Company executives value analytical data that drives profits and cash flow while minimizing operational risk. While information is good, actionable data that provides insight and results is better. A company’s income statement and balance sheet have core information from which significant data can be extracted to better manage the business. Most businesses don’t have the time or manpower to compile and analyze the data. Inexpensive, commercially available software tools provide small to medium-sized companies, with an in-depth analysis and actionable data to maximize profit, cash flow and enterprise value. Fiscal Checkup is a web-based fiscal analytics tool to help companies improve performance.
Financial analytics have replaced the spreadsheet for in-depth data analysis. While spreadsheets are extremely useful for many business functions, spreadsheets are not well-suited for all financial applications. Software tools reduce the time and cost while providing informational databases and professional insight. Whether you perform the analysis or use commercially available software to support your analysis, all analysis begins with a detailed business assessment.
Business Assessment
The business assessment analyzes the company’s historic performance to isolate areas for improvement. Begin by understanding the Breakeven Point (BEP) to determine how margins and sales volume impacts profits. While the BEP sheds light on historic performance, benchmarking is used to compare the company to its industry peers as well as comparing the company to its best performance for specific accounts. The concept is to identify performance gaps that exist and their cost. Once the performance gaps have been identified for specific accounts, plans to minimize or eliminate the gap are implemented. Benchmarking on COGS, operating expenses, receivables, inventory, payables and capital spending will present the best opportunities to increase profits, cash flow and business value.
Another measure company’s should analyze is sales “quality”. Measurement of sales quality includes determining if sales are growing faster than receivables. If not, sales quality might be trending down. Often over-looked is the incremental sales growth. Calculate how profitable incremental (new) sales are and how much working capital is needed to generate those new sales. While sales growth is important, getting the cost structure under control is vital. Sales analysis is central to any business assessment.
Adding Value
If the company can improve profits, it directly impacts business value. An annual business valuation provides the management team with a tool to discuss the value components of the business with the executive team and shareholders. Improvements in business value can be directly tied to improvements in COGS and Operating Expenses. The business valuation is the ultimate measurement of business performance.
Forecasting
Now that the targeted areas to improve profits and cash flow with the corresponding savings have been documented, the next step is to forecast the next three years using these new goals. Forecasting can be time consuming and complicated, but accurate forecasting increases long-term success.
The logical goal of a forecast is to deploy resources wisely and develop a realistic strategy to maximize profits and cash flow with adequate capital to grow the business. Automated forecasting tools start with selected income variables and the working capital needs. Then capital investment and financing cost are considered with an analysis on collateral and the Company’s ability to service its debt. Good forecasting tools allow the user to easily change key assumptions to see the impact on profits, cash flow and debt coverage. Stress testing the forecast is an integral part of budgeting.
Summary
Financial analytics extracts data from financial statements to improve business decisions, profits, cash flow and enterprise value. Software programs use analytics to merge historic data, databases and professional analysis to generate actionable data to improve the business.
A business assessment provides a detailed review on a company’s performance. Utilizing benchmarking processes, companies identify specific savings in their business which they can utilize in forecasting to attain the desired results.
Fiscal Checkup is an inexpensive web based software tool that provides historical analysis including breakeven points, comparisons to industry, a forward looking forecasting tool along with a business valuation in six comprehensive reports for $495 per fiscal year. At no cost, companies can receive a high level company specific Fiscal Report Card and Industry Comparables report by registering for a free account. On February 11, Fiscal Checkup will host a free, FEI sponsored webinar entitled “How Analytics Can Improve Mid-Market Company Cash Flow and Profitability”
To download the White Paper: “Fiscal Analytics – Helping Businesses Thrive” or to register for the February 11 webinar, visit www.FiscalCheckup.com/FEI.