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Conducting a Financial Analysis

Updated: Jun 17, 2021

Start at the Top

When we begin a financial analysis, our first step is to determine what fundamental resources a company has. We then evaluate the company's business plan and review it in light of current operations. Should the business not have a consolidated plan, we encourage them write one or work with them to develop one.

Of course, as analytics based financial consultants you may be wondering why we look for a business plan. A plan helps to identify how the business owner expects to create revenue and identifies the goals they have set. This allows for a clear picture of where to start evaluating the business.

If you are looking to create your business plan, check out our article on how to create a plan for your business.

Beginning the Evaluation

If the business owner has a specific financial or operational issue, we will start there. Depending on the issues the company is facing, there are many questions we may ask. A few of them are as follows.

  1. Do the hours you spend on administrative tasks reduce your company's potential revenue?

  2. How can you increase revenue without increasing your investment?

  3. How can you cut costs without sacrificing your revenue goals?

These three questions are general, but a good way to initially review overall operations. If you are interested in viewing a detailed case where we evaluate these questions, check out our article on asking the right questions.

Critical Metrics

After we have the goals and barriers identified, we analyze your key metrics. We will examine a company's finances and resources, namely time and money. There are often common places where issues arise in small and growing businesses. Our team analyzes your data to help answer the questions we posed above.

If you are a small business proprietor, you will have to be diligent in keeping enough business resources available at all times. Although easier said than done, too often owners, with dreams and goals of growth, withdraw substantial sums of money from the business for personal reasons. As a business owner, you are most likely running this business to feed yourself and your family, however, if you don't keep enough resources in your business it will be nearly impossible to continue growth.

Once you have evaluated common issues, analyzing metrics that are less obvious may bring clearer solutions. These more particular areas use metrics such as, but not limited to, sales growth trends, cost of customer acquisition, customer loyalty and retention, and employee efficiency. As we evaluate these areas, we are still looking to answer the questions posed earlier, just on a more granular level.

How we Calculate Operating Efficiency

We define operating efficiency as the degree to which a business can deliver its products or services with minimal waste. As we conduct an efficiency analysis, one of the metrics we track is percent of revenue. Percent of revenue is a great way to benchmark your businesses operating efficiency. Total revenue is the quantity of your goods or services sold multiplied by the price. Operating expenses are the ongoing costs to produce and sell your product, such as inventory, payroll, marketing, investments, and research and development. Your operating profit is then found by:

Operating Profit = Total Revenue - Total Operating Expenses

Time Spent and How To Increase Revenue

In answering the question of how administrative tasks reduce the revenue potential of a business, we find in growing a small business, owners often use much of their time to complete necessary administrative tasks. This must be done, however, your business doesn't produce revenue by tackling administrative work. As a business owner, you need to be aware that your time is money, and, employ personnel accordingly.

For more detail, view our case study from a client who was losing nearly $100k/year from focusing on administrative work.

Another example of spending a dollar to make two is investing in payroll services. For many companies, payroll is a hefty percentage of overall revenue. Therefore, it must be carefully thought out and reviewed regularly. You have more important tasks to accomplish and revenue producing opportunities to explore than dealing with the busywork of payroll. Using a payroll service can save you hours of time and help you to create a more efficient operation.


CPN & Associates LLC is a Business Consulting Firm offering strategic business reviews, analytical financial reviews, operational management, and many other small business services.

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