When is something an anomaly and when is it the start of a trend? This is an important question in any business small or large. While some ask this in regards to fashions and customer demand this is an important question as it relates to your small businesses finances.
Being able to spot financial anomalies and trends requires the right reporting tools. There should be monthly reports that are reviewed, but having a sheet of numbers can be overwhelming to anyone. Plotting out financial data in graphs or bar charts with previous months information can help to better spot trends. Doing this can also help better understand the life of your business and help separate an issue from a seasonal trend.
But when you do spot a change in the normal ebb and flow of your business how do you deal with it? This is where analysis comes into play. What caused the variance or change in trend? If it relates to revenue look at sales. Was there a change in the number of sales or was there a change in what items were sold? (more low dollar vs high dollar) If it relates to expenses, review which expense line items changed. Usually having a forecast of your expense dollars can help you better understand and manage your business expenses. If there are any variances review the assumptions that were made for the forecast with actual results. A vendor that has increased prices on their goods and services or a change in how you provide goods and services will be an ongoing change that should be reflected in forecasts of future months activities. This can help determine the year to date impact.
Changes in sales can be harder to determine. Sales can depend on what drives your industry. If the impact to sales is a one time event you should see revenues return to a normal seasonal trend for your business next month. One might say that waiting two months to find out there is a problem is a bit too late. One of the best things you can do is review your sales and revenues weekly against last years to spot changes in trends before the end of the month. This can help in determining if you need more advertising or another action plan to help sales. If changes to sales are more permanent like a slow down in the local economy it is good to reduce your forecasted sales to have a realistic view of how your year could end up and the impact to the bottom line.
Anomaly or trend? This is an important financial question that can help you better manage your small business and address issues before they become lingering problems.
Thanks for your interest and we hope to continue to have meaningful conversations.