Financial Analysis: Systems & Processes

This article outlines the information you need as an Operations Manager to set up your Budget Management systems and processes. Want to streamline your processes? See the templates we’ve created to make your job easier.

Financial Analysis Process

In this article, we’ll look at the practical steps you can take as an Operations Manager to implement systems and processes around Financial Analysis.

Ready to get started? Follow these steps:

  1. Define Objectives: Begin by clearly defining the objectives of the financial analysis process. Understand what specific financial insights the organization seeks, whether it’s to assess profitability, liquidity, solvency, or any other financial metric. This will guide the entire process and ensure that the analysis is aligned with the company’s goals.
  2. Gather Relevant Data: Collect all necessary financial data from internal sources such as past financial statements, sales reports, and expense records. Ensure that the data is accurate, up-to-date, and comprehensive to provide a solid foundation for the analysis.
  3. External Data Collection: In addition to internal data, gather relevant external data. This might include market trends, competitor financial data, economic indicators, and industry benchmarks. Such data provides context and helps in making comparative analyses.
  4. Choose Financial Analysis Tools: Decide on the financial analysis tools and techniques that will be used. This could include ratio analysis, trend analysis, horizontal and vertical analysis, and others. The choice of tools will depend on the objectives defined in the first step.
  5. Data Normalization: Before diving into the analysis, ensure that the data is normalized, especially if it’s coming from various sources. This means adjusting the data to ensure consistency and comparability, which might involve adjusting for inflation, currency differences, or other factors.
  6. Conduct Preliminary Analysis: Start with a preliminary analysis to get a broad overview of the financial health of the organization. This can help in identifying any glaring issues or areas that require deeper investigation.
  7. Detailed Analysis: Delve deeper into specific areas of interest or concern. For instance, if liquidity is a concern, conduct a detailed liquidity ratio analysis. If profitability is the focus, look into margins, cost structures, and revenue streams in detail.
  8. Scenario Analysis: Conduct scenario analyses to understand how different factors or changes might impact the financial health of the organization. This could include changes in market conditions, shifts in consumer behavior, or variations in production costs.
  9. Benchmarking: Compare the organization’s financial performance with industry benchmarks or competitors. This provides context and helps in identifying areas of strength and weakness.
  10. Document Findings: Compile the findings from the analysis into a comprehensive report. This should include both quantitative data and qualitative insights. Ensure that the report is structured logically and presents the information in a clear and concise manner.
  11. Recommendations: Based on the findings, provide actionable recommendations. This could include suggestions for cost-cutting, investment opportunities, or strategies to improve profitability.
  12. Stakeholder Presentation: Present the findings and recommendations to key stakeholders, including senior management, department heads, and any other relevant parties. Ensure that the presentation is tailored to the audience, highlighting the most pertinent information.
  13. Feedback Collection: After the presentation, gather feedback from stakeholders. This can provide additional insights and might lead to further refinements in the analysis or recommendations.
  14. Implementation Plan: Based on the recommendations and feedback, develop an implementation plan. This should outline the steps to be taken, responsible parties, timelines, and any resources required.
  15. Review and Refinement: Periodically review the financial analysis process to ensure its continued relevance and effectiveness. As the business environment and organizational needs evolve, the process might require adjustments or refinements.

By following these steps, an Operations Manager can set up a comprehensive financial analysis process that provides valuable insights into the organization’s financial health, informs budgeting decisions, and guides strategic planning.