As the use of data has risen exponentially, finance departments are discovering the many ways in which analytics simplifies processes. However, the increase in the amount of data gathered has also created challenges in financial planning processes.
Too many businesses still rely on maintaining extensive spreadsheets and aggregating data manually. As a result, financial processes such as budget projections and monthly closes are tedious and don’t deliver the value they’re supposed to.
According to research conducted by SEMrush, the biggest challenge small businesses face is projecting and managing cash flow. With 40% of businesses carrying debts of $100,000 or more, it’s essential for small business owners to utilize all the tools at their disposal.
Data is only as good as the processes that make use of it. When used right, it can help you gain a clearer picture of your business’ finances and help you project cash flows better. Here are three keys to using data for effective financial planning.
1. Automate Everyday Tasks
Automation has become a buzzword thanks to the rise of analytics, and it’s easy to fall into the trap of thinking that this latest “shiny object” has little real-world value. However, financial projection involves many repeatable and invariable tasks. Data collection is a good example of such a process.
Teams in charge of financial planning and analysis (FP&A) typically reach out to disparate areas of the organization, or manually pull metrics from multiple siloed platforms, to collect relevant data. These data are either entered into a spreadsheet via a mass upload or manual input through a shared folder. Given the different sources of input, these data need validation for integrity.
Simple formatting issues or different modes of presentation can add time to financial processes. Solving these issues involves clerical work, for which your finance employees are overqualified. Automating data collection through an electronic solution frees up their time and helps them focus on tasks that bring value to your business.
Automation also helps you establish a single source of truth for your data since all inputs flow through a single entry point that aggregates and cleans it automatically. You’ll have greater confidence in your numbers since you know that there aren’t multiple versions of data floating around inside your organization.
Building projections from data derived from a single source of truth makes all the difference, since you’ll eliminate the possibility of error in your assumptions. Combined with the increased productivity of your finance team, there’s no doubt that automating tedious tasks is necessary to unlock the power of your data.
2. Encourage Ad-Hoc Reporting
Analytics becomes powerful when it’s democratized. Allowing key people in your organization to slice and dice your data to derive insights will help you derive insights from as many sources as possible. It’s true that not everyone will bring incredible insight all the time.
However, you’ll reduce the possibility of biases creeping into your assumptions. If data analytics is confined to a small team within your organization, there’s a danger of your conclusions being driven by groupthink or by the collective biases of that small team.
Often, deep analytics are conducted by technically minded people who can be removed from the business functions of an organization. Bringing balance to the analytics process is essential, and democratizing data is the solution.
Choosing advanced FP&A software that integrates directly into everyday workflows is essential. Your employees won’t have to switch windows or platforms to gain insight. For example, if employees can access a web-based dashboard that presents live data and the ability to drill deep into them, you’ll increase the odds of uncovering trends that might harm your business.
Take care to install proper reporting guidelines and a framework that can guide employees when deriving conclusions. Data is powerful, but it can lead untrained employees down incorrect paths. Senior managers and financial executives in your small business must take the time to review their conclusions and check for biases before making a decision.
3. Track Changes
Everything that is tracked can be addressed. When creating financial projections, make sure you track all changes that your employees are making, right down to cell-level in spreadsheets. Not only does this give you insight into where errors emerge from, but you’ll also establish an audit trail automatically.
A digital audit trail makes it easy for you to collect and export relevant data for compliance purposes. Many financial planning software are SOX compliant, and creating reports specified by those protocols is simple.
Tracking data at a granular level also allows you to version your data and compare one set to another. This makes identifying differences or errors simple. Robust data tracking also gives your finance team greater confidence in the numbers they’re projecting.
For instance, if your spreadsheets are automatically populated with the latest aggregated and cleaned data, your team will know that they’re building projections based on the latest numbers and not on data that might change at any moment.
The possibility of redundant work reduces considerably, and you’ll reduce the time it takes to execute a work cycle.
Unleashing the Power of Data
Data is a powerful tool, but it has to be backed up by the right processes. Many organizations expect analytics to automatically cure problems, but this isn’t the case. These three processes will help your finance team unlock the power of data and help you project cash flow and balances better.