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Key Data and Analytics Small Businesses Need to Manage Finances and Drive Growth

Tucker Mathis
Tucker Mathis

Use of financial data analytics is a way to glean key insights from your small business’s past performance.

Savvy entrepreneurs know that the most efficient way to expand their business and become more profitable is to be adept at balancing a focus on the present with a strategic eye on potential problems and opportunities around the corner.

Accomplishing this is impossible without a thorough, real-time grasp of your company's financial situation. However, ensuring that you stay ahead of the competition and common pitfalls that could trip you up requires more than an understanding of what's driving your profits and losses from one day to the next.

These days, building a well-informed, strategic view of your company is all about using analytics to leverage the breadth of data your company generates to extract useful insights for managing your business more effectively.

Small business, big data

If you're like most small business owners, you're likely using accounting software to manage your books. Perhaps you're taking a less hands-on approach and relying on online banking features. Or you leave it to a bookkeeper or other financial professional to keep tabs for you and stay on top of invoicing, payroll and other accounting tasks.

This may keep your business running day to day, but it falls well short of what you could be doing to manage your firm more efficiently and strategically.

Let's face it, relying on standard spreadsheet software often means spending a lot of time inputting entries manually, which can lead to errors. And traditional accounting software on its own just isn't a very good tool for providing insight into what's really important for your business: what comes next.

Financial data analytics can help you get a clearer picture of your company's operations now, while giving you insights about where your business is going.

Using analytics to make decisions

Mining the trove of financial data your firm generates daily can yield useful information for managing your business more effectively. It can help you determine which of your products or services are most profitable, whether your marketing costs are delivering enough of a return and when is the right time to secure financing in order to seize opportunities to take your business to the next level.

Want to gauge the best way to fine tune the rollout of your next new product? Crunching past sales data can help you forecast the percentage of your existing customer base that will be there on the first day to snap up your new offering.

Another helpful way to use analytics, especially at the beginning of the year, is for projecting your businesses' annual sales and profitability. Let's say your sales in the first quarter are $30,000, suggesting your business is on track for annual revenue of $120,000. Knowing this and the variables that historically affect your run rate can help you assess whether you're on track to hit your sales goals or falling behind.

Data analytics can also be invaluable for managing other aspects of your business, such as workforce needs. Using a system that combines tracking for employee hours worked, payroll and sales can help you gain insight into whether you need to ramp up hiring to keep up with a surge in demand or cut back on hours during periods when it looks like sales are likely to ebb.

Online lending companies have been among the early adopters of business data analytics, using it to broaden the scope of their credit risk assessments when weighing whether or not to approve small businesses for a loan.

This reliance on data analytics has helped power the alternative business loan market's growth in recent years, making alternative lenders more likely to approve loans for small businesses, many of which are often turned down by traditional banks that employ a narrower approach to credit risk assessment.

Short-term and strategic applications of financial data analytics

Applying analytics to your financial data enables you to optimize your business and keeps you focused on how much progress you're making toward your performance goals, whether they’re in the next quarter or over the next five years.

You can make faster and more informed decisions in the short term, such as whether to quickly shift employee and financial resources to speed a product or service to market.

Data analysis also can help you navigate more long-term, strategic decisions, such as how to best plan a break with a long-term supplier in order to transition to a more efficient source within 18 months without causing any significant disruptions to your business.

Making better decisions using financial data analytics doesn't just make you more agile when it comes to logistics, it can also inform your strategy across other key areas of your business, including labor, marketing and customer acquisition and retention.

Of course, having a full-time data analytics person in your employ is an ideal approach. As a small business owner you may not be able to afford such a hire, but that shouldn't stop you.

There are analytics applications that can do some of the heavy lifting, automatically pulling your financial data and generating an array of user-friendly performance metrics and projections about your business.

You can also hire an expert to lend a hand on a contract basis during key decision-making moments. FINSYNC's concierge service matches you with a virtual analyst who can help you track the most valuable financial metrics for your business to build projections that translate into more profitable decisions.

An integrated system is key

It's hard to overestimate the value of having accurate, timely information on your business operations that goes beyond surface-level tracking. The best way to accomplish that while also setting the stage for data mining and analysis is to link your business' key accounting and back-office functions as part of a software-driven, integrated system.

Fintech applications make it easy to combine all your business' financial operations, including payments, payroll and invoicing.

Beyond generating a uniform database primed for analytics, an integrated system like FINSYNC's accounting platform connects all of your small business financial transactions in one place automatically. That reduces the time and expense needed to work on and update separate systems.

An integrated back-office system also enables you to automate various tasks, including invoicing clients and processing payroll.

The automation approach can be used to track the hours that employees work every week. This data not only makes it easy to cut paychecks that are in compliance with tax withholding requirements, it also becomes another source of rich data for divining potential business intelligence.

In addition to streamlining your financial data tracking, integrating your accounts provides a comprehensive view of your cash flow, which is essential to keeping your business running smoothly and profitably.

Such an approach lends itself to more accurate and timely cash flow analysis and projections, which enable you to plan ahead to ensure you're well-financed for a big investment, expansion into a new market or on track to reduce your debt load.

By syncing your financial accounts, you're paving the way for fruitful data mining and analysis.

Using data analytics to gauge performance and guide strategic decisions isn't just for big corporations anymore. These days, small businesses can also become data-driven and bolster their competitiveness and profitability along the way.

You may be a small business now, but big data and all its powerful applications are well within your reach.

Image Credit: anyaberkut/Getty
Tucker Mathis
Tucker Mathis Member
I am passionate about helping small businesses to strategically scale and grow by better understanding their options for financing, optimizing their cash flow and improving how they financially manage their business, even if as business owners they don’t have a financial background. I have dedicated nearly 20 years of my career to the field of lending, helping companies to raise capital and better drive sustainable results in their business. As an SME owner myself, I share the very tactics and strategies that I practice on a daily basis in my own company.