In our current state of technology the sheer volume of data is staggering and it's easy to have your eyes glaze over from data overload. That's why it pays to choose a few key metrics to concentrate on that will show you what's working in your business and what isn't.
Simply reviewing reports for the sake of looking at the numbers is pointless. You have to know how you are going to use the results of the reports to make changes to your business. And to do that, you have to know which reports are worth looking at.
Profit and loss statement
If you are not making money, you are losing money and this is the report that will tell you that right away. You can then dig deeper to see where exactly your revenue is coming from and which expenses are costing you the most and make decisions about what to spend more money on and where to cut back to save money.
Cash flow statement
Many companies don't go out of business because they fail to make money. Rather, they fold because they run out of working capital. You can be making money and still find yourself in a situation where you don't have any when you need it. If you ever find yourself in a situation where you don't have any money in your accounts, you should scrutinize your cash flow statement and try to find a way to work things where you always have some money at your disposal.
Business activity reports
This is actually a category of reports and which ones are the important ones for your business will depend on that business.
If you have an online business, these could be your:
- website activity,
- paid traffic,
- search engine organic traffic,
- return visitors,
- time spent on the site,
- conversion rate, and
- shopping cart abandonment rate.
Basically, these include any report that helps you ascertain how well your business is making revenue. If you're running an online business, Google Analytics is your friend.
For brick and mortar retailers, business activity reports could be more along the lines of customer interactions by your salespeople, demos given, walk-in traffic, results of customer satisfaction surveys, time-of-day activity or day-of-week activity.
Look at what you do, and the steps involved in turning a lead into a sale. Then choose the critical steps that will be success drivers of your sales and profitability and monitor those. It's tempting to look at a whole bunch of different numbers, but don't. Pick a few key metrics and monitor those.
Tracking your sales is a double edged sword. They are what drive your business, but because of this, they can also overshadow the rest of the reports that you should be monitoring. For monitoring sales, do it on a weekly, monthly, year-to-date and year-over-year basis. This is how you determine which promotions work best and your high and low periods throughout the year.
Use your history.
Once your business is around long enough to accrue some, historical data can be used as a measuring stick to determine how well you're doing from one year to the next.
If you want to see how you did last month, don't just compare your numbers to the previous month because the previous month could have been during a high or low season for you. Compare it to the same month from last year and ask yourself if there were more weekend days because that can sometimes make a difference.
Let's say you only cater to other businesses and therefore only do business on weekdays. There is a difference between a month that has 22 weekdays (a typical March) versus a month with only 20 weekdays (a typical February). There is a 10 percent difference in the amount of time available to do business and that could mean a 10 percent difference in sales between the two months, all else being equal.
Comparing different seasons and dates is also highly useful when looking at contracting and expanding your business.
With all the numbers flying at new business owners, it pays to have just a tiny bit of tunnel vision and look at only a few key indicators. Later, when you get more used to processing the endless streams of data, you can slowly introduce other metrics into your evaluations to give yourself a larger overall picture of your business.