The process is automated and uses your own format to see and understand the data
I like to visually see the company financial results. I look at the main financial statements, which include the income statement, the balance sheet and the statement of cash flows and using consecutive periodic reports (monthly) I compile a set of comparative reports. So now I have a column for each accounting period, for example: if I just received the actual accounting results for the sixth monthly period in a given year, I end up with six columns of data, side by side.
Using that data, I can compare each period to the same period in the previous year, period over period change, and so on. With all that data I can graph the results and visually see changes and trends. It is much easier for me to relate to visual output than to just numeric representation of the data in rows and columns of a report. I imagine many finance professionals and managers are the same. Sadly, a lot of companies still don’t have the right tools to perform this data visualization or perhaps, their tools are not fully implemented or use older technology that does not exploit the new advancement in data processing and analysis.
Taking these activities, a step further, I add periodic columns of forecasted data by using the output of my FP&A software. I can now compare actual accounting data with forecasted values from my budget, side by side with a variance column to the right of each period. I can also compare this data using an asymmetrical report, such as 5 periods of actual data followed by seven periods of budgeted data. I can do this with or without looking at the same periods a year ago.
This sounds like a lot of manual work and in reality, if you do this manually or even using a spreadsheet, it is a lot of work and you are risking having material errors and possible data omissions. But I am not using a manual process. I use a modern-day FP&A solution where analytics is an integrated module which works with both budget data, perhaps multiple versions of the budget and also with linked actual data from the accounting software GL.
These modern solutions can solve many of these manual systems or spreadsheet challenges. First, it is directly linked to the accounting or ERP software GL. At each period end, GL account balances and optionally transactions that occurred in each account are automatically transferred to the FP&A software, to reside in its own database. The same database houses all budget versions and what-if scenarios. From there it is loaded into the analytics module, retaining all data dimensions, or any structure used by the accounting GL, automatically, and with no human data entry or manipulation. This immediately equates to no errors, improved speed and completeness of the data.
Now that the data resides in this analytics database, using pre-existing formats, easily built and maintained by the end user, the data populates these templates and generates the reports needed to understand the data, how and why it differs from budgeted or other forecasted data.
So now your data is placed in your reporting or visualization template ready to look at. Without any additional work you can see your actual accounting data, representing actual results and overall company performance, compared to other data in various meaningful ways: Actuals to actuals for similar periods in different fiscal years, quarters or months, actuals to budget and so on. You are only limited by your own requirements (or imagination).
If you are like me, you will probably use a lot of data visualization, charting the data in ways where you can easily spot trends, departures from acceptable values, etc. As I have written in this blog before, this is a great way to build an analytics workbook where you can display all of your financial ratios or combination of ratios, perhaps implementing your lender’s analysis of your specific financial loan covenants. This will enable you to insightfully predict the future financial health of the organization. If you look at different versions of the budget you will further be able to see how each version affects this forecasted financial health.
There are many ways to use the analytics module within the FP&A software solution. Most importantly, take advantage of the user-friendly self-serve capabilities of these systems and continue building your analytics workbooks and dashboards. All you need now is data.
Alan Hart, MBA, is Principal Consultant at Pacific Shine Group in Portland, Oregon, with responsibility for client business development and hands-on client project implementations. Prior to starting Pacific Shine Group, he worked in various executive accounting and finance positions with technology and growth companies. Notable is his 18 years in the hi-tech manufacturing industry where he served as Controller, Vice President of Finance and CFO of several privately as well as publicly held companies in the Hi-Tech industry, such as Hybrid Arts, Inc., Hamilton Bay Associates and Syncronys Software. In his role in management consulting, Alan has worked in diverse industries and with a variety of clients, including fortune 1000 companies such as Boeing, Delta Airlines, Intel, Wyndham Worldwide and others, as well as many mid-market organizations such as Guitar Center, Ducommun AeroStructures, Cypress Semiconductor, TriQuint Semiconductor and others.
Combining his skills and experience in engineering with deep understanding of technical accounting, he is able to assist small and medium-size manufacturing companies establish GAAP compliant accounting and reporting systems.