Many small business owners struggle to appreciate the importance of sound financial management. This is unfortunately a very big reason that so many companies fail. U.S. Bank estimates that 82% of all business failures are due to cash flow management mistakes.
Fortunately, many companies can solve their financial challenges with modern data analytics solutions. They should make it a priority to utilize big data technology to create a more robust financial department and make more informed financial decisions. It is already changing the nature of investments, but can play a critical role in businesses in other sectors as well.
Data Analytics is Key to Making Better Small Business Financial Decisions
Data is a very valuable resource for all companies. With it, they can optimize services, personalize them and ensure the reliability of processes and transactions.
While it is true that the implementation of big data presents perplexing challenges for companies to solve, the benefits are well worth the frustrations. One of the areas where data analytics can be most beneficial for small businesses is financial management.
Data Analytics is Crucial for Executing Sound Financial Management Strategies for Small Businesses
If there is one department of any organization in which data is particularly relevant, it is finance. This field, already based on data, can definitely benefit from insights derived through data analytics.
Moreover, since it is composed of objective and quantitative information, the financial department is usually the focus of attention of both top executives and outside auditors. Therefore, it is expected that the implementation of most data analytics strategies will begin in the financial department of any organization. It is clearly one of the areas that can benefit most from data analysis and process optimization.
Financial departments of many companies have had large amounts of information at their disposal in recent years. Despite the availability of data, it has so far not been fully exploited in most financial departments.
The emergence of financial companies (Fintech) that take advantage of big data and offer new functionalities to customers has pushed the rest of the companies to bet on these types of solutions. Financial departments in many SMEs and startups are taking advantage of the power of information to solve growing financial challenges in a complicated economy.
Benefits of data analytics for financial management of small businesses
The possession of data on many customers, as well as external information, puts companies with data-savvy financial departments at an advantage over competitors. There are actually many benefits that big data can offer in the field of small business financial management. Some of the reasons that small businesses are turning to data analytics to improve the operation of their financial departments are listed below.
Improving information processing
On one hand, big data analysis enables efficient information processing. These are processes that could traditionally take months, but data analytics processes allows for results to be obtained in just a few hours. The conclusions drawn by these research methods make it easier for organizations to make decisions efficiently and offer better results.
Therefore, working with financial data analytics tools makes it possible to identify patterns and trends, and offers the financial department the opportunity to locate new revenue generating opportunities. Analysis and the development of predictive methods can also provide guidelines for automating processes and simplifying procedures. In this way, companies are able to optimize resources while finding new opportunities and continuing to develop and improve products for their customers.
Customer segmentation for cheaper lead generation
With regard to customer relationships, data analytics enables more accurate and complete segmentation. That is, both internal company data and externally generated data (web, social networks, etc.) can be used to obtain much more complete customer classifications and details than with traditional market analysis methods. With the information collected, companies can improve customer loyalty. At the same time, having more detailed information allows companies to carry out a personalized marketing strategy, according to the characteristics of each customer. They can also calculate the cost of various lead generation strategies more accurately and get leads at optimal costs.
Risk assessment and fraud prevention
Another advantage of data analytics for financial management is that it allows for more accurate risk assessment. There are many different risks in finance and data analytics can help assess, manage and mitigate them.
Similarly, the nature of financial departments involves the management of sensitive data, which poses a great risk to the institution and to customers. The use of analytics tools enables fraud prevention with early and rapid detection. Through predictive models and processing of thousands of data from diverse sources, potentially suspicious activities and behaviors can be identified before fraud occurs.
Rehan Ijaz is an entrepreneur, business graduate, content strategist and editor overseeing contributed content at BigdataShowcase. He is passionate about writing stuff for startups. His areas of interest include digital business strategy and strategic decision making.