Using your financials to make sound business decisions
Growing is the goal of most businesses. What is difficult is formulating a plan to make the growth a reality. Where do you start? The answer is in the financials, both past and current. Best in class companies know that using financial information and measurable key performance indicators (KPIs) is the key to unlocking growth strategies.
This blog will help you understand how to use financial information to find possibilities for growth.
Data quality deserves its own discussion because without it, there are no reliable KPIs. Here are some tips that will help ensure that you can gather reliable financial data that can be used confidently for making critical business decisions:
- Treat data like any other asset
- Use an integrated system (system = people, processes, and tools)
- Establish processes and procedures
- Train team members on tools and processes
- Have the discipline to enforce process adherence
- Have both historical and current data accessible to decision makers
Good quality data can be put to work to help unlock growth strategies with the six steps below.
- Define the KPIs that help drive your strategy
- Use internal and external benchmarks
- Look for trends in the data
- Account for Anomalies
- Take the time to probe deeper
- Utilize an Integrated Tool Set
STEP 1 – Define the KPIs that help drive your growth strategy
What is your overall strategy? Is it to grow a by a certain % over time? Or to grow a specific region or product line? Once a basic strategy is defined then associated KPIs can be identified.
For instance: If the desire is to grow 30% in 3 years the Compounded Annual Growth Rate (CAGR) is a KPI that can be utilized. If the goal is to grow one product line then looking at profitability and CAGR for each of the business portfolios would be an indicator of which product line to invest in.
STEP 2 – Use internal and external benchmarks
Benchmarking is a great methodology to look internally and externally to see what others are doing to be successful. Internal benchmarking across divisions, departments, portfolios can be very helpful. Unfortunately, many companies are still siloed with varying processes and procedure and disparate systems making the exchange of information difficult.
External benchmarking can be very powerful and there is no prep or manipulation of the data internally ultimately saving money and time. Why is benchmarking externally so important?
- Gives a perspective of the overall industry
- Provides an understanding of what others are doing to be successful
- Produces ideas for improvement
- Makes the company more competitive
- Helps win more business and grow the organization
STEP 3 – Look for trends in the data
Data analysis is the process of inspecting, cleansing, transforming, and modeling data with the goal of discovering useful information, suggesting conclusions, and supporting decision-making. It requires that you look for patterns and relationships within the data.
For instance, when looking at labor forecasts or utilization there will likely be more vacation taken in June, July, and December. Looking at trends will help you have a better understanding of the data and what it is telling you.
Step 4 – Account for anomalies
Look for special occurrences in the data. Occurrences like a huge snow storm that shuts the office down for a week resulting in no billable work performed should be analyzed and understood. It may not snow that much for another 20 years so make sure that does not skew the data you are making decisions from.
Step 5 – Take the time to dig deeper
KPIs are great but is can be worthwhile to understand what the underlying data looks like. An example is that the overall company profit rate was 10% and that is great! It would be important to drill down further to see what each portfolios and project contribution is to that number. You may have one portfolio that is excelling and other that is dragging down the average. Growth will likely happen in the successful portfolios and projects.
Step 6 – Use an integrated tool set
A fully integrated system will assure that the data is linked together properly increasing the probability of the data being correct. There will be no manual efforts to mash the data together from disparate systems. The “mashing” takes labor to join the data into one source costing money and introducing human error. Integrated systems like Unanet give you an all-inclusive look at financial data and there are easy to use reports and dashboards that provide all of the information you need to develop a growth strategy backed by great quality data.