1. Small Business Data Analytics: Start With a P&L Review
Hidden Profits are Scary, Analytics Shouldn’t Be
Data analytics and Big Data are trendy topics these days that frankly scare most small business owners.
Analytics should not be scary and most businesses can reap tremendous benefits from basic analysis.
Big data can be overwhelming, but Small Data is the data in your ERP system that you never look at. In
this article, I’m going to go over some fundamental analytics using basic Small Data. We’ll focus on P&L
trends that many business owners simply do not examine due to lack of time or resources. And that’s a
shame, because Small Data is where all your hidden profits lie just waiting to be found.
P&L Comparison
Now that the calendar year has ended, so did the fiscal year for most small businesses. This presents a
tremendous opportunity to get started using Small Data analysis to gain insight into your business. You
or your accountant has likely put together a Profit and Loss, or P&L statement for the last year. You may
have reviewed these financials and maybe even caught a line or two that you are curious about. But,
have you caught all the hidden money that you are losing? Have you analyzed your last P&L compared
to the previous 3 or 4 years? Most small business owners and CEO’s review a single year, maybe two,
but miss the opportunity to analyze larger trends by reviewing 4 to 5 years’ worth of data.
Simple Spreadsheet Analytics
For this article, I’ll assume that you have 5 years of P&L data, but use what you have. Using your
favorite spreadsheet program, line up your P&L statements in consecutive columns. In the next 5
columns, calculate your P&L as a percentage of Total Revenue for that same year. (Remember to anchor
your calculation so that you always divide by gross revenue.) Here is an example of what a part of your
spreadsheet might look like:

2. Now compare your P&L line by line and year over year as a percentage of total revenue. Comparing by
percentage of revenue makes small trends in your P&L easier to spot when reviewing. Look for trends
where you are gaining or losing leverage year over year. Losing leverage means costs are increasing or
net profits are decreasing as a percentage of revenue and gaining leverage is the opposite. You want to
gain leverage, or increase your returns.
In the example above, the SG&A line has increased dramatically over the last 4 years with only a slight
decrease in the last year. Since 2012, revenue has increased by 21% and SG&A has increased by 51%.
The business has lost leverage.
Why has the business lost leverage? Having found a line item that needs investigation, it is time to
gather up all your Small Data and figure out exactly why you have lost leverage. Don’t just assume you
know or accept a simple answer. Get into your ERP system and really dig deep into the details to make
sure that you have a thorough understanding about why your costs have increased. In the case above,
you should look at headcounts, salaries, job descriptions, etc. Determine who has been added and why
and what functions are being done that you might be able to live without. Convince yourself that the
added cost was worth the added benefit. And if it isn’t, do something about it.
Analytics shouldn’t be scary for a small business owner. Simple tools like spreadsheets can be used to
analyze the Small Data you already have and unlock hidden profits.
Shark Analytics is happy to help you with your Small Data analytics questions. Visit my website at
www.analyticshark.com or send me an e-mail at contact@analyticshark.com if you would like some
help.
Company X P&L All numbers in 1,000's
2012 2013 2014 2015 2016 2012 2013 2014 2015 2016
Gross Revenue 40,782$ 38,296$ 38,017$ 42,180$ 49,505$ 100% 100% 100% 100% 100%
Cost of Sales
Materials 16,877 14,008 14,975 16,114 17,561 41.4% 36.6% 39.4% 38.2% 35.5%
Direct Labor 4,939 4,636 4,908 5,266 5,778 12.1% 12.1% 12.9% 12.5% 11.7%
Overhead 4,607 4,320 4,129 4,325 4,864 11.3% 11.3% 10.9% 10.3% 9.8%
Total Cost of Sales 26,422$ 22,964$ 24,011$ 25,704$ 28,202$ 64.8% 60.0% 63.2% 60.9% 57.0%
SG&A 6,220$ 6,711$ 7,465$ 8,393$ 9,392$ 15.3% 17.5% 19.6% 19.9% 19.0%