Achieving and maintaining financial stability is complex, and requires the help of nearly every department within an organization. While most companies look to their financial statements to determine the health and stability of the organization, financial statements alone are not enough to draw meaningful conclusions. Business need to be analyzing myriad sources, like profit and loss statements, comparative balance sheets, and cash flow statements on a constant basis. Moreover, they must recognize that financial stability is a relative term, and that targets are always changing. And most importantly, they should be tracking real-time data.
The right data can pinpoint significant gaps in an organization’s collective knowledge of its financial standing and, more importantly, help to identify threats that stand in the way of its financial stability. However, before one can use data to improve financial stability they must first be willing to overcome a few hurdles.
If you have been charged with advancing your firm’s financial standing, you’ve likely run into a few of these hurdles yourself. This post will discuss some of the more common challenges financial analysts, policymakers, and supervisors alike face and how they can overcome them.
1. Define Financial Stability
As mentioned above, financial stability is a relative term and one that changes depending on what you’re comparing your data to. Are you benchmarking against competitors? Comparing performance metrics over time? Or do you employ trend analysis? No one way of doing things is right or wrong; in fact, the more techniques you use to analyze data and to define financial stability, the better.
For instance, benchmarking is a great way to compare the health of your company versus that of a competitor’s. However, it’s not so great for determining if you’re actually making a profit, which is why it’s essential to review both profit/loss statements and cash-flow statements.
Trend analysis, on the other hand, can help decision makers predict how the company is going to perform over time. This allows them to make sound decisions that will protect finances both in the short- and long-terms.
2. Identify Your Financial Data Needs
Once you’ve determined how you plan to measure financial stability you can begin to identify your data needs, which subsequently means identifying data gaps as well. Of course, part of this job includes preparing all the right documents: balance sheets, income statements, and cash flow statements, but it also involves much more than that. Today’s modern economy is highly complex and as a result, the risks and vulnerabilities that companies face are many and varied. For these reasons, it is imperative for your financial stability analysts to have access to meaningful data. That data should help you do the following:
- Monitor the strength and efficiency of the financial system—not just yours, but of the market as well.
- Identify pockets of vulnerability developing within the financial systems—of both yours and the market. Internal vulnerabilities may include accounting errors, theft, or overspending, while external vulnerabilities may include the rapid growth of credit distribution or a sudden decline in real estate.
- Evaluate the growth of credit versus the growth of debt in the non-financial related sectors.
We understand this may all seem a bit overwhelming, which leads us to our next point…
3. Prioritize Data Requirements
Obviously, you know that meaningful data is the only type of data you should be referring to, but how can you differentiate between meaningful data and the non-essential? Set standards. For one, the data you collect must be able to be aggregated and linked with other data sets so that you can perform analytical comparisons. The goal is to gain a more accurate and clearer view of your financial system as a single entity, and to make connections between other companies and the market as whole.
Though it may cost you a bit upfront to set and prioritize data requirements, doing so can eliminate the costs of collecting, cleaning, and aggregating mass amounts of data—much of which is oftentimes inaccurate and therefore useless. Data governance and appointing a data steward can help with this, as can practicing data integrity.
4. Consolidate and Blend Your Financial Data
Once you have all of the data you need to make sound decisions, it is then time to tame it. Dashboards can help with that. Dashboards offers a single location for you to consolidate your data and blend data from a number of sources. Instead of comparing information from, say, your profit and loss statements to a trend analysis report, you can have all that information in one easy-to-access location. If you use dashboard software like iDashboards, you can sync your accounting databases, or applications like QuickBooks, directly into a central data repository and blend in the application. This will pull your accounting data in real-time into your dashboard, so you’ll always have a current view of your financials with minimal manual data entry.
Additionally, dashboards help make correlations for you. Once a data source is connected, the software will “blend” the data—which basically means it will extract value from multiple data sources and identify correlations between various data sets that would have otherwise remained hidden. Dashboards can also help you identify valuable patterns, that way if you do miss a key connection once the data has been blended, dashboards will reveal repeated trends so that you can act on them. Which brings us to our final point…
5. Act on Your Financial Data Findings
All your hard work will be for naught if you don’t act. Fortunately, dashboards make it easy for you to do just that. By allowing you to build responsive, real-time reports that can be transferred to anyone throughout the company with a click of a button, you and any other decision makers can access answers to your most pressing questions within a matter of seconds. Dashboards come fully equipped with filters, input parameters, and pivot tables, making it easy for users to find just the information they need to make informed decisions in real time.
Improving the financial stability of your firm is one of the most essential responsibilities you will be charged with—and one of the most difficult. Fortunately, it is possible to strengthen your organization’s financial standing without compromising your sanity. By defining what financial stability means to you, identifying your data needs, prioritizing your data requirements, and using dashboards to help consolidate, blend and act on data, you can help your firm get well on its way to a secure financial future. Want some financial dashboard inspiration? Click here to learn more and to interact with live financial dashboard examples.