I have said often on this blog that accountants, not Data Scientists, will be responsible for bringing advanced analytics to small and medium size businesses. Though we wish otherwise, this Covid19 crisis might be the catalyst that accelerates that process.
For millions of businesses around the world, their accountant is the main source of performance information. In the coming months, those same accountants can play a crucial role in helping their business clients navigate the uncertainty of the post-Covid19 Crisis period. But the traditional aggregated P&L won’t be much help. Businesses need analysis that will help them understand their place in the “New Normal”. Through the use of granular data analytics, accountants are the best positioned to help small and medium businesses understand how to make the decisions that will allow them to recover quickly. Here are some of the tools that, with the right data, accountants can deliver to their current clients.
Product Level Profit & Loss
In times of recovery, it is important to focus and be efficient. When times were good, many businesses expanded their product offering to be able to capture more niches of their market. With limited cash and other resources, businesses will have to go back to basics. Understanding which products add the most profit will be key. By digging into transaction level sales data and product costs with allocated expenses, accountants can dis-aggregate the P&L down to the product level so businesses can understand how to drive profit as quickly as possible.
Customer Profit & Loss
Not all customers deliver the same profit. Right now is the time to understand which customers add the most value to the bottom line and which overuse limited resources. A P&L by customer type allows businesses to focus their efforts on the clients with a high ROI. Again, accountants can combine detailed sales and cost data with all the expense ratios to be able to create a P&L by customer segment that will reveal who will help and who will slow the acceleration of the comeback.
Pricing and Promotions Analysis
Leveraging the analytical tools mentioned above, accountants can then show their clients which discounts and promotions make sense and which create only marginal value. Understanding the profit impact of promotions can help create the most business at the lowest possible cost.This analysis can only be done with Transaction-level data where you can match each promotion and discount to each product and customer.
Customer Cash-Flow
At this point, cash is just as important as sales. Tiering the customers, will highlight which customers create the most immediate cash flow. Cash-flow and collection analysis at the customer level can help businesses avoid costly mistakes at this critical time. Analytics on accounts receivables can reveal to business owners when and how to adjust credit and collection policies.
Labor Cost Analysis
Scaling up in labor expenses is always tricky, but more so in risky times. Understanding the impact of staffing and headcount on cash-flow will allow businesses to identify the milestones that they need to hit in order to bring staff back. Using data from time and labor systems, accountants can show the full burden of each labor hour as it relates to revenue.
Segmented Forecasts
It will now be critically important to light the way forward and reveal as much details about the road ahead as possible. Top level monthly forecasts and budgets will be practically useless in uncharted territory. All forecasting will have to be done at the levels discussed above – product and customer. The more granular a business can understand their business, the faster they can make decisions that can help them maneuver the uncertainty that they will face.
Detailed Variance Analysis
During predictable times, variance analysis can be done at the highest level of aggregation. In today’s environment, variances in performance will have to be reported at the most microscopic level in order to see which aspects of a business are taking off quickly and which are stalling. Now more than ever, accountants can help businesses understand how their current performance fits into the context of pre-Covid19 lockdown days.
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