Financial analysis raises operational questions

Financial analysis has fantastic potential to raise questions about the operations of a business, but alone it can conclude little. A glance at assets may reveal an imbalance in current assets vs current liabilities, but it cannot tell the story of how this came to be or what decisions brought this about. Another step deeper into the individual transactions may supply more light, but even then educated guesses are all that’s possible; it takes questions posed to the actors before answers can be fully complete.

A financial analyst spots that this month has 25% higher expenses than the following three, but this doesn’t give the analyst enough information to form a conclusion. What it does do; however, is raise a question to business operations: what’s different about our value destroying activities this month? The answer may range from an impulse purchase for expensive inventory to a natural disaster that’s affecting prices.

The relationship between operations and finance can be strained at times. Operations managers can view Finance as a barrier to the health of their team when budget approvals for new hires or equipment are denied. What seem like obvious decisions to invest money into a recent opportunity can feel bogged down by the need to supply convincing proof for release of funds. Strain can turn to conflict when hard times hit the business and it’s the Finance department that reallocates resources across the business. But these barriers need to be overcome for the sake of both Finance and Operations.

When a healthy relationship exists between Finance and Operations, together these departments can give effective direction to the company. Accountants may be the first to spot negative trends in the relationships between accounts, and when that information is freely shared with business operations the causes of the trend can be identified and action taken. Likewise, operations can give finance key information about the accounts they manage which will help to filter the expected from the unexpected.

In my experience, managers are the only people at a company who are given responsibility for a budget. Monthly all-hands supply everyone insight into the current financial situation of the business, including explanations for normal trends, plans for course corrections where negative trends emerge, and details about the impact these will make to the company, teams, and individual bonuses. But I don’t have a clue what our team’s budget is, nor do I have any say in the way it’s allocated. Because this would rarely affect my day-to-day work, and because I suspect our budget goes almost exclusively to payroll, this missing communication doesn’t impact our team much. If managers did not communicate with their financial counterparts; however, there is an open door for inefficiency and mistakes. Customer-facing teams like ours have key insight into the relationships we have with customers and their business that our financial department won’t have unless they collaborate with us. Likewise, decisions from Finance that may dramatically effect the resources available for our team will seem arbitrary and forced if Finance does not communicate frequently with our managers. My takeaway is to value and pursue quality relationships between Finance and Operations where I’m working now and for whom I may work in the future.

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