The Four Things You Must Always Analyze to Be Successful

Driving on Interstate 10 in Los Angeles is a curse. Devised in 1956 back when Dwight D. Eisenhower was President and decided to build the system of interstate highways across the country, it stretches some 2,500 miles from Santa Monica all the way through Texas and ends (or begins depending on your point of origin) in Jacksonville, Florida.

Forget about all the roads that were cobbled together and all the neighborhoods that were commandeered by imminent domain (never popular), and all the 18-wheelers that clog the lanes, the blistering heat through deserts, the monotony of driving vast stretches of nothingness (I have driven it across the country and back so I know) ... in Los Angeles? It is the traffic, of course.

The traffic is suffocating, the exhaust, ugh. Angry drivers going nowhere fast cut you off or insult you in other admittedly creative interpretations of road rage. I once had a taco thrown at my windshield smearing its sour cream, salsa, beans, guacamole, and who knows what else all over my window, the shell itself getting caught on my windshield wiper. I had a heck of a time getting that mess off. I once had a fancy white Porsche 911 follow me into a gas station, the driver getting out of his car to berate me and call me an old, ugly, bitch, because I cut him off. (Ouch and in my defense that was only because wouldn’t let me in even though I had my turn signal on. And I wasn't even that old!) I pretended like I was going into my glove box for a gun and he boogied out of there. The nerve.

I commuted on Interstate 10 for fifteen years and I have a lot of good stories. I avoid the road now.
However, not long ago I ventured on the 10 heading for Pasadena to be interviewed for a new, brilliant video cast about entrepreneurship. The interviewer and creator, Tim Cason, is the owner of the shared working space and de facto advisor to a lot of his tenants. The space is called the CTRL Collective.

This was a big ask. Why? Because I live in Venice. Those of you from the City of Angels will understand that. For those of you who are not? Driving East on Interstate 10, late in the afternoon is … challenging.

The interview however turned out to be a great experience sand well worth the drive. 
As a part of the interview, Tim asked me for some of my favorite entrepreneur quotes. I have many: There are no good ideas, there is only good execution; Never buy too much inventory; Make a good controller your first hire; Never sacrifice your margins to get orders; and of course my most cherished and helpful quote that I say all-the-time-ad-nauseam is, The truth is in the numbers.

Focusing on the last one, if you want the stem the cash flow drains on your company, do a trend analysis. And to do a proper analysis you must have accurate numbers. Assuming that is the case, the first step is to look at your cash flow statement and see where things are going sideways. Compare month to month. Actuals to projected. This year to last year. 

There is more to it, however. Let’s drill down on that a bit. 

I’ve identified four important types of analysis that can lead to cash flow challenges. Of course, as stated previously, the first line of defense is looking at your own numbers.

1. Trend Analysis
This one is easy because you have all the numbers. You’re looking for trends. Are sales going up or down month-to-month? Are your monthly sales this year better than your same-month sales from last year? If they’re not increasing why?

Look at the same thing for inventory levels, labor costs, gross profit, debt levels, all your overhead expenses.

Is your inventory creeping up? Why? Can you reverse it? Are any of your expenses spiking? Why? Can you reverse it? Do this for each item on your cash flow statement, income statement and balance sheet.

Charts are great for a trend analysis. You can easily see if things are going up or down.

2. Competitive Analysis
Another important analysis is looking at your competitors. This one takes some sleuthing because you don’t have their numbers. What you can do, though, is go shopping. Go into stores and check on their prices. Are they higher or lower than your prices for similar products? Have they raised their prices recently? Have new competitors entered the market?

An easier way is searching for competitors online. Do a deep dive search. Go to their websites. Check their prices and messaging.

If you are selling a service, your competitors will most likely have a website. They may not have prices online, but you can always call them and inquire about their prices.

Be creative. Go to tradeshows. Ask your customers if they were approached by one of your competitors. If they were, what prices were they offering? Make a list of your advantages and communicate that to your current and potential customers.

Stay on top of this because you don’t want another company to steal your business. Make sure you buy your customers a nice holiday present.

3. Industry Analysis
In one of my online entrepreneurial groups, I asked what the members’ biggest problems were. One guy complained about sales. He said that his salesman was only closing (getting orders) for twenty percent of his calls. I was taken aback because really, that’s a pretty healthy closing rate by anyone’s standards. However, I didn’t know his industry, and closing rates can vary by sector. But I did know that the average sales rate across all industries in the U.S. was 19 – 20%. ( I looked it up.)

The point is to check and see what the average closing rate is for your particular industry. There are websites where you can access all types of information for your particular sector. Subscribe to one. Use it.

Otherwise, you may think you have a sales problem when you really don’t. Maybe you don’t need more sales, but you need more leads. That would mean investing money into lead generation or marketing or advertising. This applies to any number on your cash flow statement; be they expenses or revenues.

The result you want is, what is normal for your industry? And then you can aim to surpass that.

4. Economic Analysis
This one is my favorites because I studied (and taught) economics in grad school. You should keep on top of what is going on with the U.S. and global economies because they can dramatically affect your company.
           
Do you import products or component parts to make your products? Then tariffs can be brutal.
           
Do you have working capital lines of credit? If the interest rate goes up a point or two, your debt payments will increase.
           
If inflation is going up, not only does that increase the chances of interest rates going up, but it can also increase the price of your products as well as the salaries you need to pay your employees.
           
Might the country fall into a recession? That may force some of your customers into bankruptcy or force them to book smaller orders.
           
Some things are recession-proof. Those usually include essentials like healthcare and utilities. Discount retailers are usually considered recession-proof. The entertainment industry is called, recession-resistant if they offer escapism to beleaguered movie-goers. If your products or services are in that category, good for you. But if they’re not, you need to keep tabs on the economy.
           
​The good news is, economic numbers are readily available, although almost always with a lag effect. Look at the numbers, not what you’re reading on social media.