Business analysis is the internal and external study of a company that helps build the business, improve efficiency, develop its functions and branch out to explore new opportunities in the market.
Financial analysis is the study of the company’s performance. It is the calculation and understanding of the functions of the business from existing data. Its focus lies in the growth of the current sources of revenue.
Both analyses have key importance in any growing business. While their main focus is on growth, they have different approaches towards it. In some cases, these analyses clash but are equally important in making decisions for a business.
Business analysis may not always lead to a direct influence on the revenue of the company. It can be viewed as an additional expense in the eyes of finance. However, a decision taken from a business analysis view could have a positive impact that can indirectly influence the revenue.
Let’s take a closer look at this.
When viewed internally,
The benefits of business analysis cannot always be measured financially but it is just as important for any business.
Financial analysis is limited to the existing data of the company. Its focus is based on the increase in revenue from the company’s existing revenue source. This practice may work to an extent, but it has its limitations.
Exploring a new source of revenue involves risk. More importantly, financial risk. Financial analysis helps calculate, plan and account for any such risk. The information from financial analysis such as cash position, cash flow, and cash projections help analyze how much risk a business can take on and assist in making the decision.
Further to this, business analysis is dependent on financial analysis even on an internal scale. Bringing back the staff training example, it is the information generated from financial analysis on employee’s performance that called for the need for staff training.
And if you decide to explore a new source of revenue you will require financial analysis to monitor its performance and growth. This will be the beginning of a new study from a financial performance point of view that will help develop this division.
The important thing to keep in mind when looking at both analyses is that business analysis is more suggestive and explores outside the existing business while financial analysis is facts about the business and focuses on improving things as is.
All the information gathered under business analysis is something to always have in the back of your mind. Rank the information between what is needed now and what you need to aim for.
Discuss the plans with your Finance Manager. He will tell you where you stand right now and what can be achieved in the near future. All the other plans you aim for can be budgeted and planned. New targets can be set for your existing source of revenue to help achieve your goals. By doing so, you will be able to get a better understanding of timelines and know how much risk is involved.
Both analyses are equally important to any business. They give you an insight into the company that will help you make the right decision. Regardless of the clash they may have, when used effectively they go hand in hand with each other. Communication is the key to effectively use these analyses. You want to work with the best who are on a lookout for a better understanding of the business. With the right team and reports, you can make good decisions for the business.
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