With their deep-rooted understanding of a business’s strategic objectives, chief financial officers (CFOs) are in the best position to lead digital transformation initiatives. This includes the use of finance analytics in making decisions to drive business performance.
Recent technological developments propel CFOs to reshape their roles in business. From being stewards of historical reporting and compliance, they have metamorphosized into strategic advisors who provide insights on making critical decisions.
A report from Sage called The Redefined CFO stated that over the past months, the level of responsibility of finance leaders has increased across a range of areas. Of the CFOs who participated, 81% said their responsibilities now include strategy and future planning. Finance itself is cited as the area most often found to invest in analytics.
Traditionally, CFOs are already relying on data to do their jobs — a responsibility that equipped them with deep analytics expertise over time. Thus, it comes as no surprise why business leaders are looking up to finance chiefs for actionable insights.
For the same reason, CFOs should now be open to embracing the use of financial analytics and other emerging technologies. As an overview, these tools will allow them to:
- process data efficiently,
- generate accurate financial statements,
- deliver reports in a visual and easy-to-understand format,
- discover the latest trends,
- give fact-based advice to key stakeholders, and
- empower other business leaders in formulating effective strategies.
In the succeeding sections, we discuss further how CFOs can leverage finance analytics to drive business growth.
What is finance analytics?
Finance analytics, or financial analytics, provides a detailed and easy-to-read overview of a business’s financial performance. Reports are presented through dashboards and data visualizations by compiling volumes of historical finance and accounting data.
CFOs can use the aggregated information to discover and understand patterns — and successively, add context to such discoveries to transform them into actionable insights. With these insights, the finance team can guide key stakeholders in facilitating strategic business decisions.
Finance analytics also helps in maintaining a single version of truth and breaking down silos within the organization. This keeps all departments’ understanding of the company’s financial status intact and unified. At the same time, it lets them align their efforts with projects focused on improving profitability, cash flow, business processes and the overall value of the business.
A survey revealed that data-centric organizations are 58% more likely to surpass their revenue goals. In another survey, firms with advanced insights-driven capabilities are 2.8x more likely to attain double-digit year-over-year growth compared to firms that are only starting to implement analytics.
Finance analytics in action
With finance analytics, the finance department can address business concerns with ease, speed and accuracy.
Here are some examples of how a finance chief can use finance analytics:
1. Recognize issues promptly
Finance analytics provides real-time information to CFOs. They can use it to uncover patterns, identify irregularities in financial data and foresee its implications that can be addressed right away.
But what if CFOs continue to rely on spreadsheets and disparate data sources instead of cloud-based financial analytics?
If this is the case, business data can be more prone to errors, which is the common reason for inaccurate decisions and delayed actions.
Timely visibility into key business information is crucial to make faster and smarter decisions that can drive business growth — and this is exactly what finance analytics provides.
2. Improve revenue forecasting
Advanced finance analytics tools can integrate financial data with relevant data from other departments (e.g., marketing, sales, supply chain, business development, compliance). Through this, the finance team can better forecast revenue and predict future demand for products and services. It also empowers them to respond faster to changes in the marketplace that can directly affect business operations.
3. Assist in making critical business decisions
With their first-hand access and deep understanding of analytics, CFOs can assist all business areas in making more informed decisions. At the same time, they can exercise their authority in making significant business decisions.
4. Understand supply chain and inventory
Any supply chain and inventory disruptions can prevent finance from making accurate projections and forecasts. But with real-time data from finance analytics, they can understand how their supply chain operates, its impact on cash flow and operations and the ways to mitigate its risks.
5. Identify and analyze customer profitability
Which customer segments deliver the most profits to the business?
Modern finance analytics tools provide valuable insights into the customer database. It serves as a good starting point in identifying highly profitable customers and the factors affecting profitability. Businesses can use these insights to give more value to their profitable customers and, at the same time, extend more effort to identifying why some customers are not as profitable as others.
Meanwhile, marketing and sales can consult CFOs to figure out effective strategies for targeting new customers that resemble the same characteristics as their profitable customers.
The usefulness of finance analytics depends on its users
So, you’re using finance analytics — that’s good. But are you reaping its benefits?
Here’s a better question: Are you using it correctly?
Gartner asserted a bitter reality. That is, misusing finance analytics can cost you as much as 1% of revenue per decision. As it adds up, it can lead to a substantial business loss over time.
But how and why does it happen?
Its primary cause is often attributed to the lack of knowledge in using this tool correctly. While enforcing stricter policies and controls can work, it’s not a feasible long-term solution.
Instead, what finance chiefs and data managers should do is collaborate with all potential users in defining, developing and applying finance analytics to their work processes.
Establishing clear roles and responsibilities in data governance is also a workable solution. Together, finance and other concerned stakeholders can work together to create intuitive reporting formats that can be understood even by those with little background in finance and analytics.
Work with our analytics experts
Do you need help in implementing finance analytics? Our CFOs and accountants have deep expertise and experience in extracting valuable insights from business intelligence and data analytics.
To learn more about our analytics-based accounting services, schedule a free consultation with our in-house experts. You may also download our whitepaper, The Rising Frontier: Harnessing The Power Of Business Analytics, to know how we can leverage data to your advantage.