Hertz is well aware of the harm that data errors may wreak. Back in 2014, the rental car company uncovered $46.3 million worth of errors in its 2011 financial statements. The inaccuracies came from a variety of sources, ranging from uncollectible fees for damaged vehicles to shady accounts and miscalculations, and they had catastrophic consequences. Hertz’s stock price dropped by 9%, and the company’s CFO resigned shortly after.
Still, it’s a chump change compared to the data errors discovered by Bank of America the same year.
In 2014, the bank discovered errors in its 2009 acquisition of investment firm Merrill Lynch. Bank of America had inflated its capital position by $4 billion, as it turned out. Stock prices plunged once more in the following.
Errors do occur. These large-scale company instances are sufficient confirmation of that. However, they do not always occur without consequences. They’re not the purview of big businesses alone, either. Small and medium-sized businesses (SMBs) are just as prone to the common pitfalls of data analysis, and the consequences can be just as difficult to manage.
So, what may go wrong for small businesses if their data is inaccurate?
Getting the Data Wrong
There are several examples of companies getting their financial data wrong, whether as a result of human error, unclear processes, a lack of collaboration, or a variety of other factors. After all, mistakes are an unavoidable aspect of doing business. However, if you don’t discover data errors early enough, they might have long-term consequences for business owners and operators.
That isn’t just the case for well-known companies like Hertz and Bank of America. Small and medium-sized businesses can easily be impacted due to a small staff and less defined processes. Although the errors that arise may not reach the front page of the news, they can harm your bottom line, cause inaccuracies in your financial statements, and harm your reputation with customers and employees.
Let’s take a look at some of the things that might go wrong for small businesses when their data is wrong.
Data duplications and omissions are more common than you might believe due to a lack of collaboration and communication among team members. This is especially true when many invoices for a single charge have been received, or when multiple team members are manually entering data in separate versions of a spreadsheet. But if you don’t catch them, those duplicates and omissions can trickle down to impact your balance sheet, income statement, tax statements, and more. To keep things running smoothly, you need to be able to trust your data—and if you don’t, you’ll waste time double and triple-checking your figures. This necessitates additional resources, leaving you with less time to strategize toward your growth objectives.
Omissions and duplicates add to the confusion. But what if an entire formula is accidentally overwritten, causing all calculations that rely on it to be incorrect? These errors are more difficult to detect, but they can have far-reaching consequences, resulting in various errors throughout your financial records. Putting more defined processes and centralized systems in place can help ensure they don’t happen in the first place.
Too many spreadsheets can make it difficult to keep track of your data and ensure that you’re using the most recent version. You risk pulling up an outdated version or mistakenly leaving a colleague’s hard work behind while adding your modifications when there’s no one source of truth, especially when numerous team members are making changes. Having a central database can help ease this issue and make things run more smoothly, with a single source of truth.
A Foggy Perspective
If you want to get things right, processes like budgeting, forecasting, and scenario modeling require accurate data. You’re at risk of getting things wrong if the data is incorrect, to begin with, or if you’re using outdated numbers to fuel your perspective. This means you won’t be as agile for your future needs as you could be.
Strategic Planning is Not in the Cards
If you work in finance for a small or medium-sized business, you may already be spending the majority (if not all) of your time on typical accounting tasks. After all, your team is only so big, and you still have to pay vendors, suppliers, and staff, prepare financial statements, and follow up on overdue receivables, among other things. When you also have to spend time looking for data inaccuracies and dealing with the consequences of those you don’t spot, you have even less time to devote to FP&A and strategic planning that will help you achieve your business objectives. Getting your data accurate, on the other hand, frees up time to get other things on track.
Getting the Data Right
So, how can you make sure you have the right data and avoid those all-too-common data analysis pitfalls so you can get back to business? Here are some of our key tips:
- Introduce a single source of data, with appropriate security and controls built-in, so that everyone on your finance team can work with the most up-to-date and accurate figures. That single source of truth will also reduce the need for repetitive manual data entry, freeing up time and minimizing the chances of human error.
- Put in place defined protocols to guarantee that everything runs smoothly. The right processes will reduce the chance of duplications and omissions and help you put safeguards in place to ensure your calculations are correct.
- Choose solutions that will scale with your business. As you grow, you’ll be wrangling more data and want more time to spend strategizing your future path. The right solutions can assist you in accomplishing all of this while also allowing you to scale as you go.
All businesses, regardless of their size, need the right data. If you’re part of a small or medium-sized business, getting the data wrong might not cost you billions of dollars, but it can be damaging all the same. In fact, in small businesses, getting the data correct is even more critical because, unlike giant corporations, you don’t have the luxury of large reservoirs to fall back on if something goes wrong. The future of your company is reliant on data: to secure funding, build your customer base and keep building towards your goals. Without accurate data, you may not have a growth strategy at all.
It’s crucial, then, to get the data right. So why not make it easier to avoid the five most common data analysis pitfalls in the future?