You didn’t go into business because you love looking at data. But now spreadsheets are part of your daily life. Sales. Cash flow. Expenses. Whether crunching numbers floats your boat or makes you sweat, data could predict a profitable future for your business.
How can data help me grow my business?
Data can deliver valuable insights into whether your business is growing, what strategies are working, and whether you’ve got potential to grow. For example:
- Whether you’re making money consistently
- Which markets are most profitable
- The rate at which you’re gaining customers
- What strategies have delivered the best return on investment
- Whether your incomings and outgoings are in balance
By understanding this information, you can assess your potential for growth and develop a strategy to help you achieve it.
Not only that, but if you’re hoping to apply for business finance, lenders like to see management information. Maintaining accurate records shows them that you take the health of your business finances seriously, which bodes well for responsible borrowing.
What financial measures show my business has potential to grow?
If you see a bright future for your business, check your financial records to see if the stats to back you up. KPIs to examine include revenue, profit margin, cash flow, direct expenses and overheads.
Revenue is the amount of money your business generates in sales. Look for a consistent growth in revenue to indicate potential to expand your business.
Whilst it's natural to want to focus on products and services that produce the highest revenue for your business, it's not always the most important measure. Which leads us on to...
If you are consistently making enough money to cover your expenses and have some left in reserve, you’re in profit. Congratulations!
Your profit margin is how much money is made after costs have been taken into account. It can be gross (the percentage of each £ you retain after subtracting direct expenses) or net (the percentage of each £ you retain after subtracting all expenses and overheads).
You want to see the % holding steady or going upwards, showing you’re balancing incomings and outgoings in your favour.
Cash flow shows the money that flows through your business. You’ll need a healthy net cash flow to fund business growth. Have you got enough cash to continue to deliver your existing service / products whilst investing in new developments?
Remember that you are likely to incur upfront expenses when you expand your business – such as new premises, new staff – and may not see an immediate return on this.
And don’t forget… you won't always get paid straight away, so you need to be able to fund the gap between delivering a product/service and being paid for it.
Direct expenses and overheads
This is the cost of doing business. How much you spend on things like manufacturing, marketing, premises and staff. Whilst this doesn’t predict your potential for growth, it does contribute to your profitability and the reserves you can draw on to fund your future plans.
If you have borrowed money to finance your business in the past, it is important that you are meeting the repayment requirements and not defaulting on them. If you can’t afford to repay money that you’ve borrowed, you and your business are at risk. Make sure that your growth plans aren’t going to overstretch you.
What non-financial measures show my business has potential to grow?
It isn't just financial KPIs that can predict your potential for business growth. Non-financial measures include customer satisfaction, acquisition, market share and staff performance. If these ducks are lining up - along with strong financial KPIs - you could be ready to grow your business.
Customer satisfaction and service levels
Customer satisfaction is important when you’re planning to expand your business. If you are already satisfying customers, that reputation should precede you. But if you’re not managing to keep clients happy at your current size, things may get worse when you get bigger. Establish the minimum service level you need to provide to retain and satisfy customers, and make sure you don’t fall below this standard before and during expansion.
This is how many customers you are adding to your business each month. Since a steady growth in customers can lead to a commensurate increase in income, acquiring more customers is a good strategy. By monitoring customer acquisition over time, you can understand season fluctuations or what marketing activity has led to gaining more clients. Steady growth in customer numbers bodes well for your future growth plans. If your figures are stagnating, you need to raise your marketing game.
Your market share is the percentage of the overall market that you hold. You can work it out by dividing your business’s total sales in a given period, by the total sales of the industry in the same period. For example, if John’s Dairy made sales of £50,000 in a £5m industry, he’d have a 1% market share. A growing share of the market is a good indicator of business growth.
Staff satisfaction and performance
Whilst it isn’t as business critical as your financial bottom line, staff satisfaction and performance is still important to your growth plans. You’ll need a strong team if you want to scale up your operations – and good staff can be hard to find. Knowing whether you’re offering an attractive package and recruiting the best staff is important, as is knowing whether those staff are delivering against their objectives.
Think you're ready to grow? Check out our article to help you spot signs your business is ready to grow.
Ready to explore your business finance options? Transmit Growth Loans are approachable experts in business finance. Take a look at the growth loans we offer.