It is clear that financial reporting is incredibly important for a business. Primarily because it is a regulatory requirement for most businesses. However, utilizing the data formed from your financials can be a powerful tool that can untap significant potential within a business.
Financial analysis and data is one of the best methods of growth within a modern business. It can offer a high level of insight to a business, which allows them to streamline their income, focus on wasted expenses, and more!
Sharing financial data analysis internally and externally allows you to leverage metrics or insights in order to make significant improvements to each of the unique areas of the business. Whether they're directly financial changes, or financial indicators which can lead to changes elsewhere in the business. Having access to financial data can certainly help an organization remain flexible and stimulate growth.
The Benefits of Financial Analysis
Identification of Trends
There are many areas of financial activity which can be tracked and logged. This reporting will allow you to look into trends, and identify them from past and present. This information can then be used in order to identify and tackle weaknesses in the business, as well as identify areas of strength which the business can grow further. Understanding these trends lends itself well to the overall health of the business.
Real-Time Tracking
Having access to real-time financial data will allow you to make accurate and well-informed decisions on the fly, thereby avoiding the pitfalls of delayed decision making and releasing the ability for the business to remain as fluid and agile as possible.
Compliance Benefits
Understanding the implication of non-compliance, and being able to monitor that with effective financial data can be incredibly powerful. Non-compliance can be an expensive issue to have within a business, and can even lead to the end of some businesses. Therefore, having access to the data that tells you whether you are being compliant or not is a powerful tool to have.
Cash Flow Analysis
Having an understanding of a company's cash flow is an important data point which will allow an individual to understand whether the business is meeting their core metrics and KPIs, and what areas may be causing issues when it comes to meeting those targets. It is possible to drill down into the detail of a cash flow and interpret the information to create predictions and forecasts which can lead to a better management of the assets of the company.
Communication
Communication of data is almost as important as the data itself. You could have the best data in the world, but if the teams within the business do not know how to interpret it, then it is worthless. If the information and data is communicated in the correct manner, then it will allow the teams to utilise that knowledge to make improvements. For example, let’s say the data can be delivered in a manner which allows the head of logistics to learn that certain members of staff work more efficiently during certain times of the day, they can take that data and implement change in order to create more efficiency. This efficiency then leads to financial gains for the business.
Debt Management
Debt can be both beneficial and crippling for a business over time, regardless of the sector they are in. Tracking that debt, along with key metrics such as when it needs to be paid, cost of debt and debt ratios will allow the company to have a better control over their debt. This links in with cash flow management. Certain decisions can be made with a better understanding of debt. For example, utilising the time value of money, a business could decipher whether it is more beneficial to pay back debt slowly, or to pay it back sooner in larger chunks. In addition, understanding key metrics such as debtor days and creditor days will allow a business to time the repayment of their debt to suppliers in a manner which creates positive cash flow, and therefore increased financial benefit for the business.
Why is Financial Data and Reporting Important?
An important report by McKinsey made the statement that utilising data in order to create more beneficial reports, can lead to a business making more informed decisions which can boost productivity by 15 to 20%. This has translated to as much as $200 billion in the average annual market spend of businesses’. Financial analysis and reporting tools can clearly serve significant benefits to a business by providing a better snapshot of the general activities of the business, both from a broad review aspect, and a detailed review.
Financial Reporting offers a huge wealth of insight that can benefit the fiscal activities of the business. However, interpreting and delivering effective data can benefit more than just the company and employees directly.
Investors may have a significant amount of interest in any data analysis that can be performed by a business. They inherently want to know how well a business is doing, and therefore the more readable data available to them, the more likely they are to invest. Activist investors especially will want to understand a full disclosure of the business from top to bottom in intricate detail.
Decision Making
Without effective data, a business cannot make effective decisions. Financial data forms the bedrock of all financial decisions within a business. It can provide the evidence to go ahead with a decision, or alternatively, it can provide reasons a decision shouldn’t be made.
It is for this reason that it is essential that not only do we utilise financial data, but also work to make sure that financial data is perfectly accurate. Management reports and data analysis can lead to issues if decisions are made upon data which turns out to be inaccurate. It is important to remember that if errors are made on the back of inaccurate data, then stakeholders and legal governors do not care ‘why’ it is inaccurate, they will just criticise and penalise you for the fact it is wrong. As simple as that.
