There is a lot to know as a small business owner, from marketing to running a team. You’ll also want to have a good grasp of financial stats to increase the chances of success for your small business. Here’s why it’s so important.
Create a Profit Plan
When you understand the money numbers, then you can create a profit plan. That’s better than solely creating a budget as budgeting does not include forecasting of sales. A budget is typically limited to only expenses.
To compose a solid profit plan, you must understand financials. Once you comprehend them, you can start to project how next year will look to prepare your organization as best as possible for then.
Having a plan of what will happen next year gives you knowledge of where you’re going, which not only brings peace of mind but also enables you to plan out your spend for the coming year. You will be able to allocate resources accordingly and have a game plan for how your team will make money over the next 12 months.
Bridging the Vision and the Goal
To help you meet the goal of earning an income of ‘X’ dollars (insert the figure you want to achieve), you need to write in the profit plan how you intend to get there. In addition, you must keep focused as the business owner.
While you don’t need to become a certified accountant to read a financial statement, you have to understand your organization’s numbers and how to reach your profit plan. That includes cash flow, net income, sales, and the profit and loss statement.
Track Your Inventory
Another “must-do” is to monitor your inventory to see if it is increasing or not. Do you find that you have too much on hand when you look at the stats? If so, you might be overspending, and that can mean lower profits and potentially wasted product.
Analyze Your Competition
Attaining success will depend on where your small business is in your industry. Looking at the statistics for your competition will help you gain from their mistakes and make the most of their weaknesses.
Your competitive analysis can identify other characteristics of your competitor, too, such as their market share in your shared industry and barriers that may stop you when first entering the market. Also, just as you can unveil their weak points through data analysis, you can see where they’re strong so that you know where your business needs to be better than ever.
How to Learn More about Financial Stats
The reality is that understanding money numbers does not just come naturally to all small business owners. If you feel like you want to understand stats more to get a better handle on your business and forecasting, then reading one or more of the recommendations in this statistics book list is a great start.
If you want to delve deeper into how to use datasets for real-world problem-solving and predict outcomes more confidently, then a Masters in Statistics degree is a good choice. When you can do a risk assessment, for example, on a new product line, then you can project how it will perform and act based on what you see happening in the next year (or further into the future).
Types of Statistics to Understand in Small Business
Among the important numbers to know are:
You will also want to keep a close watch on your income statement. It will tell you the earnings growth and increase of net income. Ideally, they are growing at the same rate. If not, then you might find that your organizations’ earnings are increasing while the revenue is falling.
Only by knowing statistics can you start to take the appropriate action. If you see something is off by looking at financials, then it ought to signal a red flag to you, and then you can go deeper to see what is happening and why. Use that information to find a solution that works for your small business.
Understanding the Numbers to Improve Your Future
When first starting out looking at statistics for your small business, your competition, and your industry, it can seem overwhelming. But with time and education, such as reading books or going back to school, you can start to get more comfortable with the numbers. For growing profits that last over time, it is essential to have a good knowledge of these stats.
Written by Nikita Medvedev.
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