Accounting firms guide clients toward better business decisions with data analytics
Access to affordable technology has increased the opportunity for businesses of all sizes to use data-driven decision making to increase the bottom line.
The use of data analytics is shaping the way accounting firms inform their clients. They are transforming from businesses that “create numbers” to businesses that can better help their clients use those numbers to advance their productivity and profitability, according to Joel D. Cooper, a CPA with Munster-based McMahon & Associates CPAs P.C.
Cooper said affordable and widely used business software is transforming how firms like his provide services to their clients.
Gone are the days when clients would bring a stack of canceled checks and bills to a data entry clerk and their accounting firm. The clerk would enter the data, the accountant would process it and provide a report of the information generated to the client, a process that could take weeks, Cooper said.
Twenty years ago, no one would have imagined technology would evolve that process and create new business opportunities for accounting firms.
“The economy is changing, period, end of story,” Cooper said. “We will have to evolve with it.”
As technology improved, the role accountants play changed.
Today, most businesses employ accounting software, including QuickBooks, which automates the data entry process. Artificial intelligence links a business’s various accounts, vendors and customers, among other information and inputs the data almost instantaneously.
The access to data and the ability to generate a range of reports gives financial professionals the opportunity to discuss with their clients what they are hoping the information can achieve for them, Cooper said. They can then analyze that data in a way that generates the information the business owner needs.
“It all really just depends on what your business processes are, how you want to go about things,” Cooper said.
Reports can be generated that are as generalized or specific as needed. For example, Cooper said, analytics can help a widget manufacturer determine how many widgets it sells or manufactures during any time span, such as an hour, a week, a month or a year.
Through product coding, the use of analytics can determine if blue widgets sell better than red widgets. That information can help create predictive models that help a business owner plan for staffing needs, future growth and industry changes, Cooper said.
Access to accurate industry-specific data also is improving, creating an opportunity for businesses to measure performance against industry standards. All the various data can be used to help a business owner plan a course of action.
Data collection is helpful today because so many businesses are no longer 9 to 5. Affordable credit card readers help small retailers and vendors at places such as farmers markets and festivals to increase sales and track information. That data then can be used to manage inventory purchases or when to target specific audiences.
Data can be as specific as how many apples were sold in a day and what impact those sales have on revenues, experts said. The data can help a business owner identify specifics such as products that might be driving down revenues even if overall revenues appear to be growing.
While the thought of analyzing data might be intimidating to some business owners, it is becoming more commonplace.
Experts say examples of analytics abound in everyday life and are so integrated they might not even be noticed. The use of analytical data can be found in utility bills that break down a consumer’s usage by month and can help facilitate cost savings.
An online bank statement, which provides a tool showing what percent of someone’s money is spent on housing, utilities, food and other items is using analytics to provide data to guide consumers on budgeting. Shopper loyalty programs analyze each consumer’s shopping patterns to target specific coupons and sales encouraging return shopping trips.
Big corporations, such as Amazon, for example, have mastered analytics to create a shipping model that in many cases can deliver items to consumers the same day the order is placed. Retail giants Walmart and Dollar General order items for restocking as soon as an item is sold, keeping shelves full and storage rooms empty, according to financial experts.
Micah Pollak, associate professor of economics and director of the Center for Economic Education & Research in the Indiana University Northwest School of Business & Economics, said the changes brought about by the use of analytics in business is the next step in a natural evolution of how technology is employed.
At one point, products were made to order, then mass production came along, and customers were able to walk into a store and buy what they needed. Now, through data generated by inventory tracking in stores and online sales, businesses are reaching their customers where they are at and when they are ready to buy.
“You can’t just make it and put it on the shelf anymore,” Pollak said.
The data helps these big corporations keep shelves filled while minimizing waste.
It helps them make decisions on sales and what products customers want to buy.
Data collection, once a labor-intensive process, has been refined and improved by big corporations through the decades. Technology advancements have made data collection easier and more accessible for small businesses too.
“Analytics means an opportunity to take advantage of things you may have missed in the past,” Pollak said.
Cost-effective accounting software has increased access to the data for those who know how to assess and manipulate it. Some businesses will embrace the thinking and the information while others who do not will be left behind, he said.
Small businesses often do not have the staff to perform this type of data analysis, even if they are using business accounting software, Pollak said. That is when an accounting or financial professional can help businesses assess the data.
“Big businesses have been doing it for a long time,” Pollak said. “Even mom-and-pops and smaller businesses are finding it more accessible.”
Analytical tools are becoming readily available and easier to use.
Businesses can use analytical data provided by Facebook and other social media platforms to target ads to certain demographics such as age, income and location, for better response, according to the experts. They are then able to use the data to track the success of an advertising campaign.
Gregory Ward, a CPA with Swartz, Retson & Co. P.C in Merrillville, said, as people become more comfortable with the tools to assess and process data, more businesses will begin using analytics.
“I think sometimes they don’t realize the power of tools they already have like Microsoft Excel and Adobe Acrobat,” Ward said.
Using those programs, a person can scan in a document and convert it into a spreadsheet with minimal effort. Then the data can be analyzed very easily, he said.
That data can then be used to help a business refocus its efforts and initiate change, if and when needed. The data can help keep a business on track and identify areas where improvements can be made, Ward said.
“It can help them better target customers, change staffing patterns and identify inefficient activities,” Ward said.
All businesses can benefit from analyzing their data in more detail, and today’s software can help make that happen, he said.
“Business analytics can help an owner confirm a gut feeling is correct or let them know if they were relying on incorrect assumptions,” Ward said.
As businesses move more of their processes from paper to electronic format, there will be more data points collected that can be used to guide decision making.
Cooper agrees all businesses can benefit from a better analysis of their own data, but there is no single solution for everyone. How analytical data is collected is as different as each individual company.
Businesses must first accurately capture the data they want to compare to get accurate results from the analysis, Cooper said.
Consulting with a financial professional on what data is needed and how it will be interpreted makes a difference in the outcome.
“Analytics is only as good as the data,” he said.
Technology and the advancement of programming is making it possible for companies of all sizes to access analytical data, Cooper said.
Those companies need to make sure they understand the numbers being generated to ensure the decisions they make will help and not hurt their businesses.
Smaller businesses often do not have the staffing to break down that information, a service trickling down to the accounting and financial world, Cooper said.
Pollak said the use of analytics is becoming more and more prevalent and is growing in the academic sector.
The next generation of students to graduate school in accounting and economics will have a better grasp of the role analytics play, Pollak said. More courses are being offered on the subject, and it is now a degree program as well, he said.
Cooper said analytics is being taught more as its role in the business world grows. Those businesses that want to benefit need to tap staff or firms who can help them analyze the increasing amount of data at their fingertips.