Financial analysis — an opportunity to prepare for market shocks in good time

Will it be possible to maintain turnover at the usual level this month, or will we have to apply for downtime benefits? To what extent have global disruptions affected our company's operations, and should we already start preparing for staff layoffs?

The global pandemic has forced entrepreneurs to look at financial analysis in a completely different light. While many companies, especially small and medium-sized ones, previously did not place high value on tools that provide the ability to track company cash flow in real-time and examine development scenarios from different perspectives, these became critically important in a crisis situation. Companies that were able to more accurately forecast the impact of the emergency on their business were better prepared for difficulties and found it easier to weather the challenging times.

Analysis-based decisions

At the height of the crisis, a US-based Burtch Works survey found that 43% of companies there always perform financial data analysis before making important decisions. For 26% of companies, the workload of data analysts increased significantly during the pandemic, as management sought to gain the broadest possible understanding of what was happening in the market and within the company.

What are the main benefits of financial analysis for a company? Primarily, it is tracking changes in cash flow. Cash flow is often called the lifeblood of a company, and the company's "state of health" largely depends on it. In normal situations, it is enough for small companies to summarize information quarterly or even annually to understand if they are managing to "make ends meet," but in a rapidly changing environment, it is easy to miss the moment when cash outflow must be stopped. Otherwise, the moment soon arrives when one must choose between paying salaries or taxes, because there are simply no longer enough funds for everything.

What awaits us?

Playing out various scenarios plays a very important role. This helps to understand how severe a blow the company can withstand and what fate awaits it in the event of certain consumer behaviors. How do market changes affect production and delivery? Is there enough stock in the warehouse, and how long will it last as production volumes and demand change? Which products are in highest demand, and for which is interest declining? Using data analysis, one can understand which positions can be cut, which are ready for automation, and what potential profit segments remain untapped.

In other words, by noticing dangers in time, an entrepreneur can "hit the brakes" and save themselves from trouble before it begins. If situation modeling shows that revenue will drop dramatically, investment plans can be halted in time, credit holidays can be requested, or raw materials can be purchased in smaller quantities.

In the latest generation of business management tools, modeling is largely handled by artificial intelligence solutions. They are not only capable of handling huge volumes of data in a short time but also of taking into account the influence of various factors and, ideally, identifying current real-world events. By putting all the information together, artificial intelligence plays out highly plausible scenarios that could affect the company's operations and, consequently, its cash flow.

A finger on the company's pulse

Burtch Works survey found that in recent months, entrepreneurs have asked data analysts to compare current cash flow changes with data from 2008–2010. "Benchmarking" against the previous major crisis provides an opportunity to assess the severity of the situation and understand how serious an austerity policy will need to be implemented this time.

Larger companies have measured how many employees are ill and unable to work, how this will affect revenue, and whether orders will be fulfillable at all. Companies have also calculated how they will be affected by paying for sick leave, sending all employees on paid leave, closing the business, and other similar problem-solving measures.

In calmer times, financial analysis can also be used to track the execution of the annual plan. If, for example, a 10% increase in turnover is planned, but after six months the data shows that actual growth is lower, management can make a timely decision to intensify sales, improve the products or services themselves, or work on brand recognition.

Financial analysis capabilities are offered only by the most versatile business management systems, such as Tildes Jumis Pro. It provides not only many ready-made reports in various areas but also data analysis by month and year, employee, and structural unit. In keeping with the spirit of the times, the cloud solution Tildes Jumis Pro We plan to leverage artificial intelligence capabilities to, for example, categorize incoming invoices. Currently, in test mode, this feature demonstrates 93% accuracy, and in the future—once fully implemented—it has the potential to significantly accelerate the work of accountants.