Business Analytics for Business Insights (NID51)
For many business owners working on the accounts is done with some trepidation. All those numbers are doing mysterious things and their stories only become clear some months after the end of the financial year when your tax accountant reports in. But your accounts can be your friend and can to do a lot more about your business health than just your tax picture. We have several simple tools to give you more insight, which we call our Business Analytics.
Let’s touch on three.
The following is a Transcript of the Video and Podcast on these buttons
1. Adjust for the Impact of Inflation with Gross Margin Ratio Analysis
Just one simple calculation, called a Gross Margin Ratio can tell you when to put up your prices. It cuts through the clutter of changes in cost and revenues; all moving in different directions.
Basically, when your gross margin ratio goes down, so is your profit.
And this problem operates in stealth mode. Inflation means your cost and wages slowly creep up. It happens slowly and it goes largely unnoticed. Then you check your profit and you see a serious impact.
The Gross Margin Ratio is worth checking quarterly so you’re not shocked to find your profit has imploded when you get your tax report each year.
Other similar and equally simple ratios can tell you when your staff are becoming less productive and when the businesses is becoming less efficient at generating profits.
2. Measure Impact of Change with ChangeBoard
Our second resource is ChangeBoard.
Just a few numbers already available in your accounts can answer such questions as;
- the impact of a percentage change in price on your profit
- the impact on cashflow from changes in your accounts payable and accounts receivable and
- the profit change that you can expect from a change in your revenue.
We call this tool ChangeBoard because it measures the impact of change.
It uses your real accounting data for these predictions so it is as up to date as your accounts are. This process is called modeling because you have a “model” of your business where you can make changes and you can see what impact those changes have on your actual business.
Use it to play “what if” scenarios quickly and easily.
3. Graphically Visualize Key Accounting Information
The third tool is called TrendBoard.
Revenue and expenses are constantly changing any business. Input costs like parts and labor go up and price and your income ebbs and flows.
It’s very hard to hold all this in your mind. It’s much easier to visualize when trends are displayed on a graph. Then it simply becomes a matter of “up slope is good and down slope is bad” and I had better fix it or trouble is looming.
With the TrendBoard tool, you put in 5 to 10 numbers from your accounts and your critical graphs are displayed instantly for you to look at.
We encourage you to do this quarterly so you check any changes that are happening behind the scenes.
You can check out a sample set of the graphs on our website.
The case for using 12Faces Business Analytics Toolkit
Many businesses have no idea what truly useful insights are sitting in your accounts just waiting to help.
You see your tax accountant once a year. So it’s too late by the time you get the bad news from them that your profit has dropped.
Put yourself on a simple quarterly routine to get early warning of impending profit falls.
These 12Faces tools are designed to highlight issues in easy to read and understandable formats ideally suited to small businesses.
How silly as it to work hard, but go backwards, because you’ve not heard the messages your accounts are happy to tell you if only you would listen.
Convert your accounts from an annual donation to the tax office to becoming a trusted advisor.
Our Business Snalytics collection is a collection of resources to help make this easy. Find them under the business analytics menu on our 12 faces. business website.
Always remember that our advice is general in nature because we don’t know the specifics of your business. Always seek specialist advice. For specific issues.
Thank you for your time.