What Does Financial Data Analysis Software Include?

So, you are considering investing in a budgeting and planning software to help you manage your business’s finances. That is a wise decision. Here are some of the services and functions included in a software package that will benefit your business. What does financial data analysis software include? Business valuation: With financial analytics software, you can easily evaluate your company’s market value in order to determine your standing in your specific industry. Financial risk analysis: Financial software can help you calculate risk and prepare for financial problems. Risk analysis basically involves creating a comprehensive strategy called a Risk Management Plan (RMP) to keep your company profitable in the face of cash flow disruption. Using the right financial tools, you can review your company’s financial health and its ability to stand up against market fluctuations. Performance scorecard: Financial data analysis software will provide you with a snapshot of your company’s financial status so that you can easily comprehend your business performance. Liquidity analysis: You can analyze your liquidity by determining working capital needs while modeling techniques to improve cash adequacy with “what-if” scenarios. Industry metrics: In addition to viewing your own data, you can view the annual statistics, ratios, and financials of your competitors in the industry. The sad truth is that 25% of businesses fail after their first year. Half of these businesses fail because of simple “incompetence.” These companies are financially illiterate; they have no understanding of pricing, lack proper budget planning skills, have no experience keeping records and following market trends, and live above their means. By the end of their fourth year, 50% of businesses have...

4 Common Cash Flow Mistakes Made by Small Business Owners

If you are starting a brand new business and you don’t have any kind of budgeting software or financial performance analysis tools, you better be a human calculator with a photographic memory. Between 2013 and 2014, over five percent of surveyed businesses ceased operating because of inadequate cash flow. In fact, as many as 25% of businesses fail within their first year, 36% fail after their second year, and by the end of their fourth year in business, 50% of businesses have failed. Financial data analysis isn’t easy without the proper tools. Can you calculate current assets, compute profit margin ratio, and conduct business valuation by hand? Probably not. Here are some of the worst cash-flow mistakes a small business owner can make: Overestimating future sales: Too many business owners overlook past data and market trends, riding along on intuition and pure optimism alone. You may be smart, but you’re not a psychic. You need to be able to accurately calculate the value of your company and predict your profit margin in order to run a successful business. By applying quantitative forecasting methods, you can use past revenue data from other businesses in your industry as a foundation for tracking trends and anticipating future sales. Spending recklessly: They say “it takes money to make money,” and while this is often true, there is certainly a limit. Budget planning is essential. Make sure you are spending your resources on expenses that will benefit your company’s profitability. It is not always easy to see, which is why a budgeting software can be so useful. Being too laid-back about past-due receivables: You...

Back to the Basics: Understanding Financial Ratios

Understanding financial ratios is essential to cultivating a healthy business. Between the years 2013 and 2014, 5.2% of surveyed businesses failed as a result of inadequate cash flow or sales. Many of them probably did not even realize the magnitude of their financial problems because they were not able to calculate and interpret their financial ratios. This kind of “incompetence” is the reason nearly half (46%) of businesses fail. Three Categories of Financial Ratios Growth Ratios Growth rates indicate how quickly a company is growing. This includes: Sales — Sales, also called operating revenues are stated in terms of the percentage of growth since the previous year. Dividends — Dividends are a good indicator of the financial stability of a company. The percentage of change in dividends should never be negative. These excess profits are often reinvested back into the company to increase the rate of growth. Net Income — Net income determines how much money is left over after subtracting operating costs. Price Ratios Price ratios establish a stock’s selling price in the context of the company’s profitability. This includes: Price/Earnings Ratio — This is the stock’s current price divided by the most recent 12 months earnings per share; it indicates a projection of future growth. Price/Sales Ratio — This is the stock’s current price divided by the most recent 12 months of sales. Business Profitability Ratios Profitability ratios, also called profitability margins, measure a company’s operating efficiency and generally look at the business within the context of its industry. This includes: Net Profit Margin — This is the ratio of net profits to sales and is one...

How Proper Foresight Can Save Your Business: The Importance of Financial Risk Analysis

The unfortunate reality is that one out of every four businesses fails after its first year in operation. This number increases to 36% after the second year and 50% by the end of their fourth year in operation. About 5.2% of these businesses fail as a result of inadequate cash flow or sales, which happens when business owners and managers do not take the proper steps required to prepare for financial problems. When it comes to owning and running a business, risk is often inevitable, and lessening that risk is an essential strategy that must be learned and exercised with care. When you fully understand financial risk analysis, you are better able to predict the levels of uncertainty facing your business, thus making you better suited to avoid liability. For business purposes, one practices financial risk analysis to forecast the ups and downs of cash flow, identify factors surrounding stock returns, and perform statistical analysis to determine the probability of success and future economic troubles. Risk analysis is ultimately the first step towards creating a comprehensive strategy to keep your business profitable. Part of financial risk analysis is the establishment of a Risk Management Plan (RMP). An RMP is generated by a project manager and serves to estimate possible liabilities and the resulting effects they will have on the business. By outlining potential issues, companies are better equipped to handle such problems if they happen to occur. While it may be impossible to avoid these problems completely, professionals in risk management are able to identify and reduce certain risks before they escalate beyond control. Risk analysis is often completed...

A Beginner’s Guide to Easy Business Budgeting

As many as 25% of new businesses fail after their first year. Between 2013 and 2014, 5.2% of surveyed businesses failed as a result of inadequate cash flow, and financial incompetence is the reason why 46% of businesses cease operating in general. Companies that have no knowledge of pricing, financing, or proper planning are doomed from the start. Do not let that be you. That is why creating a budget is so important and the use of financial performance analysis tools is essential. Starting a budget from scratch is not easy. It certainly helps if you wrote one in the previous year, but if you are a beginner, here are some tips for building a fool-proof budget. Develop a target Begin by estimating a realistic profit you would like to see within the coming year. Consider factors that could affect your sales numbers such as the economy or market trends. Starting with profits will help you determine the rest of your estimates for costs, expenditures, etc. Calculate expenses If you have been in business for a while, look back at your previous financial statements to see how much you have spent in the past. Look at salaries, rent, postage, utilities, taxes, travel, etc. If this is your first year in business, you will have to calculate predicted expenses, but know that it won’t be entirely accurate. Calculate gross profit margin Estimate the cost of goods including beginning inventory, shipping charges, etc; subtract that from your overall sales. Readjust figures After considering all of these calculations, you may want to go back and readjust some of your estimates. For instance,...

The Unfortunate Events That Nearly Destroyed 2 Big Companies

For every company you have ever heard of, there are more than twice as many businesses you never knew existed — and that’s because they failed. One in four businesses (25%) fail after their first year. As many as 36% of businesses fail after their second year, and 44% fail after their third year. There are a good number of reasons businesses fail. Nearly half (46%) of businesses collapse because of mismanaged funds: poor pricing, lack of performance analysis and planning, no understanding of financial ratios, etc. Sometimes, businesses fail because of circumstances out of their control. The following stories are about two very successful businesses that came very close to failing during their first few years in operation. The FedEx story Frederick W. Smith founded FedEx in 1971 with the plan of being the first company to ship packages anywhere in the world overnight. Smith used his own $4 million and raised $90 million to fund his startup. Fuel costs skyrocketed in the United States over the next three years, causing FedEx to lose $1 million per month. Smith nearly had to declare bankruptcy when the company’s account whittled down to a pathetic $5,000. Having pitched for extra finances and being denied, Smith flew to Las Vegas and decided to gamble that last $5,000 in a game of Black Jack. Lady Luck must have been on his side that weekend, as on Monday morning the company’s bank account was miraculously up to $32,000. This small amount was enough to allow FedEx to operate for a few more days while Smith secured an additional $11 million to keep the...

Leave the Math to the Experts: What all Business Owners Need to Know About Financial Success

You are passionate about your business. You worked hard to get to where you are, and you have full faith that your company can thrive, providing the highest quality product and the most excellent customer service on the market. But maybe math, finance, and accounting are not your strong suits. As knowledgeable as you are in your particular field, and as much as you believe in your brand, without the proper financial management, your business is not likely to succeed. A whole 25% of all businesses fail after their first year; 36% fail after their second year, and 44% after their third year. By the end of their fourth year, half of all businesses have failed. If these statistics scare you, you need to take action to prevent your business from going under. Nearly half of all businesses fail as a result of financial incompetence. These companies have no understanding of pricing for the market, possess no knowledge of financing, and lack the proper planning to maintain a healthy budget. Do you know how to compute profit margin ratio? How about identifying financial risk analysis? Are you confident in your interpretation of financial statements? If the answer to any or all of these questions is “no” you would be wise to invest in the proper budgeting and planning software. Do not waste your time agonizing over complicated statistics and puzzling financial ratios. To you, all these numbers may look like the matrix or a secret code of communication for extraterrestrials, but a financial performance analysis tool like a budgeting and planning software program will put it all into terms...

3 Secrets to a Successful Small Business

All businesses are unique — small businesses especially. While some sort of uniform algorithm would certainly be helpful to determining the keys to running a successful small business, the best many small business owners can hope for is to learn from their peers and by studying what other businesses are doing right. By examining these common threads between successful small businesses, small business owners can cull the secrets of success and apply them to their own business models, learning what they should and should not do. So what makes a small business a success? Here are three keys to success that many thriving small businesses share: Knowing Your Product Did you know that 11% of business fail due to a lack of understanding of the goods or services they offer? As a business owner or employee, this is simply unacceptable. Not only does this make you a weak asset on the floor with customers, but it can lead to a waste of money and incorrect pricing. Instead, successful small businesses educate themselves in all facets of a product or service, such as financial ratios by industry logistics or financial statement trend analyses. With the right tools and planning software — such as business valuation software and budgeting and planning software — in place, it is easier to be successful. Having Strong Leadership Statistics show that 30% of businesses fail due to a lack of managerial experience. When a manager is unable to lead their employees, it becomes a negative chain of command and will trickle into the rest of the business. Successful companies have experienced leaders that are willing...

4 Secrets of Success for Small Businesses

Between 2013 and 2014, over 5% of 14,405,210 businesses surveyed closed their doors due to inefficient cash flow. A lot of things can go wrong for an entrepreneur, but if you plan ahead and determine a specific goal, understand your market, choose your location wisely, and conduct a proper financial risk analysis, your chances of success will remain strong and steady. 4 Secrets of Success for Small Businesses Set a clear goal First, your goal should always be written down or documented somewhere. Your business’s goals should have a set timeline. There should be a system in place for measuring success and documenting progress. Your goals should be prioritized wisely.   Know the market You must have a target market in mind. To determine who will use your product, where this demographic is located, find a location in which there is a lack of your product or service, and identify your competitors, you will need to conduct extensive market research. Many entrepreneurs make assumptions about their target market, but relying on instinct alone is one of the fastest ways to failure.   Find the best location Everyone has heard that a business’s success is all about location. This is partially true. When deciding where to set up your business, do not settle on the first space available. Take into consideration all of the risks associated with a particular area. Consider the climate, neighborhood, type of building, and the kinds of natural disaster risks present. There may not be many facilities available immediately, but do not rush the process and settle for something less than adequate. This could cause you...

Using Financial Statement Analysis Software (Correctly) Can Save Your Small Business

In previous blog posts, we’ve told you that one in four businesses fail during their first year. That number increases to 36% by the second year, 44% by the third year, and 50% by the fourth year. Since small businesses are the lifeblood of any economy, that’s a disturbing set of data. Even worse? It’s estimated that up to 46% of businesses fail because of “incompetence.” In other words, they’re either ignorant of financing and pricing, fail to pay the taxman, or spend too much too soon. How can you avoid their fate? There’s no magic bullet to keeping your company in the black year after year, but there are some crucial steps you can take to keep your company healthy as it grows. Now, it’s important to remember that many of the most successful businessmen in U.S. history were self-taught. While an MBA from an elite university won’t hurt, all the tools you need are right at your fingertips. With a solid business plan, the right tools, and the right people to use them, your company can rise above mediocrity and stay in business. In 2016, business owners do have one major advantage over entrepreneurs of the past. In these digital times, it’s never been easier to find financial planning software. While you can find software that runs financial risk analysis or helps you calculate your current assets, today we’re going to focus on one particular type of software for business managers: financial statement analysis software. Used correctly, financial analysis software can be a powerful forecasting tool. But like any tool, it can be used incorrectly. How To...