Financial decision making is a vital management skill because it drives performance and allows a business to take calculated risks and grow.
Financial decisions revolve around two key considerations: how and when to borrow money and how and when to spend it. Traditionally, managers have extracted numbers from financial statements and put them into formula-filled spreadsheets for finding key inputs. But this process is not only time-consuming but also provides one-dimensional data that may not be as relevant in a few days. Decision makers need technology to deliver up-to-date data enabling them to make complex financial decisions at the right time.
Making key financial decisions
Before we look at how technology is transforming financial reporting and key decision making techniques, let’s look at key financial decisions that impact an organization:
In every organization, the finance process is responsible and accountable for making three key financial decisions:
Dividend decisions (a company decides whether to distribute the profits, retain a portion of it, or reinvest the entire profit into the business again).
- Investment decisions (where to invest to meet short and long term goals)
- Financing decisions (To carry out operations every organization needs funds so where to get these funds)
Apart from these major financial decisions, the finance function is also responsible for making the following day-to-day operational decisions:
- Forecasting the cash inflow and outflow;
- Payment of suppliers’ invoices and bills;
- Disbursement of petty cash for meeting minor expenses;
- Paying salaries to employees and another workforce.
Affecting financial and core operational decisions
Accounting data and financial statements provide key inputs to your managers regarding the current and expected financial performance. Without this information, the managers can’t analyze various options and make decisions that prove beneficial to the organization.
These decisions not only keep the organization’s financial health intact but also play a vital role in helping it build long-term sustainable relationships with stakeholders, investors, clients and your workforce.
Thus, accounting data, while giving direction to your managers to make financial decisions, also ensure that rest of the organization can also grow by making better core operational decisions.
Understanding data better
Standalone, any financial statement such as a balance sheet, profit and loss statement or cash flow statement may not show us a clear picture. However, when you produce them in a dedicated financial data analytics solution you can dive deeper and conduct vertical and horizontal analysis, you can observe the liquidity position, spot any red flags, and respond to future challenges confidently.
Previously, managers would analyze the financial statements at month end, however, technology has enabled people to adopt modern financial reporting and visualize data at any time.
The future lies in dynamic financial reporting
Financial statements contain numbers. However, the real data lies behind those numbers, which can’t be extracted from static financial reports. The data changes constantly. If the decision makers wait for the month or year end to analyze the financial reports, they may lose out on capitalizing the opportunities.
Now is the best time for organizations to invest in technology — tools that can help them become agile and gain better control over the accounting data.
A dynamic reporting tool like Phocas Financial Statements customizes reports in different formats and layouts according to the users’ requirements and needs. Instead of looking at traditional figures and data sources, they can go deeper and integrate multiple data sources at one place.
Dynamic reports present data in a responsive, better-to-understand format so the finance team doesn’t have to waste their time and effort in back-and-forth email replies. Live dashboards update numbers regularly, allowing users to stay one step ahead of any changes.
Dynamic financial reporting is the future of financial and accounting analytics. Managers will make informed decisions and strategies with a ‘superpower’ to look beyond your numbers and collect data and insights.
Ideally, your financial statements solution will work in tandem with your business intelligence software and ERP to facilitate the sourcing and management of data. Phocas Financial Statements, for example, is an add-on to Phocas business intelligence software and integrates with a variety of top ERP systems such as Infor, Epicor, Microsoft, MYOB, Oracle and SAP.
To find out more about the new financial solution, watch this 35 minute video that includes an explanation from an in-house expert, a quick demo showcasing how it works and some feedback from early adopters.