Businesses today have greater access to data than ever before, enabling opportunities to develop deeper forecasts and financial analysis. Even small businesses can extract data-driven insights to help make better decisions, but founders juggling responsibilities rarely find time for continuous financial analysis. A financial analyst fills that gap.
Financial analysts gather relevant financial information about your company and the wider business landscape and synthesize that data into digestible trends to inform decisions. Learn more about what a financial analyst does, when a young business should consider hiring one and what to consider in your hiring process.
What Is a Financial Analyst?
Corporate financial analysts, or FP&A analysts, gather data that pertains to the company. This information may involve budget reports, financial statements, market trends, operational expenses, historical sales documents and other data. They analyze the information to create financial models and forecasts and provide actionable recommendations to help solve business problems or seize opportunities.
According to FP&A professional Francesca S., that may look like “keeping track of trends, bringing attention to those trends and prescribing advice based on the trends. For example, if inventory is taking up 50% of someone’s cash on hand, and they’re losing money every month, perhaps the recommendation is to slow down buying.”
An important part of being a financial analyst is helping businesses get to the information they need to know: “An important skill is listening to what people don’t know and knowing what questions to ask to get them there,” says Francesca.
What Does a Financial Analyst Do?
Financial analysts develop models that can help businesses determine:
- Key drivers of their business
- Core KPIs
- Customer LTV
Most importantly, they can also forecast performance and growth. The best analysts will combine cross-department business data with market conditions, news and competitor behaviors to create financial models that predict future company performance.
These financial models allow executives to determine which areas of the business are driving success and which are bringing the business down. From there, analysts can adjust the model’s variables to get an idea of how various financial and operational strategies will drive growth. The result offers comprehensive business insights to drive strategy, backed by quantitative data.
While financial modeling usually represents the core of what a financial analyst can do for a small business, it’s not the only thing. Some other FP&A projects include:
- Data visualization: Easy-to-digest dashboards that help business leaders understand company performance without sifting through immense amounts of business data
- Scenario and sensitivity analysis: Stress tests that determine how potential decisions, investments or market factors will impact future performance
- Budgeting: Company-wide and department-level financial targets to guide the business each month
- Variance analysis: Comparison of expected versus actual performance
- Pricing analysis: The optimal price for products based on competitor prices, cost of manufacturing, customer purchasing power and more
- Investment strategy: Internal resource allocation strategy or investor acquisition strategy, many of whom require a company’s financial model
Overall, financial analyst responsibilities involve providing a comprehensive financial overview to enable businesses to better plan for the future.
The Evolving Skills of a Financial Analyst
A financial analyst develops many skills that they further hone based on the industry, market sector or specific business. Those skills include:
- Critical thinking and analytical skills
- Financial modeling skills
- Budgeting skills
- Risk analysis
- Presentation and communication skills (alongside soft skills like consistency and transparency)
- Technical skills, such as Excel or specialized FP&A software
- Potential niche skills related to industry, statistical analysis or even coding
Typically, financial analysts are considered junior analysts during their first 3 years and senior analysts when they have three or more years of experience.
The Future of FP&A in Business: What Role Will Analysts Play Amid Tech Disruption?
As businesses seek to evolve with technology and new capabilities, FP&A will move in step. According to surveyed business and finance executives, 67% of companies that have adopted AI use the technology for financial analysis—specifically forecasting—more than any other use case. With the development of faster analytical capabilities, including those augmented by AI and automation tools, more mature businesses will look to their FP&A professionals to help them shift from static planning cycles to continuous planning agility.
While many businesses have yet to adopt AI solutions—the standard for FP&A is still Excel—it’s important to remember that they are not tools meant to replace FP&A professionals. In fact, these tools still require human validation and intervention to be effective, especially as the technology continues to evolve.
“Predictive tools are not perfect,” Francesca claims. “Essentially, sometimes, those tools are so precise in looking for past patterns that it projects the future without insight into factors that can change. Use the tool as a guide, but know where to manipulate the tool to make it more precise.”
When Your Company Needs a Financial Analyst
It’s not always clear, especially for startups or small businesses, when your finances are at the point you should engage a corporate financial analyst. To help navigate that uncertainty, here are a few common scenarios that would definitely warrant an engagement with a financial analyst:
- You don’t have a finance department to constantly aggregate important business data.
- You have the business data, but you need someone to interpret the information.
- You want to find opportunities for innovating and growing the business instead of simply managing the finances.
- You want to find blindspots or opportunities to be more efficient.
- You are looking to attract investors and want to make sure that the business is spending money efficiently, setting KPIs and identifying risk factors.
What to Consider When Hiring a Financial Analyst
For a new company, hiring an extra person just for financial analysis can be a big ask. Before you seek one out, consider the following factors:
- Does your business have the funds to hire a financial analyst, including the additional HR costs of recruiting and providing benefits?
- Does your business need a full-time analyst or just financial analysis services?
- Do you have the necessary business data to be aggregated and analyzed?
If your company has not set up robust financial and operational records yet, you should look for an accounting solution rather than FP&A.
If you need a more flexible FP&A solution, let Paro match your business with flexible, focused finance experts. Our laser focus on finance provides a pool of highly-vetted experts across the U.S. with the right mix of skills, credentials and experience to achieve each company’s specific goals.
Paro’s financial analysts can help you understand what’s working, what’s not and actions you can take to get the results you want. Request a consultation to match with the best-fit, on-demand financial analyst for your business.