instincts and fast action, and we are the first people to admit that fast actions can give you a really great start at building a successful business.
But at a certain point… the business will grow to a logistical size and revenue that you won’t be wearing all the hats, and you won’t have as much oversight control.
Eventually, you will need to use data to make sure your business continues to grow profitably, meets your goals, and is protected.
The last thing you want is to grow your business to a certain size and then take a giant financial hit because of a lack of foresight, predictions, and proper performance controls.
Today we want to shed some light on the topic of data-backed decisions. We know that numbers can feel stressful, accounting can feel like a lot to manage, and we understand that you did not get into business because of your love of spreadsheets!
We plan to change your mind about data-backed decisions and show you that learning to love your numbers is a great thing!
Here are six reasons why you should use data to drive your small business decisions:
1 || Understanding your numbers reduces risk.
As business advisers, we don’t just want to grow your business… we also want to make sure your growth is protected! Businesses can experience large expenses or financial setbacks at any stage of growth.
When you understand the data, you can forecast and make changes or adjustments to your business before a problem creates a large expense or financial setback that could have been avoided.
The data you should track will be dependent on your business.
Here are some metric examples:
Cash Flow
Customer Retention Rate
Customer Satisfaction
Customer Lifetime Value
Referrals
Days Sales Outstanding (DSO)
Return on Investment (ROI)
Operating Expense Ratio
Payroll to Revenue Ratio
Employee inputs and outputs (efficiency at a specific task)
What can we actually do with the metrics to help reduce risk?
This knowledge can help you know where to focus your creativity, funds, and efforts to improve your business.
For example, you may find that your customer satisfaction rate is low. Understanding this early before your business has a poor reputation can allow you to get creative and quickly turn things around before there’s an impact to your bottom line.
Or maybe your employees aren’t being as efficient in a certain task as you would think they should be. Maybe it’s time for retraining or to get curious and ask them questions about any further resources or tools they may need to become more efficient. You might even use this information to create employee incentives for productivity.
I once heard someone describe business metrics as learning where to dig for gold! These insights can truly feel like gold!
2 || Knowing your metrics reduces stress and puts you in control of your business.
Take a look again at the two examples above in reason #1.
Rather than feeling frustrated that your bottom line and take-home pay feel low for the amount of effort you put into your business… what would it feel like to be able to understand exactly where to focus your time, money, and energy?
How would it feel to see and understand profit leaks and be given the monthly opportunity to focus on “problem” or “opportunity” areas and see real results?
I’m guessing you might be thinking… “that would feel really great!”
That is one of the powers of data-backed decisions and why we love opening this doorway for our clients in programs like our Accelerated Profit Advising program. Metrics bring our clients peace of mind, focus, security, and confidence.
We are here to help your business thrive.
Gain perspective, get support and thrive even in the most challenging times.
3 || Metrics will identify revenue opportunities.
Just like reducing risk and identifying potentially avoidable costs… metrics can also be used to identify revenue opportunities.
Metrics can help us learn about our lead-to-customer journey. How does someone find us? How likely are they to become a customer? On average, how long does it take for them to become a customer? What is their lifetime value, and how much money do we spend on customer acquisition?
We can also understand things like which of your products or services have the highest profit and which products are customer favorites. Is there a type of product or service that has the potential for expansion? What about a companion product to upsell or downsell?
Your metrics will leave clues that will help you see the path forward and maybe even help inspire you to create new products or services you wouldn’t have thought of before.
4 || Reduce profit leaks and increase take-home pay.
Do you know where your cash is going?
Numbers tell a story about how your business operates.
This can be immensely helpful in setting up systems that create less expense waste and are a more efficient use of time and energy.
Finding inefficiencies in your operations can improve the experience of your employees and even your customers. You might also find it simple to increase your take-home pay by reducing or eliminating some expenses.
You may be surprised by what you can find and improve with very little investment and how much of a return those simple changes can bring to your bottom line.
5 || Reduce tax burdens.
Taxes are NOT just a one-time event where you summarize your numbers at the end of the year.
You also shouldn’t use the term “tax write-off” to justify expenses.
When you understand tax planning, you can reduce waste that may be created by blindly trying to collect expense write-offs and instead take advantage of real opportunities that help your profits grow!
Understanding your numbers and data can help you make investments in your business wisely and efficiently. Too often, we see business owners making investments because they think that growth will solve a business issue. They feel they need a bigger facility or more employees to increase their take-home pay. When in reality… there is an efficiency problem that must be solved.
Remember, your business metrics will tell you where to dig for gold. Use your investments or “write-offs” wisely so you can truly increase your take-home pay.
6 || Increasing your wealth increases your give-back potential.
Metrics will increase your wealth and help you protect it.
Most of our clients are in business to use their talents, skills, and creativity to make the lives of others better and to grow wealth with give-back potential! They aspire to create the kind of wealth that allows them to provide more for loved ones, employees, communities, or organizations they care for.
If metrics still aren’t exciting you… I want to leave you with this one last reason to love them!
Mastering your numbers will help you master your wealth which will allow you to live the life and mission you have dreamed of!
Now that you understand the power of understanding your business numbers, you may be wondering…
How do I choose the metrics that I should be monitoring in my own business?
Great question!
There are a couple of ways this can be done. You can do it yourself, or you can hire an expert.
Create a competitive advantage.
While your competitors may freeze or pull back in these uncertain economic times. Get the support you need to become innovative and grow. If you can learn how to thrive in times like these. Just imagine what your team will be able to achieve in the future.
A few frequently asked questions around hiring a professional…
How do I choose a professional?
Choose a business adviser or consultant that has true financial experience. Some business advisers, consultants, or business coaches tend to focus more on mindset work, generating leads, or advertising as a means to help you increase your revenue. While this approach can sometimes lead to increased revenue or changes in mindset, it does not necessarily increase take-home pay or improve operational efficiencies. Decisions made without data-backing can put your business at risk and cause inefficient investment decisions that setback your growth over a period of time.
What about my accountant or bookkeeper? Can they help me with my business metrics?
Your accountant or bookkeeper is a great start to helping you create the foundation you need for financial success in your business. You want these professionals on your team, and your adviser may reach out to them on your behalf as data is needed. But there is a difference between an accountant/bookkeeper's role in your business and the role of an adviser or consultant.
A bookkeeper or accountant will not have the overall business advising experience to help actively grow your business. They are professionals who will help you summarize data but will not be as familiar with helping you think about the decisions you should make today that will impact your financial future and improve your operations and take-home pay. An adviser will have a more extensive understanding of business operations than your bookkeeper or accountant.
Here at Wagner Business Consulting, we help you increase your profits and bottom line, scale your business and protect your wealth.
We suggest our clients start with our Accelerated Profit Advising program. In this program, we help our clients set their growth goals and achieve them by using real data and insights from their businesses.
Does using metrics add to your plate as a small business owner? I’m already having a hard time keeping track of all the tasks I need to manage in a month.
Great question! Remember this… metrics make you more efficient with your time, energy, and money!
Metrics will show you where to dig for gold and help you actively create the systems your business needs to thrive so you can work less. Metrics empower you as a leader and are the gateway to more time and money freedom. Even though you may spend more time away from your business… our clients often feel that they know more about their business and feel more connected to the overall plan and mission.
When you hire professional support, you will find yourself creating solutions that will have you doing less busy work and more visionary and leadership work in your business, and this will put your mind at ease while freeing your time for doing more of what you love in life.
Now, do you love numbers a little more? They truly aren’t as scary or as boring as one might think!
They help you make decisions that support you in making the impact and wealth you desire to create!
If you would like to learn more about data-backed decisions and what they can do for your business, contact us today.
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