What is Financial Analytics?
Financial Analytics holds the power to significantly impact a business. But, exactly is Financial Analytics?
Financial analysis is most frequently associated with investing and stock trading. In this context, analytical methods are used to assess the likelihood of a target companies ability to grow earnings. This approach to data analytics may be described as weak. Persons external to a business are making arms-length judgments about future growth. It’s a weak approach because those engaged in the analysis do not have the ability to influence outcomes. Technically, it’s referred to as an open-loop system. They are using analytics to predict the probability of outcomes.
In a Small Business Financial Analytics is a strong approach, Financial Analytics is all about gaining insight into a business’s operational performance. Analytical methods create insights. Those insights are used to change future outcomes. The insights don’t merely describe the business system. Financial analytics continually improves a business system. This is a feedback loop system. Feedback systems are great at continuous improvement to achieve desired results.
Accounting methods mostly focus on tax exposure and regulatory compliance via audits. This is a different world from operational analytics and requires a different skillset. Once the best legal structure has been decided upon to limit the tax exposure to the business, operational performance is the only thing that can influence future outcomes. Tomorrow’s real story is about operational performance.
A business is a system. Systems have inputs and outputs. For many businesses, the conversion from Revenue to Net Earnings is a mystery. As a business owner or leader, are you strongly influencing outputs?
Financial Analytics is not about Dashboards
These days, everyone is talking about metrics and KPIs. Metrics are only a small part of meaningful analytics. In principle, metrics summarize processes. It is very common for managers to act on a metric and make things worse. They don’t understand how the business processes are inter-related and how they influence each other.
The underlying data resulting in metrics needs to be visualized in order to understand what is going on. Dashboards tend to be misleading unless those interpreting the data are experts at the underlying system.
Financial analytics provides the needed time-series insights into an operational performance that dashboards simply don’t provide.
Small business owners change theri apporach to financial review
In most small businesses, the financial review comes with a lot of negative emotions. Here are some reasons: Owners don’t care for this activity and would rather be doing other things. Their talents and passion lie in other areas of the business Financial reviews can be discouraging, so it’s avoided. Not enough effort is invested in getting current data. It’s all water under the bridge They don’t really understand their P&L statement
“Financial Analytics redirects attention to building a brighter future. ”
“Their mindset is in the past. They feel they can’t change the past, so why bother”
A financial review can be a hugely important and rewarding activity if framed in the right way. The business system needs to be reoriented to the future. Financial Analytics is for a strong future.
Financial Analytics can have a significant impact :
Business can Improve Cashflow
Net Earnings can actively be influenced
Will Result in Sustainable Earnings growth
Read the free eBook: The Truth About Financial Analytics
The Problem with Most P&L Reporting
Even the best accounting software programs are not oriented toward Financial Analytics. Typical P&L Reports don’t even provide an elementary sense of what happened. . The reporting scheme is minimal.
Net Sales
(-) Expense
———————
Net Earnings
Even the most popular accounting software like QuickBooks and Peach Tree report default earnings the same way. They report results, but not in a way that helps you understand your business system. The way information is reported doesn’t give you the insights needed to know what to change. Your future is at the mercy of your reporting system.
The focus should not be on the top line and line bottom line. The real focus should be on how you got from the top line to the bottom line in a way you can understand, interpret and influence. Without the ability to understand, interpret and influence, your future is at the mercy of your reporting system.
“Truth is, you really don’t know WHY earnings are moving up and down!”
Why are the monthly earnings so volatile?
……To Begin Understanding, Your P&L needs to be restructured
How Small Business Can Improve Earnings with Financial Analytics
Don’t feel bad, you’re not alone! Financial analytics can change all that. Financial analytics is not accounting and it’s not controlling numbers on a page. Financial analytics is a way of seeing virtually real-time how your business is operating.
Embracing Financial Analytics and a Data Mindset can have a real impact on your business results. This part of your data journey will shift the mental time frames in which businesses operate. In the beginning, all small businesses are looking in the rearview mirror. Reviewing financial performance can be frustrating and discouraging. Embracing the methods of Financial Analtyics will shift thinking from the past …to the present…to the future.
“Investing effort in analytics raises energy levels when it’s all about influencing the future.”
Stillwater Group Methodology
Creating Timely, Good Data
Understand the Important Correlations*
Stabilize Operational Processes
Once System is Stable, Create Predictive Model of Future EBITDA
*Correlation analysis determines if the volatility in the data should be interpreted as random.
Financial Analytics as a Service (FAaaS)* gives you these insights and more:
Financial Analytics as a Service
(FAaaS)
Stillwater Group creates business insights with Financial Analytics written in Python. Owners and managers get insights via selectable tiers of analytics. We call this type of support: Financial Analytics as a Service. You transfer financial data, we run the analytics, and report the tailored results in pdf format. We then conference with you to discuss the next steps.
*FAaaS is available in 3 support levels with add-on modules depending on need. The features below are from various modules
A Heatmap showing how your key business cost centers are shifting with an aggregate time
A restructured P&L will track trends against previous time frames.
Graphs of all cost centers by the month of the present year to see short term trending
Cost center statistics to describe the present cost structure of the business
EBITDA trending
Sensitivity analysis of Cost Center variations on EBITDA ( specialized ANOVA)
many other analytic insights based on need.
Analytics Needs workshops can be arranged depending on the need.
Your Benefits from Stillwater Groups FAaaS
Nothing is left to chance. no more guesswork
Detailed, real-time insights into all business processes
Data-Informed Decisions
Clear expectations of outcomes based on the newest data
Option for “What If” scenarios
Newfound confidence and “peace of mind”