Financial analysis and cost control

Financial analysis answers a question about the past: what has already happened to the company’s money, and why. It is not the same as financial planning, which looks ahead, nor the same as a virtual finance director, who runs the function continuously. Analysis is a single piece of work that answers one question an owner is asking.

Usually the question is this: the business appears to be working, turnover is growing, and yet there is no more free cash than before. Statutory accounting will not answer it, because it is built for the state rather than for the owner.

What we take apart

• the cost structure: what is fixed, what is variable and what can genuinely be cut without consequences;
• profitability by line, product or client – it usually turns out that some of them run at a loss;
• the gap between profit on paper and money in the account: receivables, stock, prepayments, payables;
• turnover: how many days cash spends in stock and in receivables before it comes back;
• the break-even point – the minimum turnover that covers fixed costs;
• cost of sales: whether every cost reaches it and whether indirect costs are allocated sensibly.

When it is needed

When turnover grows and profit does not. When there are several lines and it is unclear which one is feeding the rest. Before cutting costs, so the cutting is not done blind. Before a conversation with an investor or a bank. And before selling the business or taking in a partner, when the numbers will have to stand up to scrutiny.

What you get

Not a table of ratios, but conclusions in words: where the money is going, what that costs per month and what to do about it. Every figure is backed by a calculation you can check.

If the analysis shows the problem is structural and will recur, we say so – and the one-off work then naturally becomes a regular arrangement.

What the fee depends on

Scope follows the period to be analysed, the state of the books (if the data has to be put in order first, that is separate work), how many lines or legal entities fall inside the perimeter, and whether management accounting has to be built from nothing or the existing data will do.

Common questions

How is this different from an audit?

An audit checks whether the statements are reliable and whether the accounting follows the rules. Analysis takes the same data and answers the owner’s question about money. They are different jobs: the statements can be immaculate while half the business runs at a loss.

What if we have no management accounting at all?

Then we start from the statutory data and the bank statements, which is normally enough for a first picture. It then becomes clear which breakdowns are missing, and we suggest how to capture them going forward.

How long does it take?

It depends on the state of the data. Where the books are kept carefully, the first conclusions come quickly; where data has to be reconstructed, we set the timeline once we have seen what exists.

Is this a one-off or can it be regular?

Either. One-off when there is a specific question. Regular when a monthly picture is needed – in that form it is closer to a virtual finance director.