It’s no coincidence that the term ‘the trend is your friend’ is used in both investing and business, they have the same fundamental meaning and use in each scenario.
Trend analysis is THE most powerful tool I know when analysing the performance of a business (and for that matter, any investment I make). Lets face it, what we are looking for in each scenario is a growth trend in the investment potential.
However, most businesses I review do not have the level of sophistication to look at the trends, indeed a high proportion of small business owners don’t actually look at their accounts and focus on the ‘management by bank account’ method of control. That can be a disaster waiting to happen.
Trend analysis in your business can reveal a multitude of sins and potential gains. Some considerations are:
- Are sales increasing or decreasing
- Do costs trends reflect the sales trends
- What are employee numbers compared with key drivers
- Is cash smoothly earned or are there peaks and troughs (that could cause periodic distress)
So, always keep in mind that single point numbers are useful, but the trend is the friend