What Are Finance Analytics?
Financial analytics are a method of processing and analyzing business financial data to help attain more in-depth knowledge about performance and provide insights about the best course of action in any given situation.
While Business Intelligence (BI) processes have a very distinct and specific role that deals with the business’s financial data in the past and present, analytical finance, or finance analytics, deals with the future, helping companies accurately predict outcomes and make better overall decisions.
For instance, business analytics in finance help to calculate and forecast various performance indicators, such as revenue and profit.
Analytics, financial analytics especially, can also help forecast business performance. This is helpful in seeing when it’s necessary to make adjustments to either maximize the current upwards trajectory or prepare for a potential plateau, minimizing the damage.
Some of the aspects that fall under the revenue analytics definition include helping to understand and predict the cash flow, income, costs, and many other vital performance indicators.
But primarily, financial analytics help to answer specific business questions about your performance, giving you the best chance of making the right decision in any given situation.
Why Are They Important?
Now that we've figured out the basic principles of financial analytics and what they can help accomplish, let's look at some of the most important reasons why you should use finance data analytics in your day-to-day operations.
For starters, being able to analyze and interpret key financial metrics will enable you to predict future outcomes with significantly higher accuracy. Instead of having to guess about what your revenue is going to be in the next quarter, you can use business analytics in finance performance to determine the most likely revenue numbers, allocating your resources accordingly.
Another way that finance analytic insights can help your business is by showing you opportunities to cut costs. You can use the data and insights to identify spending that doesn't lead to positive outcomes for your company, cutting the budget in those areas and instead allocating the money to more productive areas.
Finally, when you are tracking a range of key financial metrics, you can make day-to-day decisions with much more confidence, and without having to waste any time.
How To Use Financial Data Analytics
Financial analytics measure and provide insights about a range of business processes and projects, helping determine profitability, solvency, stability, and a variety of other vital factors.
Horizontal analysis is the most straightforward method, as it compares the data from two or more consecutive financial periods, identifying upward and downward trends, while also looking for shifts that can be indicators of future performance.
Meanwhile, vertical analysis digs deeper into specific financial statements, providing a hierarchical structure to income statements and expenses, among other things. This method breaks down the vague statements, showing you the context behind each number.
You can also use financial analytics to look at your business performance compared to industry averages, providing you a benchmark for what to aim for and opportunities for optimization.
To make the most out of what analytics of finance performance can offer, it’s essential to know which key performance indicators you should focus on.
And since one of the most important aspects of facilitating business growth is prioritizing the time that you have available, client profitability analytics should always be on the list of indicators you are tracking.
Some clients will inevitably be low in terms of potential profitability, taking up time and resources that could be used to make your best clients happy. By tracking how each client stacks up, you can learn to not only prioritize the top earners but also identify the key traits that they all share.
As briefly mentioned earlier, you should also use financial analytics to predict sales, as it will allow you to allocate your resources more effectively.
When launching new products, you need to have data about your current and previous product performance so that you can figure out what types of products tend to provide you with the biggest financial gains.
In today’s crowded markets, financial analytics help keep the competition at bay and find new ways to gain the upper hand and grow.
Advisors need to use data to attract clients and fill out attendee lists for financial seminars. At LeadJig, we can provide you with all the financial services marketing tools necessary to make better decisions based on intelligent data. Request a demo today to learn more!
