You run a successful small business that is making profit each month. Congrats! You have overcome one of the toughest aspects of owning a small business, as 82% of small businesses fail due to cash flow problems.
But don’t let that make you complacent.
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There are always ways to increase your profits. You may be thinking that you have heard it all before and you just don’t have the time or extra money to invest back into your small business to maybe make a little more cash. Why fix something that isn’t broken?
What if we told you it could be easy and inexpensive? And that by making some small adjustments you could significantly increase your profits. Wouldn’t you do that?
You may be thinking that it sounds too good to be true.
According to Forbes, 95% of businesses face some kind of need to manage their unstructured data and only 53% of businesses are adopting big data analytics. As the Senior Vice President of Franchise Services for ProfitKeeper by PrimePay, I am constantly asked why integrating analytics into a company’s business model is necessary. Luckily, I have seen it work successfully so many times, I love to speak about it.
Why collect data?
This question is one I often hear from business owners. Specifically in the franchisor space, they’re hesitant of the cost (in terms of time and money) to collect all of the relevant data because there’s no true conviction from the franchisees. If you find yourself in a similar mindset, I’d love to explain just how incredibly powerful and useful collecting and analyzing data truly is.
As Simon Sinek famously said, “What good is having a belly if there’s no fire in it? Wake up, drink your passion, light a match and get to work.”
What good is having data if you don’t take time to collect, analyze,and act on it?
The whole purpose and the why of analytics is to understand what happened, why did it happen, what is likely to happen next and what action can be put in place to improve and to make more money for your business. It’s your best chance to get a good view of your business and make well-grounded decisions because you’re really seeing the whole picture.
There are many sources of data for your business. Once you have identified the data that is useful and valuable, what are you supposed to do with it? If you could have all those data points in one place, wouldn’t you want to look at the full picture? Having this pertinent information all in one place allows you to make connections that you couldn’t necessarily make with just, say a bookkeeper doing your financials. There are operational and financial metrics that you can now easily observe. Combining those metrics can bring a whole new perspective to any company decision, big or small.
At the end of the day, the way I always look at analytics is that they are literal assertions based on data that you’re collecting. You’re then able to make an assessment about your business. That assessment serves as the sole purpose of understanding what type of action you need to take in your business.
If you silo yourself into looking at just financials, you’re only getting a slice of the picture. Analytics opens up a whole new space of possibilities.
Are all analytics created equal?
By this point, you’re probably open to the idea of collecting and analyzing data, right? At least that’s my hope. But here’s something you should understand - not all analytics are created equal. Here’s the difference between them to help you figure out which ones are best to measure for your business.
Two main sources of analytics that we typically measure are: operational and financial.
In the most basic sense of the word, financial metrics are anything that comes from, well, financials. Think income statements or balance sheets.
Then operational are things that necessarily wouldn’t be found on a financial statement. How many customers you served that day, the number of services you provided, your efficiency, or customer satisfaction score are all examples of operational metrics.
To break down even further, here’s a brief rundown of types of data analytics that can help you improve your decision-making.
- Descriptive - answers the question of: “what happened?”
- Diagnostic - answers the questions of: “why did this happen?”
- Predictive - tells what is likely to happen.
- Prescriptive - tells what action to take to eliminate future mishaps.
Before you dive into either segment of analytics, you need to assess which kind matters most to your business. If you’re in your first two years of operation, you may not need the same type of metrics that a more mature business would need. Also, it may be more meaningful to Understand which numbers are most relevant based on your market.
For example, if I were to open up a small bike rental business in a town where there are no competitors, I may focus on analytics regarding peak business hours and staffing. However, if I were a bike rental business in a major city, I would want to compare my rental to my competitors. I could do that by comparing inventory, hours of business, rentals rates, etc. This is a form of benchmarking.
What is benchmarking?
Think of benchmarking as the yardstick that you start from. It’s is a source of power for you as a franchisee or business owner to take action, create new practices, and do things that improve your operation.
Let me give you another example. Say you’re meeting with your CPA and he’s giving you some feedback when he says, “Oh I see that from May to June your sales went down. That’s not good, you need to worry about this.” Well, if you’re in the franchise space, you can use benchmarking to see that everyone went down in sales that month because of the seasonality factor of your business.
Benchmarking gives you a lot more context into why certain things are happening.
How often should you be collecting and reviewing data?
Generally speaking, the more often you’re collecting and reviewing your analytics, the more often you can make changes in your business to improve profitability.
If you’re only collecting financials or analytics once a year, there’s nothing you can do about that year. You wouldn’t be able to change one thing to help your business that year.
In my experience, collecting metrics monthly or weekly is ideal so that whatever you learn that week can enable you to make that change the next week to improve your business.
You can also use data to test ideas that you’ve had in the past. For example, if you have been pondering with the idea of staying open an hour later, you will now be able to see if it was worth it. You can factor in obvious stats like sales and payroll, but you can also look to see if phone calls increased during that time or if the price to keep the lights on an hour later just isn’t worth it. You’ll be able to back up your decision with cold, hard data.
How data encourages accountability and strong culture.
From a management perspective, accountability is everything. Are your statements well-grounded? If the managers at your business or franchise are uttering statements like: “Hey we did awesome this month,” - how do you really know its validity. Enter: the data. By analyzing it, you can really examine how many accounts you signed up that week or great customer service scores you received and ensure the statements are well-grounded.
Data enables accountability by reviewing it and then holding managers accountable for certain outcomes that they need to produce.
Another perspective to consider when it comes to data and accountability is with investors and owners of the business. If they invested money into an organization, they’ll want to know how the business is doing. With analytics, the investors can hold the business owner accountable to the progress they need to see in the business.
Managers and investors aren’t the only ones who benefit from understanding data. If you’re open and transparent with your entire staff, they can start to take ownership in what they do. The staff members will start thinking twice when they over-portion that ice cream that could cost you money. There’s a greater sense of understanding of the business and a mindset of ‘we’re in this together.’
Sharing data with anyone who is a stakeholder, who has any sort of vested interested in your business or works for you allows everyone to be on the same page.
How analytics are especially powerful in franchising.
Franchises are unique in a number of ways, but they have a distinct advantage when it comes to using data to its fullest potential.
Here’s an example of why. Let’s say you’re a small eyeglass shop in middle America. It’s probably really hard for you, having your own business, to understand really how you’re doing in relation to anything. It’s hard to tell where you can improve because everything is based on solely you.
But with franchising, it’s just natural. In keeping with the eyeglass theme, let’s take Pearl Vision for example. They have 400 plus franchise locations that are running the same business model, selling the same products, providing the same services, have the same sign above their door, etc. so benchmarking and comparisons is a natural fit. It makes logical sense to compare your business concerns with someone who is running the same business model.
Analytics are much more meaningful when you’re a part of a group like franchising where you’re able to get that type of data. That’s the whole attractiveness of owning a franchise in the first place - is that you’re not alone.
What tools can I use to collect and understand data?
Lucky for you, the process of collecting and analyzing data doesn’t have to be manual. With ProfitKeeper, franchisors can take advantage of the cloud-based software to automate financial tasks that help increase profits.
Imagine a service that not only does the work for you, but ensures the data is clean, correct and useful. That’s ProfitKeeper.
Click here to learn more about how ProfitKeeper can help you grow your profits today.