Why conducting financial analysis is important for business recovery

With the economy starting to rebound post COVID-19, it’s timely to draw on the best available insights to propel your business’s recovery. The choices you make over the next few months may well define the future of your business.

Good financial analysis will help you to clearly understand where your business is currently positioned, and will allow you to make the smart decisions to help you get where you want to be.

Why you need financial analysis

A successful business is a solvent and profitable business – and conducting a detailed financial analysis helps you build that. A thorough analysis provides you with the information you need to make informed, effective decisions for your business.

That capability is vital during periods of upheaval. When events such as COVID-19 strike, they can expose underlying vulnerabilities in your business. Like a broken bone, you might feel it – in falling revenue or reduced conversions/foot traffic – but you won’t know the true impact until you examine it. Undertaking a good financial analysis allows you to map the exact effect on your business now and into the future.

Proper assessment is crucial as unforeseen events can not only affect your short-term profitability, but also your long-term goals. Your financial analysis should provide the data needed to update your forecasts and re-examine your business, giving you the best possible chance of success. Examining how scenarios such as a 20 per cent drop in sales or another COVID-19 lockdown would affect your business, offers an opportunity to prepare for these events and enable you to build measures that can lessen the impact on your bottom line. It may also demonstrate how creating a buffer in cash reserves could save your business in times of sudden crisis.

This process can also reveal any structural weaknesses in your business. The fact is, even if your business is strong enough to weather a disruption, your debtors may not be. When a crisis strikes, you might be owed money you simply might not be able to collect. How many of your customers are likely to fall behind on payments during a crisis? How will that impact your cash flow? Are your cash reserves big enough that you can extend their repayment times, or is your business going to crumble because they missed a deadline? Having conducted a comprehensive financial analysis helps you answer these questions and assists you in planning what to do next.

It is important to view financial analysis not as a once-off event, but as an essential tool to all decision-making. Maintaining a rolling financial forecast will allow you to understand your cash reserves, cash runway and your projected revenue at a glance, enabling faster, more confident decision-making. This includes decisions on how driving rapid growth in your business can be balanced with working capital requirements. Combined with an awareness of your customers, your competitors, and the market in general, you will be able to rapidly make decisions as challenges and opportunities arise.

Why you need an independent financial analyst

Having an independent analyst to assist with financial analysis and modelling of your future cash flows can add a lot of benefit to your business. Firstly, it allows an ‘outsider’ to provide an impartial view of your business, ask critical questions and challenge certain assumptions and decisions, which can be very valuable. At times, business owners can have a biased and narrow view of the business, as they may not access to other resources, particularly if they are sole decision makers.

While ongoing financial analysis is essential to every business, few conduct assessments as frequently or as thoroughly as they should. All too often, this crucial task falls victim to a lack of expertise or resources. Smaller businesses may lack the expertise to examine their own financials, or busy business owners may lack the time and the resources to step away from their core role to take on analysis themselves. An independent analyst can help you get out in front of the issue.

On top of that, an independent analyst helps you avoid the biggest pitfalls involved in doing your analysis yourself. While being optimistic about your business is normally a virtue, excessively bullish thinking can be a handicap when running an analysis. Frankly, while you may always be looking at best case, reality can often fall short of the ideal. As an independent consultant, your analyst will be able to come in and ask the important, critical questions you need to hear to properly prepare your business, challenging the decisions that you and your team make to ensure that you’re always building towards success.

At Bentleys, our financial analysts have experience asking the hard questions. As your trusted advisors, we can help you prioritise your business’s needs, address the issues that are keeping you awake at night, and build a realistic and achievable plan for business recovery.

Draw on financial expertise, commercial acumen, and tax insights to ensure your business is truly ready for the future. Speak to a Bentleys advisor today.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decisions based on this information.

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