What Is Financial Analysis and Why Is It Crucial for Your Business?

Currently, more than 487,000 financial analysts work throughout the United States. The field is growing at a rapid rate, too.

Why are so many businesses investing in the help of financial analysts? Do you think your small business could benefit from this kind of assistance? What is financial analysis?

Read on for answers to these and other important financial analysis questions.

What Is Financial Analysis?

Financial analysis is all about evaluating a business, as well as its projects and budgets. This information helps business owners to get an idea of how well their company is performing from a financial standpoint.

An analyst can help business owners to determine if their company is stable, solvent, profitable. This information, in turn, lets them know if they’re in a good position to make certain investments and decisions.

Benefits of Financial Analysis for Small Businesses

There are lots of reasons why businesses, especially small businesses, can benefit from financial analysis services. The following are some of the most noteworthy benefits these services have to offer:

Stay Informed

As a small business owner, you have a lot of hats that you have to wear. With so much going on each day, it’s easy for things to fall through the cracks, including financial information.

When you work with a financial analyst, you can stay informed about the status of your business’s finances. This includes the following:

  • Staying current on your debts
  • Keeping track of your company’s inventory
  • Understanding your ratio of debt to equity

These are pretty important details, aren’t they? For those who aren’t particularly financially savvy, outsourcing the management of this information to a professional is essential. If you don’t have the time or desire to become a finance whiz, let an expert take care of these matters instead.

Determine Profit Margins

When you work with a financial analyst, it’s also easier for you to determine your business’s profit margins.

Knowing how much money it costs to produce your product will help you to get an idea of how you measure up to other businesses in your industry. This information will also be important to potential investors when you sit down to meet with and pitch your business to them.

When you know your business’s profit margins, you can also get a sense of where you stand and whether or not you need to improve. This will help you to make decisions that can increase your bottom line over time.

Monitor Progress

Speaking of increasing your bottom line over time, a financial analyst helps you to monitor your business’s progress. They’ll also ensure you’re moving in the right direction.

An analyst will provide you with useful data and check in with your finances on a regular basis. They’ll be able to pick up on patterns quickly and alert you to any potential issues early on.

This, in turn, will help you to correct problems sooner. You’ll also be able to prevent them from growing into serious challenges that could threaten the success and stability of your business.

Take Back Your Time

It’s no secret that business owners are busy people. Even if you are financially savvy and understand the basics of managing your business’s money and making smart investments, you might not necessarily have the time to carry out all of these responsibilities.

Outsourcing financial analysis to an expert frees you up to focus on other areas of the business that need your attention and no one else’s. It allows you to take back your time, establish a better sense of work-life balance, and keep the needle moving forward.

Get Expert Advice

It never hurts to get insight from an objective expert. When you’ve poured blood, sweat, and tears into getting a business up and running, it’s sometimes hard to see the forest for the trees. You might not make the best financial decisions because you’re set on doing everything you can to keep things going.

By working with a professional, you’ll be able to get help from someone who understands the ins and outs of business finance. They’ll be able to look at the situation in a neutral way and provide you with objective advice, free from emotion or attachments.

Make Smart Decisions

On this same note, an analyst will help you to make smart financial decisions. They’ll let you know whether you should spend money on a particular service or expansion, they can help you present a strong message to investors, and they make it easy for you to plan for your financial future.

Working with an analyst provides you with the information you need to make good decisions now and years down the road. When you spend a portion of your business’s money on these services, you’ll be able to feel confident that it is set up for long-term success.

What to Look for in Financial Analysis Services

At this point, you’re likely convinced that financial services are worthwhile. You might also be wondering, though, what you should look for when considering investing in these services.

Here are some factors to take into account when you start evaluating your options:

Software vs Professional

One of the first things to take into account when you’re shopping around for financial analysis services is how you want to experience the benefits of these services. One option is to use financial analysis software, and another is to work with a professional, either in-person or remotely.

If you choose the former option, you will invest in a program that evaluates your finances and provides you with recommendations based on the information that you input. This type of program is often more affordable than hiring a professional. They’re also less personal, though, and aren’t as flexible or adaptable as an analyst who is part of your staff (or whom you hire on a contractor basis).

The latter option involves working with an analyst who looks over your financial statements and provides recommendations on a regular basis. When you bring a professional onto your team or hire them as a contractor, you get more personal advice. You will likely pay more money, but the information and recommendations delivered to you will likely be more detailed and better aligned with your business’s needs and goals.

The folks at Click and Mortar Accounting recommend working with professional either in-person or remotely. There are lots of services that will connect with you over the phone or via video chat so you can get advice without having to arrange for them to travel to your office (or you having to travel to theirs).

Compatibility

Compatibility is essential when you’re investing in financial analysis services. If you’re choosing to take the software route, compatibility looks like a platform that’s easy to use and doesn’t come with a steep learning curve. It also means your software will have features that align with your business’s financial goals and provide you with relevant details.

In the case of hiring a professional analyst, compatibility includes getting along well with the person you bring onto your team. If you’re going to be working closely with them and having them make recommendations about the way you manage your money, you ought to like them and trust them, right?

Budget

How much can you afford to spend on financial analysis services? If you’re working with a limited budget, as many small businesses are, it might be in your best interest to spend your money on financial analysis software. These programs often come with lower costs and can provide you with helpful information without breaking the bank.

For those who have a bit more of a budget to work with, it can be worthwhile to invest in bringing an analyst onto your team or making plans to work with them on a consistent, contractual basis. Hiring an analyst isn’t cheap, but there’s a lot of value that comes with working with someone regularly who knows your business and your goals well.

Reviews

Finally, what are people saying about the services in which you’re thinking about investing? With software services, it’s fairly easy to find online reviews that provide you with insight into other people’s experiences and help you narrow down your options.

As for hiring an analyst, some professionals also have reviews available online that you can peruse before making a decision. You can also ask each candidate that you’re considering for references. Then, reach out to those references and find out what their experience was like and whether or not they’d hire that person again in the future.

Invest in Financial Statement Analysis Today

You can now answer the question “What is financial analysis?” with ease. As you can see, also, there are lots of benefits that come with investing in financial analysis services. These benefits are available to you whether you hire an analyst to join your staff or use financial analysis software.

Keep this information in mind as you start shopping around for the right services for you. If you want to learn more about managing your company’s finances, check out some of the other business-related articles on our site today.

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