Profitability Analysis

Most people think that this is the easy part of running an organization. Yet it is often ignored because usually the financial results are not available until after the fact. An Outsourced CFO can provide four resources to advance this analysis.

The first one is to streamline the Financial Statement process in order to have interim statements available while the data is still fresh and something can be done to improve the operating results. It may be as simple as downloading Banking statements instead of waiting for mailed statements, or streamlining the Expense Accrual process, or automating the Payroll and Accounts Payable processes. Often a fresh set of eyes can find ways to streamline a process without compromising the integrity of the results or violating standards of Internal Control.

A second resource is the ability to determine what drives the business process and how can we measure it. As an example, If we know that our Sales Force needs to average 15 appointments per week to land enough sales to continually grow Revenue, then reporting weekly activity as well as process results can help decision makers to direct the organizations efforts to be more profitable. Or the CFO maybe able to analyze a Not for Profit’s contribution patterns and establish what activities drive donations.

The third resource the CFO can bring to bear is the ability to create models that allow a small amount of data to forecast results. This is very important when an organization is considering making a major change to its processes in order to have an idea what the impact the change will have on sustainability of the organization. Sometimes these models can substitute for the interim Financial Statements for more real time decision making.

Fourthly, the CFO can provide historical trend analysis to the data to help identify what story the recent history is telling us.

I was once the Finance Director of a Not for Profit, our accountants were producing statements showing the changes in expenses from last year compared to the spending for this year. The variance was almost 50% and caused a good deal of concern for the Board. However, the analysis was not complete, it failed to show that we were serving 90% more people and generating 65% more Revenue than the same period of time in the previous year. So if Revenue grew by 65% while expenses only grew by 50% (assuming we ended the prior year at no worse than Break Even) than that is actually a Good Thing. Adding a small amount of data to the report gave a truer picture and allowed for better decision making.

Do you really understand what drives your organization? Are you able to get the full picture in a timely manner? Do your Financial Reports generate more confusion than clarity among your Board or Bank? Perhaps now is the time to invest in the resources that can lead your business into the future.