The journey to understanding
Getting a handle on the financial data that your business produces is a monumental task, but once done, decisions with financial implications can be made with confidence and understanding. Making sense of your financial data is a long journey that requires diligence, patience and persistence. When engaged successfully your financial data can help you make more money, work less, and please customers in whole new ways.
Data is a mess of quantitative and qualitative inputs, which is overwhelming and often times scary. Sifting through and making sense of all of it takes an enormous amount of time and energy. The light at the end of the tunnel, once reached, is the haloed ground of information salvation. The only problem is... who has the time to pull apart all that financial data, ensure its integrity, and then present the information in a coherent and understandable manner?
Learn more: Case study: how accurate financials fueled company growth
I believe that managing and understanding your financial data requires a multi-staged approach, with constant process improvement at its heart. The first step is: seeing your data.
Seeing your financial data
The first step in using your financial data to make informed decisions is to see it, completely and unabashedly as it is. Its scope and sources. Its blemishes and imperfections. Its tempting allure. Just breathe it in deep and appreciate what it is. A tool to help you make informed decisions. Financial data is a cruel mistress that will scorn you if you don't respectfully question it at all times.
Scope and sources of financial data
You first need to understand where the financial data is coming from, and just as importantly what it covers. There is nothing worse than not understanding that a large component of the business isn't being represented in the data. Understanding its sources will help you effectively and efficiently collect it, so that it can be analyzed.
Blemishes and imperfections in financial data
Financial data is never fully complete. Errors. Misinformation. Missing pieces. These are just a few of things that will take your well intentioned analysis into a land of fog and confusion. Taking a cold hard look at what your financial data is, and isn't, will save you from frustration and misunderstanding. Once you understand where your holes are you can use your qualitative understanding of the information to fill in any holes that you know about.
Financial data's tempting allure
"Use your data," is an anecdote often thrown around in business, like a football at a pre-game party. It is often dropped and fumbled, or spiked into the ground after a lack luster, bumbled catch. Sometimes though, a long tight spiral is thrown to a good friend, who after summoning his greatest boyhood aspirations, reaches out with a long outstretched arm and executes a perfect catch, diving headlong onto the green grass.
Proper execution is key to using your financial data. It must always be remembered that your data is to be used alongside your understanding and management processes. Use it as a way to help you make informed decisions. Do not wield it like a broadsword slashing at the tall grass.
Related reading: Defining ROI for Your Small Business
The first step, seeing your data, is one of the most integral steps. It helps you to fully understand your financial data and what its potential is. Never forget that financial data is just numbers and inputs. Your processes and management (which are being aided by careful analysis of said data) are the key to making sure you are putting dollars on the bottom line and adding customers along the way.