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Home > For Free > Action Ideas > Analysis

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How to Discover your Business' Deepest Secrets

Even in large companies, the simplest analysis of areas like sales and inventory is not done routinely.  Yet it can make an enormous difference to the accuracy of your decision making.  What's more, given it is rarely done, a little simple analysis on a regular basis may just give you the jump on your opposition.

Getting Started
Analysis is best learnt by doing.  Below are four simple questions you may like to know the answers to.  Choose one that you are not currently doing, and which you feel would be useful to know in your business.  Then set about 'doing the numbers'.  I have given you an idea of where the 'base' numbers might be in a typical system but your accountant or bookkeeper should also be able to help.  If you have trouble, see my offer below.

1. Sales Revenue (as a percentage of total) versus Customer (or Product). 
   This should be readily available as a report generated by your bookkeeping software. The classic thing to look for here is the 'Pareto Principle', otherwise known as the 80:20 rule.  In other words, you may find that 80% of your sales revenue (or thereabouts) comes from only 20% of your customers.  ("No way!", I hear you say.  Don't dispute this until you have done the sums as many are surprised.  Almost certainly you will find that the customers who make the most noise and take up most of your time contribute a disproportionately low percentage of overall sales.
   
   
2. Where do your customers come from?
   Do you ask each new customer how they heard about you?  Do you record their answers and review them as a whole?  Many people do the first, far fewer the second.  And the problem with that is that if you don't write things down, perception is allowed to take charge - and it is often wrong.  At the very least, doing this analysis may make you question your next advertising campaign.  This is unlikely to be recorded in your bookkeeping software.  How to do it most easily will depend on where and how your orders come in.  If you have a customer database there is probably an area somewhere where you could record some form of 'code' to describe the customer's 'origins'.
   
   
3. How much stock do you have and how old is it?
   If you keep stocks of any form, do you have any idea of their average age, or of the age of the oldest items?  Inventory costs you money - typically about 25% of its average value every year.  When did you last do a stocktake?  To get good information on your inventory, you need to do regular stocktakes (to keep track of its average age) and also keep records of the age of each item.  But even if you have made no effort to do either of these things, if you are using your bookkeeping software properly it will have ready made reports which can give you basic information on 'aging stock'.  Again, don't pretend you know your stock situation until you have run these reports: don't rely on perceptions because they are likely wrong.  A classic starting point for using this information is a 'clearance sale': give your customers a bargain and yourself some space at the same time.
   
   
4. Financials
   When did you last sit down with your accountant and go through your business' profit & loss (income) statement and balance sheet (statement of financial position)?  At tax time, six or nine months after the end of the previous financial year?  It is pretty hard to do anything about things then, isn't it!  Australian businesses do their accounts at a minimum every quarter these days; do you rush your BAS statement in and move on, or do you print of the two statements above and, at the least, glance through them to see if they seem to make sense?  It doesn't matter if they aren't 100% right - regularly reviewing these reports on a regular basis will start to give you a real feel for how your business is tracking - and show up surprises early on.

Special Offers

1. Do you have a burning question about your business that you would love to be able to answer but don't know where to start with the analysis?  Email me, detailing your question and any relevant background information and I will be happy to try to suggest to you a place to start.
   
2. One of the handiest skills in analysis is the ability to import a 'text' file (e.g. document in Microsoft Word, or report from an older system) into a spreadsheet program.   Click here and email me your name and the background of your situation and I will, in return, send you an instruction sheet on how to import 'text' files into Microsoft Excel.