Wouldn’t it be great if there was an oracle with a crystal ball that could predict your business future? What if there was something better? What if there was a way to look into your business’s future, predict it, and shape it?
There is! It’s called trend analysis, but instead of a crystal ball, you use existing data. And instead of an oracle making a guess, you have a CPA using that data to help give solid advice.
Sound good? Then, let’s dive into trend analysis, get some examples, and find out how a CPA can help you use it.
What is trend analysis?
At its heart, trend analysis is simply research. It uses historical and current data to make informed decisions about the future.
One classic example of trend analysis is the story of Netflix and Blockbuster. Most people view that story as the quick and agile Netflix, knocking off a slow, lumbering goliath in a few swift moves. The reality was very different. Blockbuster quickly used trend analysis to recognize customer desire for an online movie rental service. Blockbuster also used their data to realize how much people detested late fees. In fact, they nearly beat Netflix by dropping late fees and adding an online presence. But Blockbuster crumbled under an existing debt load; the rest is history. Without the debt, Blockbuster’s ability to use trend analysis would have saved it.
The Importance of Trend Analysis for Small Businesses
So, trend analysis works. It can help you spot new ideas and proactively meet your customers’ needs. And it isn’t only for big business. Your small business has plenty of data it can use. It may not have an expert who can help use that data to suggest trends. That’s where a good CPA can come in. Here’s how they can help.
Data Collection and Analysis
Before you can recognize trends, you need data. A CPA can help your business collect the most relevant data, like financial statements, sales reports, customer data, and market research. The CPA can then organize the data and put it into graphs and documents that can be used to make accurate forecasts.
A CPA can also help you compare your business results against industry peers using key metrics.
Now you might be thinking, “So what?” Well, that kind of evaluation can help you get a grip on how your business performs compared to the competition. And if you don’t have a standard to measure yourself against, the tendency is to maintain the status quo. That’s dangerous because a stagnant business is usually a dying business. But comparative analysis also can help with this next important type of trend analysis.
Once you’ve developed plans to beat the competition, you can develop scenarios to see how they might work.
A classic example is McDonald’s. In 1948, the McDonald brothers had a restaurant like many others in the area. The menu was too extensive, and the service was too slow. The brothers believed that some changes could help them win more customers. So, they looked at a year’s worth of customer receipts to find the most popular products. And they developed a system to serve customers quickly. But they didn’t take a step until they ran a scenario analysis on how whittling down the menu and creating a new service system might play with customers. That little trend analysis sparked one of history’s most successful fast-food franchises.
A CPA can help your business do a similar process by using different inputs and assumptions like pricing strategies and cost structures to determine the viability of new ideas and strategies.
Putting it all together
Like data analysis, trend analysis is a powerful tool for any small business.
The potential to outmaneuver the competition with existing data can propel your business to new heights. But you’ll need some help, so find a good CPA (or two) to help you collect and analyze data in a way that will be useful.
Why not get started today? It sure beats a crystal ball!