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What does it mean to be a data-driven business?
Data-driven decision making is not just another buzz phrase - it is a strategy that every company must adopt to be successful, regardless of its size. To be a data-driven business means to collect data and use it to gain insight about the business processes and to make better financial and strategic decisions. Data is a very broad term, however, it can mean different things depending on your company’s context. Most often it refers to financial data such as sales, expenses, cash flow, profit margins and other financial indicators. Another category is customer related data, such as number of customers, their demographics, satisfaction levels, and much more.
Collecting and analyzing sales, expense and customer data can be used in determining relevant key performance indicators, or KPIs, that are the tell-tales of a business’ health and performance. The key here is “relevant KPIs”. Sometimes business owners fall into a different trap – collecting too much data and not really prioritizing one or two KPIs that really matter. Besides tracking KPIs and business performance, another benefit of being a data-driven business is being able to use financial information to create accurate sales forecasts, cash flow projections and budget. These projections can greatly improve operational efficiency and help avoid unpleasant surprises, such as not being able to make a payroll or be faced with needing to raise capital last minute to keep your company afloat.
Timely and accurate data can be a powerful tool in tracking financial performance, testing out new marketing tactics, creating forecasting models to predict sales and recurring expenses. Engaging in data-driven decision making reduces uncertainty and helps carve a clear strategy for long term success.
How cloud accounting software can be a powerful tool for automation
To reap the benefits of being a data-driven business, the first step is to accumulate accurate and timely data in a central place. Using traditional accounting software, it can be hard to avoid manual and time consuming data entry. Through the use of cloud accounting software, much of this process can be automated. Cloud accounting software, such as Xero, can be an excellent tool for businesses to streamline and automate data flow. By connecting the software to the company’s bank and credit card accounts, it is able to capture transactions on a daily basis, simplify reconciliations and provide real time view of the company’s cash flow. Additionally, third party add-ons such as Receipt Bank and Hubdoc enable businesses to eliminate paper receipts and invoices and categorize transactions on the go.
Moving accounting to the cloud enables businesses to access their financials from multiple devices and improve collaboration among management and third party service providers. Since multiple users can be granted access, it is easy for the business owners and the accounting professionals to work together. By continuously analyzing the data gathered in the cloud accounting software, an accountant can provide valuable feedback so that the business owners can respond quicker and make better decisions. Cloud accounting software like Xero also provides access to many third party applications to help with documentation, project management, scheduling, debt collection, and other data collection and decision making capabilities. These powerful tools make it easier than ever for entrepreneurs to gain a deeper understanding of the business’ operations and finances, and make decisions that will ensure focused business growth.
Data collection isn’t just about looking into the rear-view mirror
While a big part of data analysis is understanding the effectiveness of current strategies being implemented, it is also a powerful tool to make realistic financial models and projections of the future. Having accurate projections about the business can stave off trouble long before it happens. For example, cash flow projections make it easy to predict whether the business is on a path to meet its financial obligations or when more capital needs to be raised.
Your accountant should first and foremost be your business partner
Collecting the right data about a business and utilizing cloud accounting for automation and collaboration are integral parts of being a data-driven business. The last ingredient in the recipe for success is to enlist the help of a qualified accounting advisor to assist with data analysis and projections. With cloud accounting solutions coming into play, traditional bookkeeping and accounting professionals are also experiencing a change. Business owners can now expect more from their accountant than just ensuring accurate books or preparing annual tax returns and financial statements. Accounting professionals are becoming business partners and advisors that guide business owners in decisions such as what data to collect, what tools to use and ultimately provide detailed analyses and projections on an ongoing basis. Traditionally, only more established companies with deep pockets could justify such level of involvement. Cloud accounting solutions and online collaboration result in time and resource savings on the bookkeeping front, enabling accounting professionals to focus more on consulting and analysis and less time on reconciling and organizing data. This means that businesses can get more value out of their accounting professionals without substantial costs.
About the author:
Andrejus Civilis is a Chartered Professional Accountant, Certified Management Accountant and founded AC Cloud Accounting in 2014.
About AC Cloud Accounting
AC Cloud takes the pain of bookkeeping away, helps businesses get the most of their data and make better strategic decisions.
AC Cloud makes the transition to the cloud easy with these steps:
- Oversee initial setup with cloud accounting software such as Xero or QBO
- Migrate books to the cloud and take care of day-to-day bookkeeping needs
- Assist with selection and integration of add-ons as appropriate for the business
- Analyze data and provide financial insight into the business processes on ongoing basis
- Provide financial projections and KPIs