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 sort of financial analysis. 

You've got to see what the numbers are, figure out the story that they're telling, and translate that into a narrative that the client can understand and take action on. 

You know, do financial analysis stuff!

And while financial analysis is super important work - it can also be remarkably time intensive, especially if you are doing it without a process.

Process-less financial analysis is probably 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 fCFO

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

Today, I'd like to share that process with you - just in case you don't already have a process.

(Please note that I've somewhat generalized this checklist to work for any firm. You will likely need to make adjustments to it based on your firm, your team, and your niche. You may even want to make it more in depth.)

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

Revenue

• What is the change month over month (MoM)
• What were the major drivers of that change? 
• What is the overall trend over the past 13 months?
• What are the major drivers of that trend?

Gross Profit

• Were gross profit margins consistent MoM? (+/- 3%)
• It not, what were the major drivers? 
• Are gross profit margins consistent YoY? (+/-3%)
• If not, what were the major drivers? 
• List any significant changes in MoM COS/COGs
• Are gross profit margins consistent with industry averages?
• If not, are there any products or services the client might consider focusing on to improve GPM? 

Net Profit

• Were net profit margins consistent MoM? (+/- 3%)
• If not, what were the major drivers?
• Are net profit margins consistent YoY? (+/-3%)
• If not, what were the major drivers? 
• List any significant changes in MoM overhead.
• Are net profit margins consistent with industry averages?
• If not, are there any significant SG&A expenses the client might consider focusing on to improve NPM? 

Step 3: Review the Balance Sheet

Assets

• How has the A/R balance changed MoM?
• What were the major drivers for that change? 
• How has the A/R balance changed YoY?
• What were the major drivers for that change? 
• A/R Aging Report concerns, if any? 
• Inventory level concerns, if any? 

Liabilities

• How have short/long term liabilities changed MoM?
• What were the major drivers for that change?
• How have short/long term liabilities changed YoY?
• What were the major drivers for that change?
• How have A/P balances changed MoM?
• What were the major drivers for that change?
• How have A/P balances changed YoY? 
• What were the major drivers for that change? 

Equity

• Have profits/losses and distributions impacted equity MoM or YoY?
• If so, how?

Step 4: Review the Statement of Cash Flows

Operating Activities

• Is cash flow generated or lost by operations MoM?
• How much?
• How are changes in A/R, A/P, or inventory affecting cash from operating activities?

Investing Activities

• Is the business reinvesting cash back into the business?
• How much?

Financing Activities

• Is there an over-dependence on cash from financing activities?
• Are distributions reasonable considering the cash provided by operations?

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

1// We realized a nearly immediate time savings.
2// Our CFO Reports started becoming more consistent.
3// I was asking fewer questions of my team when I'd review their work. 

Some bonus benefits that took longer to realize: 
Bonus 1// They also help develop that sense of confidence that you're building your firm the right way. 
Bonus 2// They help remove frustration because your team starts to know what you expect.
Bonus 3// They enable you to charge more and keep clients longer because of consistency.

Application

We're just days away from Q4. If you don't have a process in place for conducting financial analysis, documenting yours could be a great quarterly goal to finish the year out strong.