Small business owners may feel passionate about their product or believe they have a way to build a better mousetrap, but that doesn’t always mean they know how to make their businesses work. As a result, only 1 in 7 small businesses become profitable. Most close before they ever take off.
The best chance at success starts and ends with knowledge. Knowledge is power. You need to know how to drive a profit and how to work with people. The better you understand the data from your business, the more astute and agile your decision-making will be. The better you can turn your business numbers into concepts you, your employees, and your customers can understand and work with, the more likely you are to set the right goals and reach them.
There are two key ingredients. The first is in knowing what data you need and collecting it. The second is processing the data, looking at it from different angles, and ultimately presenting it in an understandable and memorable format. The first ingredient requires good data input technology. The second requires good analysis and understanding of how people interact with data.
The rule of thumb is that if you can present the most vital pieces of your information in a visual format that helps the information click into place in people’s minds, then you have done enough analysis. If you can’t, then you haven’t. Here are some excellent examples of when the right data collection, paired with the right data visualization, will save your business.
Nothing is more elemental to a business working than being able to sell the product you provide. Selling is no good, however, unless you make enough money from the deal. You need to know two critical pieces of data to be agile and accurate in making deals that help, not hurt, your bottom line. First, you need to know the total cost of not just producing your product, from rent to labor, from supplies to billing. You also need to know your benchmark sale price for the product. You aren’t in this to break even. Set up a pie chart of your expenses and a benchmark graph for your sale price.
If you work in a service industry, like a law firm or consultancy, you need data to know how to set your fees. If you charge flat rate fees, you need historical data about how long it takes to perform that task and your costs. Since you have likely become more efficient over time, a line graph may help you see the patterns and averages of your expenses. If you charge by the hour, you need to know your overhead. Try to synthesize it into a stacked column of your costs under what you were paid.
If you run a law firm that offers both hourly and contingency fees, you need to understand the risks of the case. Try dot plotting the issues you handle and how much income they generate. A riskier case should either have more potential reward, as in a higher contingency fee or charge by the hour to ensure profit. You may want to set a higher upfront retainer for clients who are themselves risky as payers, such as criminal cases and companies in financial peril.
No matter how your company charges, you need to understand your time investment and other costs. Good data collection is essential, and you cannot skimp. Law firms, and other fee-based businesses, need the data from legal time and billing systems to understand what and how to bill.
Setting and Reaching Goals
Step one of setting goals for your business is to know what is reasonable and achievable. As a business owner, it will help you to understand industry benchmarks. For example, a faded bar graph might help you see how you rank compared to your competitors.
Step two is to set and communicate your goals to your team. Whether aiming for more employee efficiency, higher sales numbers, or lower loss amounts, your team needs to see where you are starting and where you want to end up. They need to understand what is expected of them to change and deliver. A bullet graph is a simple way to convey progress toward improvement.
Finally, keep yourself and the team updated along the way to your goal. If they understand how they are progressing along the way, the company will have an opportunity to learn, correct course, and finish. For example, a chart showing numbers with icons or an icon array might help the team visualize what the hot spots are.
Mark is the founder of Financial Pilgrimage, a blog dedicated to helping young families pay down debt and live financially free. Mark has a Bachelor’s degree in financial management and a Master’s degree in economics and finance. He is a husband of one and father of two and calls St. Louis, MO, home. He also loves playing in old man baseball leagues, working out, and being anywhere near the water. Mark has been featured in Yahoo! Finance, NerdWallet, and the Plutus Awards Showcase.