While there are numerous metrics to describe a business, the real measure of success is profitability. Think about what has the most meaning to your stakeholders, employees, customers, and suppliers. It’s profit.
Profits go beyond billable hours and receipts to include all costs related to your central revenue source: your product or service. There are really only two ways to affect profitability: increase your price and sales or decrease waste. Making the right choice could create resilient profits and growth, but the wrong choice could end your company.
That’s where smart financial statements come in. These aren’t traditional, stagnant financial statements created in spreadsheets. Smart financial statements collect data from across the organization and provide real-time insights to help guide you along the nuanced route to profitability. To make meaningful changes to your business’s profitability, you can pull two levers: increase sales and pricing (market strategy), or trim waste (cost reduction).
Here are insights into how to decide which lever to pull and the steps your organization needs to take to get smart financial statements.
Price or waste — which lever will you pull?
It has always been challenging to chart the path toward profitability. Historically, financial statements have helped but they can’t be relied on for a holistic picture. Organizations must make careful, calculated decisions around market strategy and cost reduction. Though very different, these two tactics can go together. To select your strategy, consider the following:
1. Market strategy
Core metrics, such as LTV, CAC and ACV, help you better understand the long-lasting and ongoing profitability of your relationship with every customer. By asking customer acquisition questions like “how much do we make during our lifetime engagement with each customer?”, you can dig deeper into the customer lifecycle and maximize opportunities.
2. Cost reduction
Cutting down on unnecessary spending is a wise choice for any business. You’re saving anything you aren’t spending, so by reducing business expenditures, you can make a larger profit. This tactic, unfortunately, is frequently reserved for finance teams.
But even if the finance team is involved, do you know where to cut down on spending? If you cut down on R&D, you become stagnant. If you cut down on sales and marketing, you lose out on sales revenue potential. It’s essential for you to know why, where, and how you are making the necessary cuts to remain profitable.
The limitations of traditional reporting and insights make knowing which lever to pull, much less when and how, almost impossible. If organizations are only relying on traditional financial reports, they’re working with incomplete data. If they rely on finance to create reports and for IT to run them, they often deal with bottlenecks. It’s no wonder that many organizations realize poor outcomes. But there’s a better way with Smart spreadsheets.
The rise of smart financial statements
Smart financial statements provide a comprehensive view of the organization by combining financial data with operational data. Smart financial statements provide actionable insights that help organizations know which lever to pull and when and how to pull it. Leading organizations are already using smart financial statements, but many businesses aren’t because compiling data from across the organization is easier said than done. But all organizations can achieve smart financial statements .
The 3 steps to smart financial statements
These three crucial steps will give you smart financial statements and holistic financial insights into your organization.
1. Create internal alignment and clarity across the whole organization
To get alignment and clarity, you need to start thinking about the data that’s created in every aspect of your business. Don’t limit yourself to your ERP data. Think bigger to include data related to:
- Web analytics
Don’t forget to include data from outside your organization, such as from partners or customers in your supply chain.
2. Know who owns and understands the data
Typically, IT and finance own and understand the data. IT manages the security and access to all data, and finance teams interpret it to show how a business is performing.
But data usage and analysis shouldn’t be limited to finance and IT. Putting business analytics in the cloud brings the entire organization into the fold. Everyone who needs to see or understand the data — from C-level executives to investors — can have instant access to view it as needed in real-time.
When you tear down silos, you enable business stakeholders to do their best work: changing budgets and forecasts to match what is happening in real-time and helping your business grow.
3. Build engagement & collaboration
Once siloes are broken down, you need to build engagement across the organization. Start at the leadership level by encouraging collaboration and creating a meaningful partnership between finance, IT, and business stakeholders.
Extend that engagement to all positions by enabling reporting independence. With the right technology, your teams can slice and dice your data and visualize it in different ways, opening the door to more creative exploration and interpretation. Allowing people to independently run reports frees your finance team and enables them to focus on strategy. And with insights readily available, teams across the organization can collaborate to create and sustain a competitive edge.
The technology to support smart financial statements
Smart financial statements are only possible with the right technology to consolidate the necessary data, open lines of communication, and create reporting independence. When an organization wants to increase sales, reduce costs and eliminate guesswork, it needs Phocas.
Phocas provides a business planning and analytics platform that helps you understand exactly what's going on in your business. With solutions for Analytics, Budgeting and Forecasting and Financial Statements that work seamlessly together, your organization can report, budget, and act faster by putting data in the hands of decision-makers.
Phocas comes with out-of-the-box metrics, powerful interactive dashboards and broad functionality to provide immediate benefits and adoption. Users can also customize the software to meet their unique analytics and reporting needs.
Learn more by requesting a Phocas demo today.