2 Excel templates:
1) One page budgeting model
Finally I succeeded in making a simple budget. Look at this template for small firms.
Click here to get your Excel template
The model can be adjusted very easily for any company. Later in this issue, I have visual support for this model as well.
2) Financial Health Scorecard
This is my first version of Financial Health Scorecard
The idea is to identify how much your company is strong in term of
• Capital efficiency
• Profits
• Operational efficiency
• Liquidity and
• Solvency
The idea is to compare your firm data with a benchmark.
𝗕𝗮𝘀𝗲𝗱 𝗼𝗻 𝘄𝗵𝗲𝗿𝗲 𝘆𝗼𝘂𝗿 𝗮𝗿𝗲 𝗼𝗻 𝗯𝗲𝗻𝗰𝗵𝗺𝗮𝗿𝗸 𝗿𝗮𝗻𝗴𝗲, 𝘆𝗼𝘂 𝘀𝗰𝗼𝗿𝗲 𝘆𝗼𝘂𝗿 𝗶𝗻𝗱𝗶𝗰𝗮𝘁𝗼𝗿 𝗳𝗿𝗼𝗺 𝟭 𝘁𝗼 𝟯
𝗧𝗼𝘁𝗮𝗹 𝘀𝗰𝗼𝗿𝗲 𝗶𝘀 𝟭𝟬𝟬%.
I suggest using industry or competitors based benchmarks.
Also you can use your targeted indicators or even historical ones.
Click here to get your Excel template
This model, with small adjustments, can be used for many industries.
Here are 2 Infographics for Today:
1) 3 Statements Model Roadmap
Get this infographic on a high-resolution PDF
2) What Can you Compare in FP&A Process to Get Clear Insights
Get this infographic on a high-resolution PDF
Here’s today’s “How to” guide:
How to do an efficient variance analysis
Variance analysis involves comparing actual performance (like revenues, costs, or profits) to a standard or budgeted performance.
This comparison leads to the identification of ‘variances’ – the differences between the projected and the actual figures. These variances can be favorable (positive) or unfavorable (negative), indicating better or worse performance than expected, respectively.
For instance, if a company budgeted $100,000 in sales for a month but achieved $110,000, there would be a favorable variance of $10,000. Conversely, if sales were $90,000, there would be an unfavorable variance of $10,000.
Consider the following factors while analyzing the differences:
A. Magnitude
Is the difference significant in relation to the metric being analyzed? A small percentage change might not be of major concern, while a large change might require further investigation.
B. Direction
Is the metric increasing or decreasing? Positive changes might indicate growth and improvement, while negative changes might indicate challenges.
C. Patterns
Look for patterns in the differences over several years. Are the changes consistent or sporadic? This can help you understand whether changes are part of a larger trend.
D. Benchmarks
Compare your figures with industry benchmarks or competitors to see if the changes are in line with industry norms.
E. External factors
Consider any external factors that might have influenced the changes. These could include economic conditions, changes in regulations, or shifts in customer preferences.
How to conduct variance analysis?
1. Draw Conclusions
If you observe positive increases in key metrics, this may suggest growth and an enhancement in financial health.
Conversely, negative changes should serve as an impetus to delve deeper into the causes and initiate corrective measures.
Relatively consistent figures might indicate that your business is sustaining stability.
2. Take Action
Leverage your conclusions to drive informed decisions. Should you pinpoint areas of concern, craft strategies to rectify them. Meanwhile, upon spotting positive trends, contemplate harnessing them to amplify your business growth.
3. Communicate
Disseminate your analysis and conclusions to pertinent stakeholders, including management, investors, and board members. This ensures that all parties remain well-informed regarding the business’s financial health.
I identified at least six reasons why this analysis is important.
Informed Decision Making
Recognizing variances in financial performance allows businesses to make more informed decisions. For instance, understanding where and why costs were higher than expected can lead to corrective measures.
Budgeting Accuracy
Regular variance analysis helps organizations refine their budgeting process. If certain budgeted figures consistently show variances, they might need to be adjusted in future planning.
Operational Efficiency
By pinpointing areas of overspending or underspending, businesses can identify operational inefficiencies and work to correct them.
Accountability
Assigning specific budgets to departments or teams and then comparing actual results to those budgets helps hold those departments or teams accountable for their financial performance.
Strategic Planning
Variances can hint at larger market trends. For instance, a consistent unfavorable variance in sales might indicate a market shift or increased competition.
Recognizing these changes early can guide strategic direction.
Risk Management
Detecting and understanding variances can also help in identifying potential risks or threats to the organization.
