Financial statements and financial data are some of the best sources of insights not only for those managing an enterprise but also for those with whom you do business. The proper analysis of financial statements can immensely benefit businesses in a variety of ways. It provides both internal and external players with insights to make data-driven decisions in investing, lending, and governance.

This is why audited financial statements are critical in most—if not all—areas of a business, from lending and customer credit to procurement and supply chain management. Despite requiring companies to submit audited financial statements with applications for business loans, customer credit, and vendor and supplier accreditation applications, many still do not realize the importance of these financial documents.

Value to SMEs

For companies, particularly small and medium enterprises, the analysis of the three main financial statements—Balance Sheet, Cash Flow, and Income Statement—is highly beneficial. If you are looking to sustain and grow your business, you might want to spend some time reviewing your financial statements.

According to Bplans, there are seven key insights you, as a business owner, can get from analyzing financial statements:

Outsourcing Insights

A deep analysis of audited financial statements can show you where you can cut costs through outsourcing. For example, your business can outsource finance and accounting tasks to reduce costs and improve quality.

The Bain & Company study* cited by Bplans noted that 10 percent of companies that were considered to be financially viable, 85 percent utilized outsourcing as a method of cutting costs.

Outsourcing will also give you time to grow other parts of your business.

Automation Insights

Apart from outsourcing, your company might also find opportunities to automate its processes.

If there's anything that the COVID-19 pandemic has taught businesses, it is the importance of investing in technology to quickly adapt to a variety of situations.

Every year, your business should carefully study new technologies that could spell success or failure in the future.

Although automation is not for all businesses, it is still the most accessible solution to securing a competitive edge.

Expansion Insights

Financial statements can show you whether expanding your business is feasible. What you need to take a look at are your profit margins, your debt-to-equity ratio, and cash flow projections.

To make sense of the data and get an objective estimate of your capability to expand, you may need to work with an accountant or business consultant on your financial statements. You can also turn to a financial technology company like CreditBPO to help you analyze your financial records and provide you with your financial condition rating and benchmarking report.

CreditBPO's solution also gives you an idea of your business' creditworthiness and ways on how to improve it—very useful when applying for a loan to expand your business.

Tax Insights

Reviewing an expense report, on the other hand, will help you identify expenses that may be claimed as deductions when calculating net income subject to tax.

The Philippine Tax Code lists several deductions: ordinary and necessary expenses, interest, taxes, losses, bad debts, depreciation, charitable and other contributions, research and development, and contributions to employee pension trusts.

Needless to say, you will need to be meticulous in saving your receipts throughout the year to make the deduction process smoother.

Fraud Insights

No matter the size of business, the risk of fraud is constant. Fortunately, risk can be mitigated with the help of financial condition analysis.

The best way to prevent fraud in your business is to review your financial statements and reconcile your books often.

Redundant Expenses

Simply put, redundant expenses means your business is paying for the same things several times.

Redundant expenses may not be readily obvious, but a thorough analysis of your financial statements will eventually ferret them out.

For example, your business may be paying for the same services offered by two different companies or for several employees when just one employee can do the job.

Balance in the Books

Achieving balance is a must for financial statements. If your figure for assets is off by even a centavo from your liabilities, then something must be wrong.

Of course, an imbalance could mean many different things, such as inaccurately entered figures or even fraud, but one thing is certain: the cause must be identified and addressed.

Make the most of it

Mind you, these are just seven key insights, simply from taking a closer look at data that is always available to you. Audited financial statements will also come in handy when you go to your bank or other financial institutions to apply for a loan for your SME.

Of course, not all business owners are gifted with financial analysis skills. This is where outsourcing comes in. If you’re thinking about asking your bank for a business loan, submitting your application with not only accurate financial statements but also a thorough financial analysis might be the key to getting your loan approved.

With financial technology, you don’t need to hire or retain a financial analyst. The CreditBPO Rating Report©, for example, takes your financial statements and provides you with a quantitative analysis of your business and your initial creditworthiness—and it does so using an algorithm which generates reports with consistency and comparability without the need to go through the human decision-making process, ensuring impartial results.

Are you ready to grow your business out of the slump caused by the pandemic? Register for an account and purchase your CreditBPO Rating Report today!

* Bain & Company, "85% of company shortfalls in achieving sustained profitable growth are caused by internal breakdowns, not external factors"