What can big data do for business? More than they think, says Amanda Fisher, aka The Cash Flow Queen, from Australia.
Big data analytics is a growth industry. By 2023, the global data analytics industry will be worth $40.6 billion, according to ResearchandMarkets.com.
Research by SAS in 2018 of business organisations found that 72% said analytics helped them generate valuable business insights, while 60% said it had made them more innovative. However, only 39% said analytics was central to their business strategy.
Understanding data, and what it can do for businesses, is where Amanda Fisher comes in. Author, consultant and self-confessed tech geek, Amanda helps companies understand what their numbers are doing and why. We interviewed her about her consultancy and why she wants businesses to take their data seriously.
Hello Amanda. You’ve said that businesses underplay the need to ‘unscramble their numbers’. Why do the numbers matter?
I mostly work with small to medium-sized businesses, those businesses that don’t have the financial resources or need for a full-time in-house accountant, CFO or financial controller. These business owners spend the majority of their time in operations and team management, often without the financial know-how to understand and use their numbers to their advantage to make decisions.
But financial reports can tell multiple stories about the business. It’s not just whether there is a challenge with cash flow or whether the company is profitable or not. There is so much more information that can be gleaned from looking at the numbers.
For example, it could be that the gross margin percentage is sliding without the owner realising it due to increased costs with no proportionate increase in sales prices. It could be reduced productivity in a service-based business where the team are taking longer than expected to complete tasks and thus eroding profits.
The reports also show when there are problems with accounts receivables with invoices overdue that need chasing up. Similarly, the reports reveal what the liabilities are of the business which can assist in planning future cash flow.
There are myriads of stories behind the numbers, each business is different, and each month’s figures will tell a different story too.
Do you think big data is becoming the most important trend in business management?
I think that data of all types is the basis of understanding business. I’m witnessing trends in the small to medium enterprise space where they want a more in-depth analysis of their financial figures. Those numbers are the starting point. Once they’ve got a grip on the financial aspects of the business, then it’s about looking at other metrics, from social media, advertising and sales through to operational metrics.
The challenge is finding ways to correlate that data. Accounting systems report on the money side of the business which can be analysed and put through various reporting systems to identify the relevant data and provide information on trends, but they don’t offer the capability for reporting on other metrics in the business.
While big data is the current trend, it can be a case of too much data causing paralysis. The key is in identifying the crucial metrics that will have an impact on the future results of the business and then delving deep into that data.
What is unique about the way you approach data?
I use my ‘Leading With Numbers’ framework that I apply to data analysis. This approach scrutinises the data through different lenses seeking information that isn’t readily available at first glance.
Data tells stories. I can identify the stories from the past and show narratives for the future. Changes can be made based on the analysis to create alternative future scenarios for businesses.
Will businesses work better if they implement your approach?
That has proven to be the case. Let me give you a couple of examples.
The first business had been in operation for eighteen months when the owner approached me to help her understand the numbers and improve its overall results. She was taking a low salary based on the profitability of the business. While she had a basic understanding of the numbers, she knew she needed to delve deeper to improve the gross margin, which would provide increased profit that would allow her to increase her salary.
When I started working with the business, the gross margin was 28.24%. Over nine months, the company was able to increase the gross margin to 36.55%, which allowed the owner to increase her wages by more than 50% to a more reasonable level.
When I was first introduced to the second business, it had three owners and three related but separate service offerings. While one owner looked after one service offering, which had been the starting point of the business, the other two jointly looked after everything else. They had regular meetings and reviewed the financial reports but could never agree on which services were most profitable.
They were frustrated and confused as they had added in the new service offerings, expanded the team and were busy all the time, yet they weren’t making any more profit than they had previously. The business had flat-lined for a couple of years.
We instituted more detailed reporting, allocations of income and costs to each of the three different services. After a couple of months, we were able to identify precisely what was happening in the business.
It turned out that one of the new services which was keeping them very busy was, in fact, losing them money – significant amounts of money. The original services were making an okay profit, and the third area was making great margins. Once they understood where the good margins were, they changed their marketing to target more of those types of clients and that type of work, and their profits increased exponentially.
How will data analysis transform business and markets? What does the future look like if they implement data analysis?
So far it has been big business, with their in-house accountants and CFO’s, that have been able to take advantage of data. With the advent of online accounting systems, SMEs have that capacity too. The implementation of reporting tools that allow the numbers to be shown in a visual format has increased the potential for insight.
For SMEs, we can expect easier identification of opportunities and priorities, and as a consequence, better profitability.
For bigger businesses, it’s an opportunity to delve into the detail and make those small improvements that will have a significant impact on the future, not only for the business but also for the community and the environment.
If we consider, for example, that it is research and data that has allowed us to understand climate change, and as such we have the potential to alter its course, then we can see that data has the power to deliver big benefits for everyone.
Big data will become more and more of a challenge in its collection, collation and analysis, but there is also a need for this data to be made readily available for others.
The key to data analysis is in using it to predict the future – and I hope that we can use data to make decisions that will lead to a better tomorrow.
