Business at a Crossroads? 3 Ways Data Can Provide the Answer

Beth, owner of a management consulting firm, had by all appearances a thriving business: projects for the foreseeable future; a mix of offerings to keep it interesting; repeat clients who valued her expertise. But Beth didn’t feel like she was thriving. She felt too busy for her current staff, but wasn’t sure if she could sustain additional hires. She had pursued growth and landed bigger projects, but wasn’t sure if the projects or clients were ideal. She had clients who relied on her, but perhaps too much.

Beth had grown her business organically, so when she came to me, she was already years into selling, executing, and growing. She hadn’t taken a close look at her business in a while so there were years of unstructured growth and undefined processes. However, she also had years of business data stored up. While she was emotionally confused about the next steps for her business, she could use the data to provide some grounded answers.

These are simple metrics that every business owner can easily pull from the bookkeeping you already do.

You might have fallen in love with certain clients, types of clients, products or services. But if you haven’t looked at the hard numbers that each actually contributes to the business you might overweight enjoyment over true financial value. This doesn’t mean you drop these clients or offerings, but if you’re thinking about hiring, as Beth was, and deciding on where to put resources, the decision needs to be financially viable. Beth loved being a trusted advisor to her clients but that meant on-call, last-minute work that wreaked havoc on her schedule, was difficult to delegate to other staff, and therefore was expensive to maintain. When she looked at her revenues with clients who used her most for advisory work, the numbers were small compared to the time cost.

Revenues by date reveal the rhythms and seasonality of your business. You might already plan your sales and marketing push to coincide with the busy season and save your back office projects for when it’s slow. However, market conditions change over time. Your business might be more or less seasonal than it once was. You might still be discounting when you no longer have a slow season. Beth had been tabling her business planning for the traditionally slow months, but her slow season changed due to a major client with a different fiscal and she didn’t realize had no off-season in the most recent years till she reviewed the hard data.

Finally look at your burn rate with fresh eyes. Are you still contracting out when you should bring some functions in-house? Are you using more of a particular service and can negotiate a larger discount or better payment terms? Are you under-investing in certain areas (e.g., data mining)? Beth identified a service offering that could be a lucrative stand-alone offering. She had some staff for this already but needed to invest here if she was going to offer this more aggressively.

Look for bottlenecks: Time to sell. Time to collect. Cumulative revenues.

If you have 10+ years of data, you have the advantage of seeing patterns, especially in your sales cycle, which require lots of data over multiple years. How long does it take to sell a project – by type of client, by size of project, by type of offering? Beth assumed that the bigger projects and bigger clients took more time to sell. But on reviewing the actual numbers, her big corporate clients were actually more decisive and had clearer (therefore faster) procurement processes than her smaller clients.

Revenues are not the same as cash, and collection time for your clients can mean huge swings in your ability to make payroll, pay your bills, and afford to focus on key long-term projects. When do you bill? When do your clients pay? Do you send out timely reminders? Do you need to offer incentives – e.g., a discount for pre-payment, a penalty for late payment? In the early stages of your business, you might not have needed an actual collection strategy but as you take on different clients, different projects, and higher costs, what worked in the past might no longer be sufficient or optimal.

Tracking cumulative revenues by clients and over time is an eye-opener. Many businesses find that their top-grossing clients account for a disproportionately high share of the overall revenue. Is this true for your business? Are these dominant clients your ideal? Are they financially stable? Based on your time to sell and burn rate, how much time do you have to develop alternatives, should something happen to these clients?

Look for changes over time: Year-over-year calculations

How do your basics and bottleneck measures look year-over-year? Is your business even more dependent on key clients or are you diversifying? Are the same clients dominant in your business year over year or have you constantly had to replace large sources of revenue? Have collections gotten sloppy? Are the discounts or penalties you put into place before still relevant? Are you still going after the shortest time to sell when you can afford to pursue longer lead times? Finally, are revenues, costs and profitability moving in the right direction for your professional and personal goals?

Make better decisions about pricing, time management, client service and overall business strategy by getting to know your business data. We all make assumptions and fall into routines. By grounding yourself in your own numbers, you can taper the emotions, limiting beliefs and false assumptions that may be holding your business back unnecessarily.