What is Business Analysis?
This week we talk about an exciting and growing area in business… Business Analysis! Watch now.
VIDEO SUMMARY
Business Analysis is a growing field that is becoming more and more important. The primary reason for this is that today there is an enormous amount of data. There is so much data that we have trouble understanding it all. So in recent years there has been a growing emphasis on analysis. Business analysis is a set of tools and techniques to evaluate data and improve business systems. This is actually a skill you can develop in your business that can create tremendous value.
I want to expand on this definition so you understand how this fits into the context of accounting. You can break accounting into three areas: Process, Reports, Analysis.
- Process deals with the basic accounting tasks. For example, when you purchase something there is a process to create a Purchase Order and send payment.
- Reports take the data from your accounting processes and summarizes the data. Your financial statements is a report of all the accounting processes during that period.
- Analysis is used to interpret and communicate information from reports. Analysis takes your financial statement, determines what it means, and uses that information for strategic decisions.
There are a couple of useful things to understand here. Each item builds on the previous item. You cannot perform analysis without reports, and you cannot have reports without good processes. Different businesses are going to need to focus on different things. You might need to focus on getting good accounting processes in place. Once you have good processes, you can focus on reports. Once you have reports, you can start building the skillset for analysis.
If you are in accounting, developing a skill in analysis will be very helpful in your career, because it is so valuable for a business. Let me explain what is happening on a practical level. If you are running an organization, you spend a lot of time solving problems. If your employees are operating at the process level, where they are only focused on executing a process, whenever something happens that does not fit the process, it becomes a problem. The employee then sends the problem up to the boss to solve. This eats up a lot of time, because then the boss ends up spending a lot of time solving problems, when they should be spending their time performing higher level activities like setting the direction of the business. The ideal situation is for employees to bring the boss solutions, but that requires analysis. Imagine if all your employees, not only performed the process, but also generated reports and performed analysis on how to improve the business. Instead of bringing the boss problems, they would bring solutions, and all the boss has to do is sign their approval. That is why analysis is incredibly valuable and can supercharge a business and your career.
Let me end with a specific example of analysis. Imagine you run a trial balance for your business, and you notice that the revenue is a lot lower than you expected. Here is a financial report and you are running a simple analysis, comparing budgeted revenues against actuals. In this example, you notice a discrepancy. Hopefully you have some detailed revenue reports you can pull out and investigate further. Maybe, you notice that a large check from one of your contracts has not been received. It could be something as simple as the check was lost in the mail. You can go even further by calling up the customer and finding out the issue. When you explain this to your boss, you already have the reports, done the analysis, figured out the issue, and can recommend a solution. If you do not do the analysis, the contrast is dramatic, because you are going to your boss and saying “I think there is a problem here, good luck figuring it out.” I hope this shows you the tremendous value business analysis can bring to your organization.
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Neither Zach De Gregorio or Wolves and Finance Inc. shall be liable for any damages related to information in this video. It is recommended you contact a CPA in your area for business advice.