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How To Use Financial Reporting To Reduce Your Operational Costs, Add Efficiencies and Align Your Business

February 16, 2021 |

Can you ever have too much data?

The answer, of course, is yes—especially when that data is poor in quality or isn’t contributing to your overall goals. But meaningful data is an asset to any organization. And when applied well and shared appropriately, the data you extract from your financial reporting will join those ranks—helping to fuel your business decisions and organizational alignment through the months and years to come. 

Whether you’re keeping your investors informed, bringing shareholders up to speed or paying your taxes, you’ll of course draw on data from your financial reporting for external use. But you’ll use it internally as well, to unearth key operational insights that help your entire organization identify inefficiencies and work together towards your business goals. 

To achieve that type of insight, though, you need to know how to use your financial reporting to recognize when the reallocation of resources or introduction of new investments are required—and when they’re critical to your business’s success. You’ll also have to connect the rest of your company to the data and insights your financial reporting reveals, so that everyone has a clear understanding of your organization’s financial state and the next steps you need to take to achieve your business goals. 

By doing so, you can start to take a holistic approach to operational change—both at the organization-wide level and across every department. To get there, start by considering the following:

Building Operational Insights for Organizational Success

Your financial reporting provides key data that will help you identify and inform the operational changes you make—but only when you put it to use. Through the application of financial ratios, scenario modeling and other tools, you’ll begin to reveal critical insights that help identify potential inefficiencies or red flags that could mean problems if not addressed. Those insights will play a critical role as you move your business forward.

With that in mind, consider four ways your financial reporting can help fuel your operations and put you on the right path to organizational success.

1. Understand Your Baseline

How much profit are you making per unit sold? How reliant is your business on debt? What’s your operating margin? Details like these will help you create a baseline of knowledge around your company’s overall health, which will fuel your business strategy going forward. 

By comparing your operating income with sales and tracking it over time, for instance, your operating margin—how much your organization is making from its core business—will help you understand profitability trends over time. Thisin turn may show you where to dive deeper and examine your cash position. You’ll be able to see whether your pricing strategy is working and the overall operational efficiency of your business. All of which will let you know when you need to shift your strategy or make operational changes to maintain profitability and stay on the path to growth.

2. Determine How Well You’re Managing Growth and Decline

By measuring your revenue over time, you can begin to identify whether you’re in a position of growth or decline, while comparing your gross profit to sales over time will allow you to see whether cost increases are outpacing revenue gains. This type of data will help inform your growth strategy or determine whether the growth plan you have is sustainable or not. 

Comparing your financial data over time will also help you pinpoint variable and fixed expenses in your organization—information that will allow you to make better decisions on spending and debt. There may even be a scale of efficiency (or inefficiency) when demand exceeds capacity—achieving a better understanding of that will also help you manage your growth plans. 

3. Reveal How Much Cash You’re Generating Through Operations 

By showing you how much cash flow is coming into your business through operations, your financial reporting adds clarity on the sustainability of your organization and the pace at which you can self-fund growth. (This is where the direct cash flow method is particularly revealing, offering details that aren’t available using the indirect method.)

There may be a good reason to run a negative cash flow for a period of time, but it’s not something your business will be able to sustain forever. Rather, it’s best to use your cash flow to ensure your receivables stay healthy and your cash position high. If you are cash rich, on the other hand, you might use your cash flow to understand excess liquidity so that you can put it to work—funding growth or initiatives internally or perhaps even looking for external investment paths.

4. Better Plan for the Future

Finally, you can also use the data in your financial reporting to build comparisons against planned scenarios—including budgets, forecasts and what-ifs—to make sure you’re realizing your business’s full ambitions. Through the wealth of data you’ve gathered, you’ll be able to stay on top of future scenarios and better understand the levers you can pull to adjust your course for improved operational efficiency and optimized business growth.

Forecasting and scenario modeling can help your organization build towards its strategic plan and stay on track and aligned. By helping you see ahead, they’ll ensure you remain ready for future change and enable better informed business decision making every step of the way.  

But when you’re doing all of this to create real operational change, it helps to take a team approach. And that means sharing that information with the rest of your organization.

Aligning Your Entire Organization Around the Information You Reveal 

Drilling down into the data your financial reporting provides is only the first step. Step two is putting that information into action. And for many organizations, that means sharing it. Research shows that 87% of CFOs share financial information with at least some of their employees. 

Sharing your financial insights can help build organization-wide alignment and increase accountability throughout your company, while enabling individual departments to plan for any operational changes that need to be made. But there are a few things to consider as you get your whole organization involved in your financial numbers: 

By providing your team with a quality source of data alongside the context they need to put it into action, you’ll help everyone in your company better drive their part of the business. This puts them all on the same path towards optimizing company performance—whether that means making operational cuts or shifts in investment or better planning for growth ahead.

In doing so, the data shared in your financial reporting can serve as a lens: helping you pinpoint operational inefficiencies, reduce costs and align your entire business. All of which will lead your organization to a more successful future. 

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