The Finance Leader Podcast

Bonus Episode 41: Using Financial Analysis to Grow the Business

July 12, 2022 Stephen McLain
The Finance Leader Podcast
Bonus Episode 41: Using Financial Analysis to Grow the Business
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Show Notes Transcript

Financial Analysts help grow the business by digging in to the how and the why to financial transactions to find patterns and insights. These patterns can help find a way to leverage your offers to increase sales. Additionally, costs can be saved by finding efficiencies within the expenses. 

Episode outline:

  1. Figure out the why and how regarding data around financial transactions,
  2. Help to validate the strategy through the analysis of key metrics, and
  3. Partner with senior leaders so they better understand their numbers.


Please connect with me on:

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Consider joining The Finance Leader Podcast Community Facebook Group, where we can talk leadership and the other topics I present here on the podcast. https://www.facebook.com/groups/financeleaderpodcast  This is a good time to jump in and start sharing ideas and thoughts about leadership so we can help each other.

For more resources, please visit stephenmclain.com. On the website, you can download the Leadership Growth Blueprint for Finance and Accounting Managers. You can use this guide to develop your leadership by focusing on communication, and growing and empowering your team.

You can now purchase a course to help you advance your career from financeleaderacademy.com. It's called Advance Your Finance and Accounting Career: Developing a Promotion Strategy that Sets You Apart.

Stephen McLain:

Hi, this is Steven McLean of the finance leader podcast. This is bonus episode number 41. As a leader in finance and accounting, how do you add value, you will always be expected to be the technical expert who must know generally accepted accounting principles and finance processes, and maybe even the newest government body decisions on how to handle cutting edge assets like crypto and non fungible tokens. But I also want you to know how to positively support and influence decision makers, you must become an expert on pulling the right data that is validated data and then organizing it into a meaningful language for decision makers. This is where every financial analyst and staff accountant can lead across the organization. If you can become an effective storyteller with the numbers, you will become a go to leader in the future season 11 will debut on July 26, with Episode 91, where I will be talking about the financial planning and analysis team. Episode 92 will be all about data. And the great part about the finance leader podcast is that all these topics will have a leadership emphasis. This week I am sharing episode 31 Leveraging financial analysis to grow the business. Please enjoy this encore replay. Thank you. In the episode today, I'm talking about how your financial analyst can best help the business. Your accountant knows how to drop transactions into the right buckets, but your financial analyst can tell you why and how something happened. If developed properly. They can help you find patterns to grow revenue and reduce expenses. Your financial analyst is the key to growth and profitability. Please enjoy the episode. Welcome to the finance leader podcast where leadership is bigger than the numbers. I am your host Stephen McLean, and this is the podcast for developing leaders in finance and accounting. This is the debut of season number four and episode number 31. And today I will discuss three areas how your financial analysts can help you grow the business. Number one, they can help you figure out why and how regarding data around your financial transactions. Number two, they can help validate the strategy through the analysis of key metrics. And number three, they can partner with senior leaders so they better understand their own numbers. Michael Berger, author of the E Myth said, your own business growth and success depends on many things. And along that growing path, you are going to have to concede certain responsibilities and activities with your for your accounting, your production or day to day management. The E Myth is a fantastic book. The book was designed for entrepreneurs, but it taught critical leadership concepts. And for me, I learned that as a leader, I needed to ensure that I'm focusing on the right tasks for my role and responsibility, which was not obvious. Often leaders are not spending their effort properly. It's a classic book, I recommend it. Today we begin season number four of the podcast. I'm dedicated to helping you grow your leadership so you can set yourself apart from your peers, which will help you in your career. I believe that leadership is the key to advancement, you must build relationships and influence great ideas to grow the business. This forum is for you to go beyond being the technical expert, which is very important. But for you to grow your potential to become a senior leader and executive, you have to do more, I am asking you to look at your daily duties with a leadership lens. Not only from being an Excel expert that will not get you advance opportunities in your career. But how you use your influence to help key leaders to grow the business have a positive impact develop into a senior leader. So you become CFO and CEO one day, knowing how best to create a table in Excel will not get you there, you have to do more. You have to go beyond using Microsoft Excel as a tool. A lot of people in this profession and finance and accounting believe that their accounting and finance skills, regrow them into that senior leader but you have to do more. It's a different set of skills, and a different set of leadership responsibilities that will grow you into that senior leader. And that's what I'm here for. Now. We're going to talk about a little bit of finance versus accounting today. And the accounting and finance teams deliver different values to the organization and you need both teams, but the roles and responsibilities are very different. I know I'm only speaking on this podcast from a corporate team perspective. But this topic today is also very important for small business owners who might not always have the same resources available. But it is a very key decision for small business owners, once they go beyond just recording transactions, which sometimes small business owners are not doing that very well at all, they're using basic accounting services just to ensure that they are at least getting the financial statements that they need every day. Now, I applaud those business owners who are doing the extra step and even making sure that they are getting their financial statements and ensuring that their transactions that they get to look at and the financial data that they are looking at is accurate. If you're doing that, then good job. But you need to really be doing more once your small business gets a little bigger, and you're bringing in a little lot more revenue and you're deciding to scale the business. Now what do accountants deliver your accountant and your accounting team will record transactions and then drop them into the appropriate buckets, the appropriate accounts, expenses and revenues and any changes to your equity accounts. They will help you ensure you are in compliance with the IRS and the various state agencies that you need to provide information to and they will ensure you are consistent and the methods you are using like inventory valuation, charge offs, and then the value of your assets. And they also generate the much needed financial statements, which help you tell the health of the business, this is all very critical, you need to make sure you have a good system to be recording, every time you sell a product, that transaction goes into the system. And then you can be able to at the end of the month know how many sales you have goes to the same thing for expenses, we're gonna want to record every expense of the appropriate expense account. And then at the end of the month, your accountant is creating the profit and loss statement revenues minus expenses, to get down to see if you're making any money at all. This is all very critical information. But when you bring on a financial analyst, when you're at that point in the business, or if you are a corporate team that already has financial analysts, or small business owner, that's trying to go to a different level and go to higher level to financial analysts will deliver something very different that can help you really grow the business. Your financial analyst will help you figure out the why and the how to your transactions. And sometimes this requires them to work with other members of the staff to bring to light some important data that isn't very obvious. What I want you to really dig into is what are your customers patterns? How can you best take advantage of understanding the behavior of your customers, your financial analyst can help you do that they can dig into data that isn't always obvious to the person doing the accounting, they can dig into time, and when and where and what period of day if you have the day broken up into periods. And of course, it depends on if you're selling a product or a service, you need to really figure out what second third level transactional data will help you do some analysis to figure out what your customer is thinking and potentially create a model to show you how your customer will buy your product or service in the future. This also helps you determine what products are performing well. And also when and that may be on a daily basis. Or if your product or service isn't really bought every day. For example, if you have a retail shop and you're selling grocery items, you know, that will probably be an hourly analysis. But if you're selling a very specific high end product, you may want to be analyzing it from a monthly or quarterly perspective, depending upon when your customer believes that they need that product or service. And then what we really want to get down to is then you have all this transactional data now how can you leverage it to build models and analyze patterns so that then next, you can create offers around the patterns of your customers, because your customers will have certain behavioral characteristics that even they don't know that they're doing. But once you look into the data, you can determine these patterns. And you can find out how they're behaving and how they're interacting with your business, how they're interacting with the product and service that you are offering. This also helps to build out projections, which then can get better over time. As you accumulate more data. Your financial analysts can also examine all the lines in the profit and loss statement to find efficiencies and also high level projects may be necessary. That can look at opportunities to bring in new revenue streams, maybe necessary upgrade system infrastructure. Also some other requirements that need a financial analyst to calculate returns on capital, and also make comparison within the options they have within the project. Your financial analysts can also help you do analytical testing that can compare a test set of data to control data. But of course, this depends on the size of your company size your business, if you have multiple stores, or if you have multiple offerings, it just depends on what size and what scope you have for your business. And also very other key piece of what your financial analysts can deliver is when you go into your annual budgeting, when you're working with different department heads, different team leaders, senior executives, and you're trying to figure out what next year's annual budget is going to what your next year's annual budget is going to be, then you can match up that financial analyst with those team and department leaders. And then you can start to analyze what your budget requirements are, and match that to deliverables that they have to best resource that department or team. Now we're not just going to throw the same old money at the same department year after year, we really want to do some deeper analysis to really understand what their deliverables are, and what are the appropriate resources are required to meet or exceed that deliverable. Now, things may be changing from year to year. So that's why it's essential that you have a financial analyst who can reach out to people who can also partner with leaders and figure out what their requirements are, and so that you can match resources to deliverables. And that way you have a better application or a better distribution of the resources you have for your business. Now, I want to dig into a little bit of the data. And what the data can do for you. We talked about a little about this a few minutes ago. Now you have to collect data around your transactions, that's also around your sales that's also around your expenses. So you can start to get a pool of data that you can use to analyze to find a better way to use those resources. Now I'm talking about time, and place product or service. And also if you can really start to dig in those costs. Anywhere you can calculate margin and the prices you have anything that you believe that can provide substantial relevance to help you understand that transaction. And then when you put together all of the transactions, it will help you get a good feel a good view of what's going on with that transaction. And that way, you can start to find those patterns and those insights and more relevant data you record the better information and knowledge you will be able to derive. And again through data, you can find patterns, and you can find insights. And you can leverage that and take advantage of that in order to provide the best product and service at the right time to best offer. And also you can find a way to save money for your expense lines, you can find advantages and ways to increase revenues. And then make special offers and know when it's best to offer your products. Your database can reveal key information leading to insights and knowledge. It will also help you determine if you can calculate incremental revenue for a new product or service. When you have all this information in your database. When you want to offer a new product to service, do a little bit of a projection and determine if that new product or service will deliver additional revenue. And then you can make that decision a little bit more easily when you start to do the comparisons. And you can evaluate whether your offering is better even evaluate whether you should not even make the offer at all. And I'm also assuming that you have a robust financial information system that is collecting critical data. Again, I'm usually looking at this podcast from a corporate finance and accounting team perspective, it may be a little different. If you're a small business, you may not be collecting all the information that really helps you make these kinds of decisions. But this is something maybe if you are a small business owner, if you're listening to this, maybe this is something you need to think about going forward when you're ready to scale your business. Are you ready to go to that next level? Is that how can you collect this kind of information? It's possible, you may have a lot of this information already been distributed to another to other systems or in other ways. You just got to figure out where that information is stored. Now what's the characteristic and the skills you're looking for? In a financial analyst, I will always advocate for strong soft skills when hiring anyone Why choose a highly technical skilled individual who ruin your team due to their lack of emotional intelligence? I believe that strong soft skills like time management, communication, public speaking, adaptability, creativity, persuasion and influence, and then that they can effectively collaborate on a project and works very well with others. And maybe this isn't always a good matchup, you know, you want to go for that person who knows how to use the spreadsheet, who knows how to pull data from a database, who knows how to put together some information and maybe there's not always a good relationship between highly technical skills and those strong soft skills and I'm talking about especially working with others or who can effectively collaborate You're not going to probably find that person that has all the skills together. So you're going to have to make decisions where you're willing to compromise, you want to go for that really strong, technical skilled person who really likes to make that spreadsheet formatted properly, who really knows how to use all those functions, but I really want you to start looking at how do people interact with others, and how they speak with others, so that they can use those numbers to then influence a better outcome for that department or team that they're working with. And then a better outcome for the company as a whole. And that's gonna take a little bit more time to analyze for when people come and you give those interviews and you talk with them, to really see if they're the type of person who can partner and collaborate with others to make a project really get done really well, in order to get that good strong analysis, but also that influence to go to that next level, we can always teach stronger analytical and Excel skills, we can also arrange for more training. Now the person who knows how to put together some formats and some projections and knows how to use the spreadsheets and gives them fulsome data, we can make them better, and we can make them stronger. Sometimes when you're talking about soft skills. Sometimes it's just internal and something that people just have, and they're never going to get it and never going to be able to manage their time, well you can teach them. But that's why you need to really go beyond in that interview, or in that screening for your applicants for these positions to go beyond just asking them whether they know how to do a VLOOKUP or know how to do a projection. They know how to graph some information, you know, need to go beyond just asking the questions around their Excel skills. Now, again, if you want a small business, when and why should you hire an analyst now it really comes down to when you're deciding to scale go to that next level, and you're going beyond that one or two person shop where you're going to be able to need more tools, and more ways to deliver that service than the what you used to do. Because probably as a one or two person shop, you are probably delivering that service and that product personally. But when you go to the next level, you go to scale your business, you're going to have to create systems. And that's where that financial analysts can help you dig into some information because you as the business owner should be focusing more on running your business, instead of delivering, there's going to be a certain point when you are as a small business owner, you're the one delivering that service and that product, probably doing everything within the business. But then as you grow your revenues, and you decide you can't deliver the same product and service and then go two or three and four times revenue that you're earning, you're gonna have to start bringing in some people, create some systems, and create some ways that your staff can help you better to grow that business. So when you're looking at it from a small business owner, instead of working inside of your business, you need to be looking on how to best make this business go to that next level. And that's what that financial analyst can help you go to that next level. Now how to set up your analysts for success looking at this from the corporate perspective, which they may be able to have more resources of that small business, they need an IT system that can capture and consolidate transaction of business data, that financial analyst also needs training opportunities to grow their skills that includes methods and how to leverage the financial IT system that you're using. And also, they need opportunities to present critical analysis to senior leaders and executives. Because you also want to be able to grow this person and just go beyond what they're working with every day with the data you need to be able to grow their skills and grow their opportunities to influence across the company. Now based on what I already talked about, I want to go through briefly three areas that the financial analyst can help the business and help grow it now number one is that they figure out the why and the how regarding all the metrics in the lines of business, they can help find patterns to take advantage, they can determine the real costs and find ways to save resources. And also they can analyze and project based on analytical testing, your financial analysts can really dig into the why and how regarding the transactions that are going on from period to period, your accounting team is going to drop transactions just in a buckets, they're going to do their analysis. At the end of the month. They're going to consolidate all the revenue, they're going to consolidate all the expenses and they're going to create financial statements that you need. But your financial analyst can then dig into that data and determine patterns and find out how things happen and why so that you can make better decisions so that the C suite and the senior leaders can make better decisions going forward for the best of the business. Now number two, we're going to take this a little bit further and that's talking about validating the strategy after figuring out the why and the how to your transactions. Your financial analyst can work with the executive team to analyze metrics to validate the current strategy and then down the road. When it's time to evaluate whether that strategy is working, when you've given it enough time, and you have enough data to really figure out what's going on, then your C suite team can make decisions, whether they should make a shift in a strategy, you know, look at whether the products and services that the company is delivering is the right mix of services and products, so your financial analysts can then partner with them to see where the business is going and then validate whether that strategy is working. And also your financial analyst can work with the executive team to see which metrics are best and and also what analytical testing can help determine if the solution is working for the overall strategic plan. And the third item is to help leaders understand their numbers better. And I believe in partnering throughout the company that a lot of the information that I give you on this podcast is that finance and accounting professionals need to be partnering with senior leaders around the company because I believe that partnership will deliver better results for the company in the future, a financial analyst can help a department leader understand and measure their key metrics or cost or revenue drivers, which can then lead to better results. They can talk about insights and methods to improve in areas that are lacking and also assign resources better to maximize and leverage whatever they are targeting whatever their metrics are, I believe that partnership will deliver so much in the future that you've got to make sure you have time. And you've got to grow your team to understand how important this is have the regular meetings have the regular discussions around the company, you create that partnership, you create that trust, and then you have that relationship where you can talk numbers very freely. And then you can do that analysis that really that honest broker discussions to see if that department that team, that product or that service is really meeting the expectations of the executive team or those expectation of those owners out there. The expectation of the customers that you have that can only be done if you have an effective partnership with senior leaders around the company. Now I want to tell you just a brief story. And when I was serving in the Pentagon as a financial analyst for the army, I was given a task to analyze costs. That was not easily found in the database that we use regularly, I had to seek out alternative sources of data and then speak to many different people. To capture the key data that I was asked to look at. I discovered numerous sub systems that had recorded critical data and I ordinarily didn't have access to also I had to extrapolate some information ventually I was able to answer the problem I was assigned, but I had to get resourceful on finding the data and then how to use that data. That's what a financial analyst can deliver to an organization. I have a free guide for you. It's called the leadership growth blueprint for finance and accounting managers. In the guide, I talked about three leadership areas communication, Team growth, and empowerment. Plus a few recommendations around challenges with the systems you are probably using to complete your work. The link to the guide is in the episode description. Or you can go to Steven mcclane.com. Please use it to help you with a few leadership wins today. Thank you. Now for an easy win today. How is your organization using the financial analysts? Are they helping to better understand the business to patterns in its activities so you can grow revenue and save on expenses. This episode is sponsored by my new online course offering through finance leader Academy. It's called advance your finance and accounting career. Developing a promotion strategy that will set you apart are you having difficulty getting recognition from your leadership? Despite all the hard work you pour into your job and your organization. This course helps you analyze what you bring to the organization how you can set yourself apart from your peers. So you high visibility work and developing your leadership skills. Plus how you can devise a strategy to move ahead, you can go to Steven mcclane.com. For more details today, I highlighted three ways that your financial analyst can help the business number one is to figure out the why and the how regarding data around your financial transactions. Number two, help to validate the strategy through the analysis of key metrics. Number three, to partner with senior leaders so they better understand their numbers. Next week I'll be talking about profitability. I hope you enjoyed the finance leader podcast I am dedicated to helping you grow your leadership. I hope you enjoyed the show. You can get this episodes wherever you find podcasts. Until next time, you can check out more resources at Stephen mcclane.com and sign up for my updates so you don't miss an episode of the show. And now go lead your team and I'll see you next time. Thank you