Wednesday, July 29, 2015

Use Business Metrics and Analytics To Reach Higher Levels of Success In Your Business

Metrics and Analytics

Do you like the insight that statistics provide for investments,  the economy, or sports?  Yes, likely you use and may even be excited about many statistics, or the new buzz words metrics and analytics, and what you learn from them.  They also empower you to evaluate investments, sports teams or players as well as your business and understand why you have certain results. You should also be excited to use metrics and analytics in your business to help you evaluate, analyse and develop strategy for your business to reach higher levels of success.

Business metrics and analytics empower you to understand, to compare, and to analyse your business and it's parts and communicate this intelligence with your key personnel.  Much the same way investors have learned to use metrics and analytics to analyse businesses and other investments to identify opportunities and undervalued assets or sports general managers use them to evaluate players, their team, other teams and strategies, you too can use business metrics and analytics to understand, compare and evaluate your business, your personnel, and different strategies.

Do You Understand Your Business

Ask yourself would you invest in your business?  Do you have enough information to make that decision and to use it to sell a share of your business to another investor?  When you look at your business do see areas where you can make changes to make the business more successful?  If you don't like your business as an investment at this time, what developments would you like to see so you would invest in it?  In other words, do you really understand your business and what drives it to success?  If you don't have enough information to have that understanding and to make investment decisions or to sell a portion of the business to others what additional information do you need?

Developing an Informed Strategy

You will be surprised the insight you gain reviewing business metrics and analytics.  I just finished a review with one of my clients and the more we review his business metrics and analytics, the more details he wants to analyze his business and identify opportunities.  He really uses business metrics and analytics to manage his business and have discussions with his managers.  He is getting so good at reviewing the metrics and analytics and understanding what leads to profits and the opportunities for even higher profits that he is talking about starting a consulting business to help others in the same industry.  Currently he uses his metrics and analytics to discuss them with his managers, so they understand what will impact their store or department and as a team they continue to get better at managing labor costs and negotiating material costs reaching higher levels of success.

In addition he has a feel for his level of revenue but has not really quantified it.  There are questions outstanding like what are the relationships between advertising and revenue, between the economy and revenue, between time of day and revenue, and between prices and revenue.  Maybe it should also be determined the relationship between connections on social media and revenue.  Of course gather information to develop analytics comes at a cost so there is a question of the cost and benefit relationship.

For any given industry there are different strategies that you can use to achieve success.  The assets you have available may dictate which strategy to use or you may be able to acquire other assets to help you use a particular strategy.  Often you can obtain intelligence that will help you understand what costs are typical in your industry and it can help you set goals for your business and then with experience and added intelligence you can tweak your strategy and your goals.

Reaching Optimum Levels of Success

Many people dread the review of accounting reports but successful people look for and find the real value in business metrics and analytics for their business.  By understanding your business metrics and analytics you will have real intelligence that you can communicate to your key people, setting expectations, monitoring results, and providing proper incentives.  To understand what standards to set you have to know your business and the metrics and analytics and how they relate to your success.

Think about having data that enables you to know if you are spending too much or paying too much for a product or service.  As you consider metrics and analytics, or intelligence, for your industry you can know how you stack up compared to the competition, why your business is different, and develop plans to improve.  Then you can measure how effective those plans were and decide whether or not to continue with that strategy or to make adjustments.  With business intelligence you can evaluate strategy and run different scenarios or projections and communicate those with your management.  For example one of my clients had a manager that wanted to increase labor costs to retain his key people.  A projection could tell him how much more revenue they would need to generate to cover the additional costs.  Yes, knowledge is power for you and your business.

Identify Unknown Problems and Opportunities

In addition those accounting numbers or metrics and analytics tell a story.  Where is all your money going?  Is it going to legitimate and necessary business expenses or is it being wasted or is someone stealing from you?  The way to find out is to review the financial reports/metrics and continue to monitor them.

To make this work you need to work together with your accountant and your key personnel.  Look at what you have as far as intelligence on your business and what it tells you and what it doesn't tell you.  Then refine it by tracking other performance measures and costs until you get numbers that are really meaningful to you and that help you develop a competitive edge over the competition and reach optimum results.

Metrics and Analytics: Now They Are Sexy

I marvel at the information available now to sports teams and the light it sheds on what really impacts success in different sports.  Just look at the Warriors, who just won the NBA championship, with a team constructed in a very unique way due to their use of metrics and analytics.  They even adjusted way the team was used in the playoffs as they learned from their analytics how to achieve greater success.  Now others teams are investing more in the use of metrics and analytics.

Do you want that same type of success for your business?  Do you want to be able to identify changes that will lead to even greater levels of success and to optimize your business performance?  Yes, the trend in sports is to use metrics and analytics  and you can do the same with your business.  Now it is the sexy thing to do.

With a masters degree in Finance and about twelve years in corporate finance doing analysis of operating results I have been helping managers and stockholders/owners use metrics and analytics to manage their business for many years.  For the last 13 or so years I have been using this experience to help small business owners to achieve greater levels of success.  I would like to help you too with your businesses.  Feel free to use my contact information below to contact me to discuss what I can do for you.

Jeff Haywood, CPA

The CPA Superhero

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My posts contain general information that does not fit every situation, they are not all inclusive, and as always for your tax situation everything "depends on facts and circumstances."  In addition, the information/IRS requirements are always subject to change.  So call me to talk about your specific facts and circumstances and what you want to accomplish.