Technology & Innovation
3 ways to leverage data for your business
A lot of businesses today pull the numbers but don’t really spend time understanding what they mean.
Inputting the numbers into your accounting software is just the first step.
Having the right data in the right place when you need it – and understanding the context of it – can tell you a story about different parts of your business that can lead to both risk avoidance and new opportunities.
To successfully leverage data, you must learn how to collect, analyse and present information efficaciously. Businesses that embrace analytics can increase their chances of achieving more growth.
But what’s the starting point when leveraging data?
Your business needs to have access to quality information from various sources that provide impactful metrics from which you can build a plan of action.
Gathering information is not difficult, especially with modern technology that allows you to search through millions of sources in a matter of seconds.
However, filtering out good data sets that provide actionable insights may be a more complex, thorough task.
Understanding the data you have can be a daunting task, especially when there’s a lot you need to sift through.
Here are three key ways you can look at your data differently and use it to your advantage:
1. Cash flow
Understanding that your cash flow focuses on operations, investing and financing is important for you to get the full picture of what this report actually means.
In order to make the most of your cash flow statement, you should do the following:
Monitor your accounts receivable carefully
Take a look at all of the customers who owe you money and send reminders to those who are late on payments.
You need to monitor these customers carefully and come up with a plan for dealing with delinquency or credit card disputes.
Get your customers to pay you sooner
One way to avoid a pile up of unpaid invoices is to offer rewards or discounts for upfront payments.
Even better, you could ask your customers to pay in advance instead of you waiting 30 days for payments to come through.
Spread the payment of your bills out
On the flip side, keep an eye on your accounts payable and the ways in which you can spread out your payment of debts over time.
That way, you’re not paying everyone on the same day and leaving yourself in a tight spot. The longer you wait to pay a bill, the more cash you’ll have in the bank.
But, by the same token, you’re not likely to be a vendor’s favourite customer if you’re always slow to pay – so you need to weigh up your pros and cons here.
Buy less inventory
A lot of businesses spend a lot of cash on inventory that might not be needed right in that moment.
Instead of stocking up, wait until it’s absolutely necessary and liquidate any inventory you no longer need to recoup some cash.
Ask vendors for discounts
Try to negotiate lower prices with some of the bigger vendors you use. You might be able to sign a longer-term agreement with them in exchange for lower prices.
Use your cash flow statement to figure out your burn rate
Look at the figures and work out how quickly you’re getting through cash. This will help you make plans for spending less cash in the future.
It will also help you forecast how long it will be before you likely run out of cash.
2. Profit and loss
Your major goal when it comes to profit and loss is to minimise your expenses while keeping your earnings stable.
In order to make the most of your profit and loss statement (also known as an income statement), it’s worth doing the following:
Benchmarking against past performance
Do an initial assessment where you compare past profit and loss statements to the current one.
This will help you to set reasonable performance benchmarks for income and expenses.
It’s important to make these comparisons to establish the direction in which your business is going.
Compare the expenses in your profit and loss statement to your budget.
Group expense categories together so it’s easier to review which areas are costing you the most.
Separate out different revenue and cost centres
You can more accurately track the revenue of different lines of business within the organisation if they’re not all lumped together in one category.
Refer to key performance indicators (KPIs)
When analysing your profit and loss statement, it’s important to consider relevant KPIs, so you can accurately measure your progress towards key objectives.
Track staff labour expenses separately from provider costs
In this way, you can more effectively evaluate labour costs as a percentage of revenue, which is helpful in evaluating productivity over time.
Benchmarking, for this purpose, entails measuring the performance of your business against a competitor in the same market.
Comparing your business to others is a valuable way of improving your understanding of your business performance and potential.
Benchmarking can provide vital insights into how well each component of your business is performing. This can help you determine the areas that need improvement and how you might go about making the necessary changes.
Benchmarking can help you:
- Identify and prioritise specific areas of opportunity
- Better understand your customers’ needs
- Identify your strengths and weaknesses
- Set goals and performance expectations
- Monitor your performance and effectively manage change
- Understand your competitors and, consequently, become more competitive.
Considering who you’re up against in your industry, you can assess whether your:
- Business is growing faster or slower than other similar companies
- Costs are in line with the industry
- Business is too highly leveraged.
In addition, you can analyse how your margins compare and whether your credit terms should be stricter for your customers.
You can also determine if you’re acquiring customers as fast as your competitors, whether your pricing is in line with the market, and if your customer retention is as good as your competitors.
There’s a reason they say that information is the new currency. But that currency is only truly valuable if you know how to interpret it.
These are just three ways in which you can leverage data to help your business. There are so many others out there.
With the help of financial reporting software, you can make the most of the data you have, giving yourself insight and even foresight into how your business is doing.
7 ways to take control of your business
Want to know how you can boss it at your business? Read this guide for top tips to help you master your business admin and truly take control.
Recommended Next Read
Help to Grow: Digital – How the government scheme can help your business
Never miss an episode
Subscribe by email and get Sound Advice delivered to your inbox every two weeks with the Sage Advice newsletter with a ton of related articles, templates and problem solving guides for small businesses so you can put our sound advice into practice.
Ask the author a question or share your advice