This blog is going to talk about 7 key insights you can get from analyzing your financial statements. These are all things that I have learned while working in the field of finance and accounting, but they also apply outside of this context so there’s no reason why everyone shouldn’t read them too!
A financial statement analysis is a detailed look at a company’s performance. It can give you the insight you need to make next steps in your business.
Only around 10% of all organizations, according to a recent research by consulting company Bain & Company, are capable of generating sustainable, profitable, and continuing growth. You’ll need to pay close attention to your financial accounts and make a few tweaks to guarantee that your company can compete with this brilliant crew.
Begin by analyzing your cash flow statement, income statement, and balance sheet on a regular basis. Check out this guide if you’re not sure where to begin or what to look for while doing this sort of evaluation.
While checking through your financial statements each month may seem like a chore, they may help you have a better picture of where your firm is and what adjustments you’ll need to make to achieve your objectives.
Even if you have a financial adviser on your side, it’s still a good idea to take a thorough look at your personal finances, particularly if you’re searching for methods to expand your company or are considering a major purchase.
We’ll go through seven of the things you should be searching for in this post. Making a single minor improvement in your company practices may have a cascade of good consequences that spread out over time. You’ll be kicking yourself for not doing it sooner after reading these 7 critical insights you may acquire from your financial accounts!
1. Outsourcing possibilities
In order for your company to reach its maximum economic potential, you’ll need to decrease expenses in every manner possible. Outsourcing finance and accounting chores to trained specialists may reduce overall expenses while also improving overall quality—and you may discover that there are additional repetitive tasks that you can outsource to save time and money.
Accounting, systems administration, and financial reporting are some of the most common functions that are outsourced. In fact, according to the Bain research, 85 percent of the 10 percent of enterprises that were judged financially sustainable used “capability sourcing” or other strategic outsourcing strategies.
Keep an eye out for duties that may be done by someone outside of your organization when you study your financial accounts. Outsourced organizations will do the tasks that you are unable or too busy to complete, allowing you to devote your time and attention to other aspects of your company.
2. Potential tax benefits
There are hundreds of different tax deductions available for companies, many of which may have a significant influence on your bottom line. You may increase your profit margins without making any structural changes if you make an effort to be “tax savvy.” It’s also crucial to stay on top of tax law changes since they might have a distinct impact on your organization each year.
Examining an expenditure report may assist you in identifying essential things that should be subtracted from your company’s reported revenue. These expenditures may range from transportation to marketing, with professional lunches accounting for up to 50% of the total. Keeping track of your receipts throughout the year can help the deduction process go much more smoothly. 
3. Fraud indicators
Even if your company is tiny, there will always be the possibility of fraud.
Consider the following steps to reduce the risk of financial information being compromised:
- Ensure that you examine and open any private material yourself.
- Separate the most important financial duties (billing, deposits, accounting, etc.)
- When feasible, set up automated bill payments.
- Establish a clear set of accounting processes that are standardized.
- Regularly evaluate your financial statements.
Fraud prevention is a continuous effort; the longer you wait to reconcile your records, the more likely fraud will go unreported.
4. Expansion possibilities
If you’re like most business owners, you undoubtedly want to see your company develop and expand over time. Regardless matter whether you’re buying an office, launching a new location, or trying out a new product line, the timing of your growth is crucial.
Your financial accounts will show you whether or not growing your firm is a viable option. Profit margins, debt-to-equity ratios, and future cash flow estimates (subtracted from cash flow statements) will all be important. Working with an accountant or business counsel may assist you in making more objective interpretations of this data.
5. Extraneous costs
Ideally, your company will have already removed all unnecessary costs. Most yearly reports, on the other hand, disclose that a company is paying for the same results many times.
Many of these inconsistencies will not be obvious until your company’s records have been properly classified and measured. Changing your personnel structure, operational decisions, and other processes may have a significant impact over time.
6. Achieve accounting balance
Accounting balance is essential, as any accountant can tell you. There is almost always something wrong with your accounts if your assets do not match your liabilities + owner’s equity.
Inaccurate data, wrongly classified entries, and even certain acts of fraud may all be indicators of a lack of accounting equilibrium. Whatever is causing this problem, it must be addressed and remedied as soon as possible.
If you’re still conducting your accounting in spreadsheets, you may want to consider investing in specialist accounting software like QuickBooks or Xero (or not at all). This will aid in the management of your sales and costs, as well as the tracking of daily transactions.
7. Automation possibilities
In addition to continually watching for outsourcing options, your company should be searching for ways to automate. You’ll need to do a full analysis with opportunity costs in mind to evaluate if automating is good for you.
Every year, your company should do an internal “audit” in which you carefully assess new technology—machines, software, the internet of things (IoT), and so on—against your present operational demands. While automation isn’t always the greatest option for your company, it is often one of the most cost-effective strategies to gain a competitive edge.
Conclusion
Your financial statements, which comprise a balance sheet, income statement, cash flow statement, and other items, are much more than a formality. They depict the current state of your company, as well as its weaknesses and most valuable aspects.
You may become one of the 10% of firms that have achieved complete financial viability by taking the time to thoroughly evaluate these statements yourself. 
Watch This Video-
The “vertical analysis” is a key insight that can be gained from analyzing your financial statements. It’s important to analyze the verticals of your company to see how they are doing, and if there are any changes that you should make.
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Frequently Asked Questions
What can you learn from financial statement analysis?
A: Financial statement analysis is a way of figuring out the financial situation and health of an organization by looking at its balance sheet, income statement, and cash flow statement. This can be used to find trends in how well or poorly an organization is doing financially as well as what potential future risks it may face.
What is the importance of analyzing your financial statements?
A: In order to properly analyze ones financial statements, it is important that they are able to look at their income and expenses in the context of what has been happening throughout the past year. This allows an individual or business owner to better understand how money flows within their organization so that any potential problems can be caught and addressed early on before they become too big for easy fixes.
What are the key items on a financial statement?
A: The key items on a financial statement are revenue, expenses and the difference between these two numbers. Revenue is how much money you make in your business, while expenses include things like employee salaries or office rent.
Related Tags
- financial insights
- financial statement example
- horizontal analysis