CFOs in Professional Services firms today are expected to not just report on the past; they are also expected to guide the strategic direction of the business through advanced financial analysis.

Financial reporting and compliance used to be the core functions of the CFO. These have now become the routine tasks that come with the job, and the role has now evolved into that of a business leader who can offer strategic guidance and play the role of an advisor when needed.

CFOs need to be equipped with the right financial analysis tools to be able to play this new role. Effective financial analysis will be a key component of the toolkit. When you have quick and easy access to accurate data, and the information is available in a way that helps draw important inferences, you will be able to make better, data-driven decisions.

What is financial analysis?

When you hear the words financial analysis, you typically think of analysts, investors, and management consultants pouring over balance sheets, ratios, and a ton of other data to judge the financial health of a company. But there is someone who looks at this data with more passion, and that is the CFO of the company.

Financial analysis need not just be an outsider valuing the company, the internal stakeholders too need to make sense of the strength of the business to make strategies and course corrections as needed.

How can leaders assess the financial health of the business? By reviewing data such as revenues, costs, profits, liquidity, operational efficiency, etc. You can gauge how well the business has performed and you can use these parameters to measure the performance against what was forecasted for the year or compare the business with competitors.

Broadly, there are three categories or financial analysis tools that people in the industry use to analyze financial data.

Horizontal analysis helps you analyze data over several years, which is why it is also called trend analysis. Here, you take different financial statements like income statement, cash flow statement, or balance sheet and compare the figures over a few years. The analysis will help you spot trends like increasing sales, reducing costs, improving profitability, etc.

Vertical analysis is a snapshot of the performance of the business in a particular period, generally a financial year. This data can be used to measure current performance against what was forecasted.

Ratio analysis helps you take the data in a given financial year to better understand the performance of the business. Some of the key ratios to explore include return on equity, days sales outstanding (DSO), direct labor/revenue, etc.

Types of financial analysis for CFOs in Professional Services firms

There are different kinds of financial analysis that CFOs across industries perform. These include analyzing the budgets, cash flow analysis, revenue projects, etc. However, such analysis falls short of what is needed in a Professional Services industry.

According to the Professional Services Maturity Benchmark report 2022 by Service Performance Insight, some of the key figures you should be measuring to optimize performance are:

  • Annual revenue per billable consultant
  • Annual revenue per employee
  • Quarterly revenue target in backlog
  • Percent of annual revenue target achieved
  • Percent of annual margin target achieved
  • Revenue leakage
  • Percent of invoices redone due to error/client reject
  • Days sales outstanding (DSO)
  • Quarterly non-billable expense per employee
  • Executive real-time wide visibility
  • Direct labor / revenue

Identifying what to measure is only the first step. Modern CFOs need a modern financial analysis solution to support the decision-making process with accurate data that is accessible quickly and presented in a way that makes it easy to gain actionable insights. Microsoft Dynamics 365 is a financial analysis tool that has been helping Professional Services firms scale new heights of growth.

Microsoft Dynamics 365, a modern financial analysis solution for the modern CFO

Managing data in Excel or legacy systems will not be able to support your long-term growth needs. Whether it is accessing historical data, performing analysis, or monitoring the financial health of ongoing projects, what you need is a robust, native-cloud solution that is efficient, secure, and comes with the added advantage of helping you stay compliant with the latest rules and regulations.

If your team must log into multiple systems to mine data, if you have to wait for people to share critical information instead of having real-time access, and if you are dependent on people to analyze the data for you, you need a better system.

Microsoft Dynamics 365 is a native cloud solution that gives you real-time access to data that is visualized in powerful dashboards, where you get highlights of the most important information. You can also perform custom analysis by slicing and dicing the data based on the need and drill down each category of data to the level of individual transactions that are having the biggest impact.

Using a native-cloud solution means that you have all the data connected and easily accessible, and it allows your team to securely access the information no matter where they are working from and which device they are using.

Learn more about Microsoft Dynamics 365 and what it can do for your business.