Study Your History
Use data of past performance as a guide for future success
An important part of a business leader’s job is analyzing, identifying and tracking emerging trends to prevent adverse financial performance in the organization and/or department. All too often, business leaders struggle analyzing trends because one or several of the following disable their ability to track data:
-
Data is displayed in inconsistent formats, making it difficult to identify trends.
-
It takes too long and requires too many steps to get historical data in a usable format.
-
It is difficult to see the data from the previous months or quarters while viewing data from the current month or quarter.
-
People do not understand the value in analyzing historical data.
Not enough time is spent analyzing relevant data. You don’t need to be an accountant or an analyst to understand the value of knowing your numbers. Whether the numbers are operational and/or financial, understanding numbers and trends is critical for directing the future of a business. Successful business leaders review operational and financial performance from a historical perspective because it provides them with the ability to better understand how all the little decisions along the way have produced the end result, their earnings performance. There is no better teacher than your own successes and failures (historical performance). As long as you are open to learning and gaining new insights, reviewing historical performance can be a powerful change agent for you, your management team and ultimately the entire organization.
What better way to predict and affect a desired future result than by understanding your past performance and applying the lessons learned to your future plans?
One of the most powerful uses of analyzing trends is when management is developing its annual budget and long-term financial plan. When working with a client that needs assistance improving their operating performance (earnings and cash flow), one of the first things we do is evaluate their financial history. People usually assume we are trying to identify what went wrong, and they are correct. However, we also are looking to identify what went right. In other words, we want to identify periods when the company experienced a high degree of success. That period of success might be one month, one quarter or even one year. Whatever the period of time, it’s important to identify that period of success while understanding what was true about the organization, the industry and the economy that enabled the organization to achieve a certain level of success.
During this part of the client assessment, our goal is to clarify what is truly possible from an earnings and cash flow perspective. Recognizing that many changes occur from year to year that can affect an organization’s ability to have a repeat performance going forward, we look to historical data to provide some clues and keys to success. We process that data and insight in conjunction with what’s currently going on in the company, the industry and the economy at the present time. Remember, often times our greatest teachers in life are our past successes and failures. Don’t miss the opportunity to learn from your past performance. Leverage your analytical skills by doing the following:
-
Identify periods where your company experienced above-average financial success.
-
Identify the people, processes, habits, organizational structure and other enablers of that success.
-
Identify periods where your company experienced poor financial performance or even failure.
-
Identify the people, processes, habits, organizational structure and other disablers of success.
-
Based on the above analysis, identify the changes that must occur within your organization to achieve and sustain a greater degree of financial success over an extended period of time.
-
Ensure all process and systems are in place to capture and report on critical trends throughout your organization.