There is a mountain of data in financial statements, but it is difficult for most people to extract actionable data from these statements to provide information with which to make decisions.
“Financial statements are great at reporting performance, but not designed to facilitate decisions,” says Roger Jacobi, CEO of Fiscal Advantage, LLC. “Without comparing your data to industry trends over time, it is difficult to really see how your business is doing, and then identify opportunities to improve cash flow and profitability.”
Jacobi believes in the value of benchmarking against industry standards. He recommends that you start with at least three years of income statements and balance sheets, and then compare selected financial ratios to industry benchmarks provided by the Risk Management Association (RMA). (RMA’s database has financial ratios for over 280,000 companies, primarily privately-held). So that you can benchmark with other companies in your industry, you will need to know your company’s NAICS (North American Industry Code System) industry code. But if your company does not align with one specific industry code, Jacobi suggests blending the ratios from up to five related industry codes.
Benchmarking is a process. Comparing your company’s results to industry standards is just the first step. You must then measure the gaps that exist, develop a plan to close the gaps, and continue benchmarking to remain efficient.
This all sounds pretty labor intensive, but there is help. Fiscal Advantage offers special software that will help you review your financial results and forecast cash flow, and then identify target areas for improvement.
Jacobi has offered to provide a special demo of this software to FEI members via a webinar entitled “Using Analytics to Improve Cash Flow and Profitability” on April 13 at 1:00 p.m. EDT. Participants will learn how to:
- Evaluate which income statement accounts have the greatest profit opportunity.
- Evaluate which balance sheet accounts have the greatest cash flow opportunity.
- Apply the data to forecast profitability, cash flow and bankability.
To register for this important webinar, click
here.
