Chief Financial Officers (CFOs) oversee the company’s financial activities and play a strategic role in decision-making, optimizing financial performance, and driving growth. They also manage financial risks and reporting and ensure regulatory compliance.
So, you see why it’s not a good idea to use the good-old “gut instinct” to make decisions that may impact hundreds if not thousands of people. In all fairness, intuition will always be part of how we make decisions as humans, but in the age of Big Data, you can’t afford to simply wing it.
The best approach is a blend of data-driven strategies (80%) and the instincts of seasoned finance professionals (20%). Studies show that companies that rely their decision-making on accurate and real-time data are more likely to thrive and grow in a dynamic market.
If you want to better understand how CFOs use data to improve their decision-making, keep reading. We put together a comprehensive guide on how to build and use a data-driven strategy that supports your business goals.
The Power of Financial Data
Data-driven decision-making (DDDM) uses data, metrics, and facts to provide valuable insight into the market and buyers’ behavior. As a result, you can build well-informed strategies that align with your initiatives, goals, and objectives.
According to the McKinsey Global Institute, businesses that make data-driven decisions are 23 times more likely to attract new customers and 6 times more likely to keep existing ones. Additionally, a Gartner survey says that 90% of companies see data and analytics as a crucial part of their strategy.
So, what exactly is financial data?
It depends on each company’s size, structure, and operations, but generally, anything that impacts the business’s bottom line is considered financial data. This information tells the story of your company’s financial health and provides insight into profitability, revenue, expenses, and liquidity.
Here are some of the most common sources of financial data that help companies make informed decisions:
- Revenue and sales: historical sales figures, revenue growth trends, sales forecasts, and projections;
- Expense and cost: operational expenses, cost of goods sold (cogs), and overhead costs;
- Profitability metrics: gross profit margins, net profit margins, operating profit margins;
- Cash flow: cash inflows and outflows, statements, cash conversion cycles;
- Budgeting and forecasting: budget variances, financial forecasts, scenario analysis
- Financial risk assessments: credit risk data and market risk data
- Regulatory and compliance: financial reporting standards, compliance costs, and audit findings.
Most of this data comes from regular documents and reports, so you can’t ignore the importance of financial statements in your company. They provide a clear picture of a company’s financial health and performance. Accurate and well-designed financial statements also build trust with investors and stakeholders, building up their overall confidence in the company.
How to Build a Data-Driven Financial Strategy
Yes, you are sitting on a wealth of financial information! However, it won’t be of much use if you don’t know how to leverage it to your company’s advantage.
This is why every CFO must understand the power of data analysis and its role in building a data-driven financial strategy.
Financial reports and statements are rigid and don’t offer much insight. But when you upload the data into business intelligence (BI) software, everything changes!
Business intelligence software and other similar tools process your data and turn it into deep and insightful information. Using easy-to-understand visuals (such as graphs, charts, or flow charts), they can pinpoint trends, anomalies, and patterns that are difficult to spot with the naked eye.
However, there’s a catch. While around 70% of companies worldwide agree that BI tools are crucial for business growth, low data quality can lead to huge financial losses. After all, no software can decide whether the data you feed it is reliable, accurate, and up to date.
This part falls on your employees, so it’s paramount to ensure they know what they’re doing. One way to do this is to offer access to comprehensive data analysis courses that teach students how to inspect, clean, and model data to support decision-making strategies.
How to Make Full Use of Your Financial Data
Once you get comprehensive insights from analyzing your company’s data, it’s time to make some decisions.
But where should you start to get the most benefits and have the most impact?
Start by thoroughly analyzing historical financial data to create accurate budgets and forecast future financial performance. This will help you understand how to allocate resources effectively and plan for growth.
You should also track key financial metrics such as revenue, expenses, and profit margins to assess performance and make data-driven adjustments. Another interesting metric to follow is the return on investment (ROI); this one offers information on the financial viability of potential investments.
These metrics (and others important for your business) also offer insight into optimizing spending and improving operational efficiency. Plus, financial data analysis help identify potential risks and vulnerabilities, which you can use to implement prevention strategies and ensure financial stability.
Digital Tools for Seamless Data Flow
Finding the right digital tools for your company’s needs is the only way to keep up with the huge influx of financial data streaming from multiple sources.
First and foremost, you need reliable digital integration solutions that bring all the data together in one unified database. Manual data entry is time-consuming, expensive, rife with errors, and, in most cases, unnecessary. Nowadays, there are lots of tools that connect with important internal systems and collect the necessary data.
Here is a list of other important digital tools to consider:
- Data visualization and analytics (BI software) platforms: turn raw data into visual formats such as charts, graphs, and dashboards;
- Warehousing solutions: provide a centralized repository for storing large volumes of data for efficient data management and retrieval;
- Tools for quality management: ensure the accuracy, completeness, and consistency of data;
- Data governance platforms: manage data policies, standards, and procedures, ensuring data is used consistently and ethically across the organization;
- Collaboration tools: facilitate collaboration among team members, allowing them to share, discuss, and analyze data in real time.
Security and Risk Management
Recently, company databases have become the primary targets of cyber attacks, with financial information at the forefront. Between data leaks and ransomware attacks, companies, especially in the finance sector, have experienced significant revenue loss.
No business is spared, regardless of size or object of activity! Ill-intended actors cast a wide net and have refined their attack methods in the last couple of years, so no one is safe without the right level of protection.
The best cybersecurity system uses several layers of protection adjusted to your company’s unique needs. For instance, CFOs that send and receive sensitive financial data must understand the importance of a secure online password management system.
Additionally, every company needs security monitoring tools that keep a watchful eye over every interaction happening across your network. To increase the level of security, you should also consider implementing IP abuse monitoring tools that detect and flag fraudulent activities before they become a bigger headache.
Payment and Cash Flow Management Optimization
Effective payment and cash flow management are vital for a business’s financial health and operational success. Real-time visibility into cash flows enables informed decision-making, while optimized payment processes reduce costs and enhance efficiency.
Secure, compliant, and convenient payment systems attract more customers, build their trust in your brand, and improve overall financial stability. And the best part is that you have a wide range of options!
Payment getaways are an example, as they offer increased security features and support multiple payment methods. Plus, the steps for setting up a payment gateway system are quite easy to follow, so you don’t need any specialized help.
Mobile payment solutions are another example of convenient payment options, and so are point-of-sale (POS) systems and digital wallets. Overall, the best way to optimize payments and cash flow is by implementing secure, compliant, and convenient payment systems.
These tools also play a crucial role in decision-making by providing real-time insights and enhancing the efficiency of financial processes. Here are some key aspects of their role:
- Real-time data access: you have real-time visibility into cash flows, transactions, and payment statuses.
- Improved cash flow forecasting: accurate and timely data on cash inflows and outflows help you create more precise forecasts.
- Risk management: real-time monitoring of cash flows helps identify potential risks, such as liquidity shortfalls or delayed payments.
- Integration with other systems: payment and cash flow management tools often integrate with other financial systems, such as accounting software and ERP systems. This integration provides a holistic view of the company’s financial health, aiding in better decision-making.
Wrap Up
Due to AI’s influence and geopolitical shifts, the markets are changing at a dizzying speed. The only way to stay relevant and in control of your growth is by adopting a reliable system of tools that allows your CFOs and other decision-makers to use data in their strategies.
These tools lead to more accurate forecasting, improved risk management, and enhanced operational efficiency, driving competitive advantage in the market. By leveraging real-time insights and predictive analytics, you can make informed decisions, enhance operational efficiency, and drive sustainable growth.
