Read time: 3:29 minutes 

Today, I'm going to share my firm's checklist for performing financial analysis.

I bet you're having monthly CFO calls with your clients. 

To prepare for those calls, you've got to get into the numbers and conduct some financial analysis. 

After all, this is why we make the big bucks! 

Unfortunately, most fractional CFOs don't have a process for conducting financial analysis. They're all willy nilly about it.

Are you willy nilly with financial analysis? It's costing you BIG TIME!

A process-less financial analysis is holding your firm back in several ways: 
❌ It's not scalable
❌ It's taking 2x-3x too long
❌ It's certainly not repeatable
❌ It limits the number of clients you can serve
❌ It means that you'll never be able to train a new CFO

The good news is that getting a process in place isn't as hard as you might think. My firm built out a financial analysis checklist a few years ago and it works great for us.

Please note that this checklist is what works for MY firm. You may need to make adjustments to based on your firm and the type of businesses you serve. You may want to make it more in depth.

The key is to have SOMETHING in place.

Let's dive in 👇

✅ Step 1: Review your client's goals

This is an important first step because you want to be mindful of your client's goals as you review the numbers.

Your analysis and recommendations should relate back to those goals as often as possible.

✅ Step 2: Review the P&L

1. Revenue
   1. What is the change month over month (MoM)
   2. What were the major drivers of that change? 
   3. What is the overall trend over the past 13 months?
   4. What are the major drivers of that trend?
      
      
2. Gross Profit
   1. Were gross profit margins consistent MoM? (+/- 3%)
   2. It not, what were the major drivers? 
   3. Are gross profit margins consistent YoY? (+/-3%)
   4. If not, what were the major drivers? 
   5. List any significant changes in MoM COS/COGs
   6. Are gross profit margins consistent with industry averages?
   7. If not, are there any products or services the client might consider focusing on to improve GPM? 
      
      
3. Net Profit
   1. Were net profit margins consistent MoM? (+/- 3%)
   2. If not, what were the major drivers?
   3. Are net profit margins consistent YoY? (+/-3%)
   4. If not, what were the major drivers? 
   5. List any significant changes in MoM overhead.
   6. Are net profit margins consistent with industry averages?
   7. If not, are there any significant SG&A expenses the client might consider focusing on to improve NPM? 
      
      

✅ Step 3: Review the Balance Sheet

1. Assets
   1. How has the A/R balance changed MoM?
   2. What were the major drivers for that change? 
   3. How has the A/R balance changed YoY?
   4. What were the major drivers for that change? 
   5. A/R Aging Report concerns, if any? 
   6. Inventory level concerns, if any? 
      
      
2. Liabilities
   1. How have short/long term liabilities changed MoM?
   2. What were the major drivers for that change?
   3. How have short/long term liabilities changed YoY?
   4. What were the major drivers for that change?
   5. How have A/P balances changed MoM?
   6. What were the major drivers for that change?
   7. How have A/P balances changed YoY? 
   8. What were the major drivers for that change? 
      
      
3. Equity
   1. Have profits/losses and distributions impacted equity MoM or YoY? If so, how?
      
      

✅ Step 4: Review the Statement of Cash Flows

1. Operating Activities
   1. Is cash flow generated or lost by operations MoM?
   2. How much?
   3. How are changes in A/R, A/P, or inventory affecting cash from operating activities?
      
      
2. Investing Activities
   1. Is the business reinvesting cash back into the business?
   2. How much?
      
      
3. Financing Activities
   1. Is there an over-dependence on cash from financing activities? 
   2. Are distributions reasonable considering the cash provided by operations?

Once my firm got this checklist in place, I quickly realized 3 benefits:

1️⃣ We started saving TENS OF HOURS each month.
2️⃣ Our CFO Reports started becoming more consistent.
3️⃣ I was asking fewer questions of my team when I'd review their work. "Hey, why did gross profits drop $30,000 this month despite revenue going up $52,000?"

Having the essentials like processes and checklists can really move the needle. 

Especially if you want to work fewer hours or add team members to your firm! 

✅ But they also help develop that sense of confidence that you're building your firm the right way. 
✅ They help remove frustration because your team starts to know what you expect.
✅ They enable you to charge more and keep clients longer because of consistency.

That's why I'm passionate about teaching this stuff.