Small Businesses and the Use of Management Analysts To Improve Profitability

Small businesses dealing with ongoing global volatility realize their scarce resources requires a vigilant watch over finances and at times a bit of belt tightening in order to remain viable. Spend too and the company winds up unable to recover with bankruptcy soon to follow. Invest too and companies run the risk of missing opportunity where the more venturesome are willing to dare. Surviving in today’s business environment requires a watchful eye over an enormously complex business system. Small business owners routinely outsource certain services that fit their budget. However, it’s possible that some may have not considered the potential benefit of acquiring the services of management analysts.

According to the Bureau of Labor Statistics, the need for professional management analysts is expected to grow 14 percent from 2020 to 2030, which the organization estimates to be faster than the average for all occupations. Professional management analyst have many quantitative and qualitative skillsets at their disposal to analyze and assess small and large organizations internal systems and operations. These skillsets include marketing, accounting, management, statistics, analytics, research, and mathematic proficiencies to examine an organization’s operations and make suggestions for improving efficiency. Using the concept of Systems Thinking it’s possible to grasp how management analysts might zero in on the accounting aspect of a complex approach to problem solving. For instance, financial accounting, financial reporting analysis, and auditing provide three angles from which analysts may view to address a complex business issue.

Financial Accounting

???????????Professional accountants spend a great deal of their time number crunching recording and tracking consumer/commercial transactions. The ultimate purpose of this activity is to help an organization know where its monies are spent and how much remains. Accounting professionals must possess the skill and knowledge pertaining to standard transaction recording procedures established by governing accounting agencies such as the GAAP. The powerful purpose behind adherence to such standards is to provide an efficient means of communication across industries and organizations. It also makes commercial activity possible through a common financial recording language and procedure without which investors would deem it impossible and unprofitable to decipher self-determined standards by each business. An established standard also ensures accountability by auditing standard agencies.

On the other hand, management analysts may use the skills of financial accounting for a different purpose. For instance, instead of routinely tracking the purchase of products and their costs management analysts will open his tool chest of analytical skills to determine whether an organization is better off using a LIFO, FIFO, or a weighted average inventory selling method. The management analyst my use one of the methods while contemplating the impact of such a decision on capital investment on a clientele’s anticipated future opportunity or need to address current supply chain snarls. Switching from one inventory method (i.e., LIFO to FIFO) means clearing out newer warehouse products first (First-In-First-Out), which may appeal to consumer interest in the newer product. This Systems Thinking approach demonstrates basic techniques associated with financial reporting analysis. The Management Analyst is in effect looking at the intricate relationship between product acquisition and consumer behavior highlighting the need for organizational agility to quickly adapt. ?

Financial Reporting Analysis

Representing a company’s financial status with integrity is at the heart of financial analysis reporting. Management analysts rely on this act of faithfulness and reliability to produce complementary extended financial analysis reliably in connected systems. A breakdown in the chain link must be identified or raise the risk of profit and product quality loss due to negligence. For example, automobiles require sparkplugs to ignite fuel in engines, but the wrong size and fit for a particular make and model will mostly like impair the engine’s performance or completely fail altogether. Systems thinking begins with the question asking why the car isn’t working (the big picture) leading to the more minute issue of problem tracing. In the same way, management analysts use systems thinking to examine organizational components in relation to the whole in order to make recommendations to create a smooth-running environment.

Diagnostically speaking, management analyst my use several financial ratios to diagnosed problems in a sea of financial records. Typically, using one or two ratios to diagnose organizational problems is insufficient. Examining several as a bundle is preferable. Two of the most common include liquid and asset turnover ratios as larger categories of a subset. Liquid ratios determine an organization’s ability to pay its current debt. The typical equation is a current ratio dividing current assets by current liabilities. Asset turnover ratios assess

how quickly an organization can dispose of its products through sales and the level of product retention within a warehouse. Products held for an extended period in a warehouse is costly and indicates product inflow/outflow disfunction. Applying systems thinking prompts the management analyst to explore the causes behind stagnation with the goal of offering solutions that complement rather than impair the larger chain of systems.

?Auditing Analysis

As an interdisciplinary profession, management analysts can benefit substantially by garnering and applying professional auditing skills. The disciplined characterized by a sleuth-like detective mindset with a propensity for numeric detail. Much like financial statement readers, auditors understand the intricate details of financial statements (i.e., balance sheet, income statement, cash flow statement, and retained earnings) and how results are obtained. They also know that business managers have enormous latitude when it involves estimations and the kind of information they release in addition to when and where it is released. It is this specific aspect of the auditing process that creates an open door for management analysts to utilize systems thinking to explore the deeper recesses of an organization’s leadership team and the motivations that influence strategies and objectives.

???????????To illustrate the need for caution in accepting managerial estimations at face value, consider that the accounting watchdog GAAP makes allowance for managers to estimate the amount of loss anticipated for an upcoming period due to bad debt. Bad debt is the amount of money consumers fail to pay over a reasonable time period. It’s the amount businesses estimate as the cost of extending credit deeming the profitability of the endeavor outweighs the potential loss. This allowance is often given substantial attention by professional auditors as the write-off amount can be absorbent requiring corroborating justification perhaps based on historical record. Management analyst can use the same process while applying systems thinking to determine whether or not the findings are material (auditing term) or relevant. If confirmed to be relevant, systems thinking management analysts will consider the impact on other organizational components contributing to the whole.?

Summary

???????????The management analyst profession stands poised to make a significant impact in large and especially small businesses. Throughout the pandemic small businesses suffered enormous loss struggling to find footing by reimagining its structure going forward. Management analysts can help micro entities understand their place in a chaotic business environment by using systems thinking to examine the business’s operations and especially from a financial point of view. Analyst professionals can assist these organizations take a multi-dimensional by taking a bird’s eye and telescopic view in order to gain a clearer vision in navigating torrential economic waters.

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