90-Day Sprint – Prepare Financial Analysis
Step 4: Prepare Financial Analysis (Weeks 7-8)
You’ve set the stage for success by completing your financial projections, organizing your accounting, and establishing an action plan. However, the ultimate objectives—boosting profitability and cash flow—still need to be achieved. Now, it’s time to dig deeper into your historical data to pinpoint areas where strategic focus will have the biggest impact. This starts with understanding why key financial changes have occurred.
Flux Analysis: Uncovering Trends and Opportunities
The first step is a Flux Analysis, a powerful tool for identifying trends over the past 4-5 years. This involves examining your financial data in both absolute dollar amounts and percentages, often using common-sized financial statements.
- Absolute Dollars: Show the overall size of financial changes.
- Percentages: Normalize the data, removing the impact of volume changes, which makes trends much clearer.
A Flux Analysis highlights negative trends, indicating areas that need closer attention. By focusing on these problem areas, you can uncover opportunities to improve both profitability and cash flow.
R-Series Report: Your Financial Health Checkup
Next, conduct a Ratio Analysis—we call it the R-Series Report—to evaluate your organization’s financial health over 4-5 years. This analysis calculates approximately 55 key financial ratios from your historical data.
Think of the R-Series as a financial EKG. It reveals when performance has deviated from your strategic goals. This enables you to refocus your efforts and get back on track for long-term success.
Dynamic Cash Flow Projections: Exploring “What-If” Scenarios
Dynamic Cash Flow Projections bring your financial strategy to life by modeling how changes in your assumptions affect net income. This iterative process helps identify the most impactful areas for improvement.
Concentrate on areas that will produce tangible results. For example, a minor improvement in gross margin, or sales volume—even just 0.5%—can lead to a significant 1-2% increase in overall profitability as a percentage of total sales.
Don’t waste time on insignificant details. Focus on initiatives that will deliver the greatest value.
The goal isn’t to get lost in the numbers. It’s to gain a clear understanding of where to drive value within your organization.
The Path to Smarter Decisions
By combining these analytical tools—Flux Analysis, the R-Series Report, and Dynamic Cash Flow Projections—you develop a roadmap for identifying and capitalizing on opportunities. This focused approach empowers you to enhance profitability, optimize cash flow, and position your organization for lasting success.
