Recently I have come across many misuses or avoidance of using financial analyses in corporate governance by some CEOs or pretty large companies in Latvia. Each time I try to understand the point of a person that is avoiding financial analyses as some kind of ‘disease’. It turns out that arguments usually are more or less the same. Summarizing main arguments against using financial analyses or even using some KPI are that it is expensive or it takes much time. By such reasoning obvious it is easy to relay on data received from accountant rather than calculating KPIs. As I do not agree to such reasoning I give few arguments for using financial analyses.
Simple financial analyses can be done using pencil and paper or in more ‘sophisticated way’ by using excel spread sheet. In times of start-up businesses when new projects and creative ideas tend to get born each day it would not be wise to employ expensive tools however it is more than important to use financial analyses and see perspectives. It is more expensive not to use financial analyses for day to day business than using it.
‘Time is money’ and today it could be truer than ever before. As costly it is to spend some time on a business idea development it is to lose investments already invested in terms of time and money. In many cases financial analyses done at a time of investment, after or before would help if not to foresee outcome of investment but at least minimize losses and maximise profits.
Summarizing, financial analyses are less expensive than losing money and less time consuming as it would be to restart business idea once again. The only argument that comes into my mind why many experienced companies avoid financial analyses is that they are afraid to see truth behind data accounting data that they are so used to see once a month.