Small Data, Big Results

It seems like you can’t turn around without reading yet another article about Big Data and how it is transforming our lives as business people and entrepreneurs.  Big Data is everywhere:  page views, visitors, clicks, eyeballs, cookies, the Twitter fire hose,  cross referenced databases – you name it – we are inundated.  A month or so ago there was an article in the Wall Street Journal about Data Scientists – the next Big Thing in occupations you wished you had gone into when you were first starting out.  Companies are paying $200,000 to $300,000 a year for the privilege of employing these people to sift through mountains of data – overflowing warehouses of the stuff – to discern tiny shifts in consumer behavior that can translate into millions of dollars in sales if you get it right.

But first things first.  You’ve got to make sure you are making money and creating cash flow.  It doesn’t matter how good you get at mining data if you run out of cash in the process.  If you haven’t done so already, read Philip Campbell’s classic book “Never Run Out of Cash.”  He’s got a new one in the works on Financial Forecasting for CFOs and Controllers to help you turn financial analysis and forecasting into a strategic advantage for your company.  We at SurvivalWare applaud Philip’s approach, and are determined to help you focus on the Right Data.  Starting with a small amount of data – historical financial statements and a few key drivers – and combined with decent analysis and modeling – can produce big results.  That’s right:  small data, big results.  SurvivalWare is a tool that can help make this happen.

DrillDown – an essential tool for financial analysis

It’s true that you don’t really appreciate something until it is taken away from you.  I experienced that earlier today with the DrillDown feature of SurvivalWare.  I’m working with a new customer to automate the loading of financial data for 60 to 70 freestanding locations.  We are using the Simple model as a first step, and as a result, each SurvivalWare line item has several accounts mapped to it.  I am using this customer as a test case to improve the ability of SurvivalWare to accept financial data from sources other than QuickBooks.  So in the course of fixing a “design feature” that would not allow the same account number to be used twice with different descriptions, I introduced a bug that had the impact of disabling the drilldown feature for these types of imports.  At the same time, I was trying to validate and make sense of their data.  It was IMPOSSIBLE to do without a working DrillDown.

I thought this would be a good opportunity to review the purpose and operation of the DrillDown feature in SurvivalWare.  DrillDown is a term in data analysis that refers to finding the detail behind any data item.  The idea is that you are “drilling down” into the data to find out what is underneath any particular number.  Here is how it is supposed to work.

Drilldown(small)

 

 

 

 

You click on any cell in the DataViewer to make it the “Focus Cell.”    Then click on the “Drilldown” icon to show what the detail is behind that cell.  Remember that there are two types of variables in SurvivalWare:  INPUT and CALCULATED.  If you are looking at an INPUT variable, a Drilldown in SurvivalWare shows the accounts from your accounting system that were mapped to that variable.

 

If you are looking at a CALCULATED variable, the Drilldown will show you the variables used in the calculation.  These should be the same variables that show up in the Formula Bar – but along with the month by month values for each variable, not just the logic.

So back to the bug – I did roll up my sleeves and get it fixed before sending the version out to any customers.  I figured it was easier to fix the bug than to limp around without a working drilldown.  It was amazing to me how much I have come to depend on the drilldown in my day to day financial analysis.

 

Disposable Spreadsheets

SurvivalWare is a great conglomerator of data: financial, cash flow, and other.  It also houses a good solid financial model.  You can be pretty sure that the numbers coming out of SurvivalWare are calculated correctly.  What SurvivalWare lacks is the immediacy and autonomy of a spreadsheet – to do stuff like take in crazy assumptions or do one-off KPI calculations. (You didn’t hear me say that!)  The structure of SurvivalWare is nice – until it isn’t.

Introducing the Disposable Spreadsheet – to give you the best of both worlds.  What is it?  A spreadsheet created on the fly, whenever needed.  It includes not just numbers, but the formulas underlying the SurvivalWare financial model.  A complete financial model in Excel, populated with 12 months or more of history, and 24 months or more of projections.  The inputs are clearly marked, as are the calculated cells.  Note that the calculations for a given row can be – often is – different for projected months vs. historical  months.

You can send the spreadsheet to the business owner or to a controller or CFO. A Tax planner.  Consultant on a project that impacts cash flow.  They can do their own what-if?’s in Excel.  If you have a boss,  you can load the marked up spreadsheet back into SurvivalWare.  This is called “Recycling” the spreadsheet.  The updated assumptions become part of the master data file in SurvivalWare, and available for analysis and reporting.  These assumptions are the ones used next time a Disposable Spreadsheet is created.

Otherwise, toss the file in an archive bin in case you ever want to mine it, and move on to next month’s edition of the Disposable Spreadsheet.

Here’s what the disposable spreadsheet looks looks like for a sample data file from the SIMPLE model.

Sample DIsposable Spreadsheet

Sample DIsposable Spreadsheet

Currently, this (the Simple Model) is the only model it is available for.  We are working on upgrading the Fort Knox model to do the same.  As you might expect, the more complex the model, the harder to get it to work reliably in Excel.  The Fort Knox Disposable Spreadsheet Feature should be available in March when we release SurvivalWare 2014. (Luckily nobody reads this blog, so I might have a little wiggle room on the date).

Right now, the way you create a spreadsheet with formulas is to go to the Projections Module and select the “Export Formulas” tab.  You probably want more than a single month of history, so click “More” in the upper right to display more history months.  This is what you see in SurvivalWare prior to the export.

Proj-Exp-Excel

It takes about 30 seconds or so to complete after you click the Export to Excel button.

The neat thing is that it is a piece a cake to read an updated Excel file back in.  Just select File / Import from XLS File…  Then select the file with the updated projections.  SurvivalWare takes care not to change any history numbers during this process.

File-Import-Proj

The Three Pillars of Financial Management in the Small Enterprise

Entrepreneurs have to pay attention to financial management to grow their companies successfully.  You have to make sure you make profits.  You have to develop confidence in others that you know your company’s finances.  You have to make sure you don’t run out of cash.  And you have to make sure that marketing and other activities are paying off, and that your operations are as efficient as possible.

Here are the three pillars of financial management to help you, the entrepreneur,  succeed:

1. Financial Analysis and Reporting

2. Detailed Cash Planning

3. Marketing  Analytics

If you get each of these right, you will do fine.

Financial Analysis and Reporting

This sounds pretty mundane – and besides, isn’t this what the accounting software is supposed to do?  Your accounting software does a good job of capturing transactions and spitting out reports, but it usually falls short in the analysis.  What you want is to develop a monthly reporting package that you can use internally, and can also share with lenders, investors, and board members.  At a minimum, this should package include these elements:

Brief Narrative of what happened in the latest reporting period

Key Performance Indicators

Income Statement

Balance Sheet

Cash Flow Statement

But not just for the latest month – it is important to show side by side recent time periods so you can see how things are changing at a glance.  Also, the monthly reporting package should show updated projections of where you think things are headed, not just what happened in the past.  Click on the image below to view a sample reporting package with everything except the narrative.

Sample Report Package

Sample Report Package

 

Detailed Cash Planning

Detailed cash planning is not something you need to do every week or even every month.  But when you find yourself operating with less than 20 or 30 days of cash, you need to sharpen you cash survival skills.  And if you are a practioner of “Just In Time Capital”, you need to make Detailed Cash Planning a core competency.

There is a great series of articles on detailed cash planning on the SurvivalWare website.  Here are just a few:

Just in time Capital – a survival technique for small business

How much cash do you have to work with?

10 Tips to Survive a Cash Crisis

Surviving a Cash Crisis using SurvivalWare Cash Planner

 

Marketing  Analytics

“Half the money I spend on advertising is wasted; the trouble is I don’t know which half”

This oft-repeated quote is attributed to John Wannamaker, the famous department store merchant who lived in the 19th and 20th centuries.

In today’s fast paced internet world, we no longer have that luxury.  Marketing analytics means different things to different people.  According to wikipedia, Analytics is the application of computer technology and statistics to solve problems in business and industry.  I am using Marketing Analytics in that context:  the application of computer technology and statistics to solve problems related to marketing.  Specifically,  to help the business owner develop an understanding of what works, what doesn’t, and how things are trending over time.

For web-based businesses, this requires a daily focus, and often data from 5 or 10 different sources.  They key is to gather the statistics in one place so that they can be analyzed and compared.  Also, to include both financial and non-financial measures – for example web visits, leads, unit sales, dollar sales, pay-per-click advertising costs, email open rates, etc. etc.  It is critical to be able to look at 7 day moving averages in addition to the daily numbers so that you don’t get whipsawed by the natural volatility that is the nature of the beast.  It is real nice to be able to aggregate the statistics into weeks and months as well to look at longer trends, or to create you own time periods to correspond with specific marketing campaigns or a website overhaul.  I’d love to hear how business owners are tracking their own marketing stats.  In future articles I’ll show you what we are doing for marketing analytics at Luhring SurvivalWare.