Handling the finances of a business correctly can be a very crucial task for the finance department of any venture, especially for startups. Every now and then, the market price of an item increases or decreases, sales drop or shoot up, new clients are gained, and some are lost.
Keeping track of all this data requires a massive amount of effort and a whole lot of calculations. Even a single misplacement of a point can cause considerable setbacks to any business; hence, it is essential to note the significance and value of an excellent financial analyst for the betterment of any venture.
Regardless of the state of a business, whether it is flourishing and gaining profits, climbing mountains of success, or hitting rock bottom, an efficient financial analyst is always needed to maintain the company’s flow of achievements; or help re-open closed doors to a failing business.
Let us dive deep into the following points to emphasize further how necessary a financial analyst can be to a business.
- Predicting The Future
The role of a financial analyst can be confusing for some to understand but crucial at the same time. In most companies, their importance is as high as any manager on the venturing team. By now, you might be wondering what do financial analysts do other than calculating the company’s assets and liabilities?
Well, apart from handling all the records and keeping them up-to-date, financial analysts are also responsible for comparing the past sales graphs with the current ones and predict whether the future of the company’s sales look promising or not, if not then what strategy could the business take to raise their graphs.
Financial analysts also suggest helping the business prosper financially while minimizing losses.
- Recognising Market and Industrial Trends
Financial analysts are a massive help to the company because they are very well informed about the current economic norms of the market and industries that the business deals with. An excellent financial adviser must always know the pricing ranges the competitors are pursuing to gain customers.
If company A sells a product for $50 and company B sells a similar product for $45, it is pretty obvious that customers would opt for the latter because they’ll be saving $5 since one wants to pay more for something they can get for cheap.
Hence, it is a financial analyst’s job always to be well informed about the selling practices of the company’s competitors so that the business could always be in-tuned with current pricing trends and use strategies that will get them more attention from the customers—for example, introducing mid-yearly sales on all their items.
- Day-to-Day Updates
One of the best things that a financial analyst can do is to note down the day-to-day updates in the sales of a business and analyze them to deduce where the problem lies for a venture that is in the state of failing.
It is a recurring fact that eight out of ten startups fail because they can’t deal with their finances efficiently. Financial analysts have to deal with the assets and liabilities of the company, the sale records management plus maintenance, coming up with the final income statement, and finally, be well aware of all the cash coming in or going out of the company.
Additionally, predicting whether the business holds a profitable future or the owners should choose another market to compete in is essential in helping businesses move forward. Gathering these facts at the company’s beginning helps keep the business from drying out and getting into huge debts.
- Financial Models and Reports
After the fundamental data regarding the company’s sales have been gathered, updated, and thoroughly rechecked, it is now time to introduce that information as a financial model. This model gives a complete overview as to how the company’s finances were used.
Financial modeling is defined as the process of summarizing a company’s flow of cash in and out of business. It is usually made on a spreadsheet and aids in understanding the company’s current profit or loss status.
The income statements are layered to give a brief idea that motivates business owners to steer their venture in a better direction by doing what’s necessary. Maintaining an excellent financial model also helps in keeping track of all the equity shares and debts.
This model is purely mathematical. For a person who isn’t aware of all such calculations, a good financial analyst develops a financial report in which this model’s results are defined clearly. This helps the company’s CEOs and shareholders decide how to save a business if it is about to drown.
- Organizing is The Key to Success
Not everyone is fond of dealing with numbers and can’t understand their flow that accurately. Even though a financial analyst has to calculate the finances and related information using a set of known formulas, the dedication to keeping at it with 100% accuracy differentiates between a good financial analyst and an excellent financial analyst.
An excellent financial analyst calculates income statements and keeps every piece of information organized and well maintained in the company’s database.
Organizing is the key to success, and maintaining the data presentable to make the owners understand the company’s mistakes and educate them into eradicating these flaws is what a good financial analyst does and takes should take pride in.
- Motivation To Help
One of the best qualities any recruiter could find in the interviewees for the financial analyst’s job for their company is the person’s ability to perform their best. Financial analysts, as emphasized before, are the binding force responsible for the company’s success or failure.
This should be the prime mindset of a sound financial analyst who helps businesses turn their success graph lines from going down to off the charts! If they see that the company is about to dry out, they should not get up and leave.
Instead, they should figure out ways to aid the business by using their expertise and finding loopholes in its selling practices and trends. They should feel empowered to voice their suggestions regarding utilizing their finances effectively and guide the business towards a profitable future.
If a business is a bicycle, then financial analysts are a business’s steering handle. It is up to them to steer the business into either of the two directions; profit or loss. Hence, choosing a good analyst is essential for the company and its future because they are crucial to staying afloat. They can foresee the coming of times for that venture and guide it towards a better future.