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 Use Financial Statement Analysis Software To Your Benefit…
Financial statements are just statements of facts (and if not, you can be sure the taxman will have something to say about it). Where your money comes from, how it’s spent, how much was invested, how much is available, and so on. In short, financial statements tell you where your money is now. Using financial statement analysis software, you can use this raw data to make a number of important calculations. For instance, in Financial Statement Spreading you can instantly compare many years of statements at once.
This data can then be used to measure the current health of your business, helping financial planners make informed decisions about future planning. Without this big picture view of your company’s financial health, it’s all too easy to make ignorant or incompetent decisions that set you on the path to ruin.
But remember, there are serious dangers when using financial data analysis software incorrectly. If you only use a single financial statement to forecast the months and years ahead, you could end up in the red faster than you expect. This is one of the most important financial data analysis tips for beginners, knowing the difference between At-One-Time vs. Continuous Analysis. Rather than using a single statement, continuous analysis involves spreading as many statements as possible into your software, providing a true big picture.