Does Your Business Need a Financial Analyst?

For many small businesses, the owner may do everything: bookkeeping, financial planning, marketing – the list goes on. But as they grow, many companies take on accountants to help run the books and keep finances in order. When that accounting staff no longer has the bandwidth to take on new projects, it may be time to diversify the financial team with a new hire – a financial analyst. 

What Does a Financial Analyst Do?

Falling under the “financial planning and analysis” (FP&A) operational umbrella, a financial analyst is more involved with future planning and analysis than they are with day-to-day accounting. For instance, they might focus on long term goals, like 5- or 10-year forecasts, and maintaining up-to-date data to identify internal trends. Financial analysts utilize key performance indicators (KPIs) to develop models and tools for consistent financial reports and review company-wide data to provide insights and recommendations. They might create presentations with historical data, forecasts, and industry-specific research to propose ways the business might cut costs or boost profits.

While financial analysts in larger companies might report to the manager of the FP&A department, those in small companies may report directly to the CFO or controller. If a CFO sees that a product line has a 25% profit margin compared to a competitor’s 35%, for example, they can turn to a financial analyst to find out why. The analyst’s report might combine marketing data on ad campaign return-on-investment (ROI), sales data on the profit margins across the product line, and on-the-ground research on in-house costs. Quantitative and qualitative data inform a financial analyst’s recommendations in a way that can be more insightful than relying strictly on data from the accounting system.

There are also analysts who specialize in investments and work for brokerage firms, banks, and hedge funds. Even though they have the same job title as a business financial analyst, they have different responsibilities and different qualifications. A financial analyst working for an investment firm, for instance, might spend more time following stock market trends and have a stronger background in statistics than a business-focused analyst. When hiring, make sure your potential applicants have the right kind of experience for your business.

When your accounting staff doesn’t have the available time or skills to create the analytical reports needed to grow your company, it may be time to hire a financial analyst.

What Qualifications Should a Financial Analyst Have?

A financial analyst’s qualifications vary depending on what role they’ll play in a company. Many have an MBA or a bachelor’s degree in finance or economics, while others may be specialized in mathematics. A strong understanding of both micro and macroeconomics can help a skilled financial analyst integrate larger economic trends with internal financial data in their reports. Whatever your business needs, a good analyst should have strong problem-solving and quantitative-reasoning abilities.

One of the most important skills for a financial analyst is one less quantifiable on a resume – communication. Though analysts generally aren’t the ones making the important decisions for the company, it’s their job to clearly, concisely, and accurately present key information to the primary decision-maker(s), such as the CFO or CEO. Without strong communication skills, companies are at risk of costly misunderstandings. And without proficient presentation skills, even a well-written report may end up sitting in a file or spreadsheet without ever benefitting the company. 

Before choosing more specific qualification requirements, think about what skills can most benefit your business. If the analyst is going to be primarily focused on internal finances and budget management, they should be familiar with the underpinnings of accounting data, how to extract the right info from accounting systems, and how to communicate with accountants. If your business uses – or plans to adopt – cloud applications, automation, and AI, hiring a financial analyst with expertise in data analytics can help ensure you’ll be able to get the most out of these modern business intelligence systems. 

While not required, employers often recommend certifications like the Chartered Financial Analyst (CFA) certification, according to the U.S. Bureau of Labor Statistics (BLS).

When and Why Should You Hire a Financial Analyst?

There isn’t a set standard for when to add a financial analyst to your team. The position is diverse enough to accommodate different needs at different times in a company’s life cycle. One of the most useful measures to consider is time. Does your staff, including you, have enough time to properly take stock of the ins and outs of the business? You may be getting through day-to-day financial operations, but if you don’t have the time to regularly look for ways to increase efficiency and long-term growth, now may be the time to hire a financial analyst.

Here are some additional reasons to hire a financial analyst:

• Improve gains and trim losses. A company may be in the black, but a closer look can reveal that one business unit or product line is making large profits that mask another unit’s or product’s losses. An analyst can help identify ways to boost profitable endeavors and trim waste to increase the bottom line. 
• Forecast the future. A financial analyst’s forecasts can include industry-wide trends and historical data to help a business prepare for the future.
• Set a better budget. When a CFO sets a budget, a financial analyst can check its validity and ensure that it is realistic by conducting a reasonableness test using market data and tracking KPIs. 
• Streamline internal processes. Financial analysts can help identify areas where redundancies and waste exist, helping line-of-business managers understand what aspects of their operations can be adjusted to increase efficiency. 
• Increase company communication. Whether an analyst is working alone or as a project manager, having a central figure to collect and analyze data from all parts of a company’s finances can keep communication more transparent and effective, all the way up to the CFO.

While not as common, independent financial analysts can be contracted for a specific project or goal instead of creating a permanent position. A startup without much internal data may want an analyst to help project initial sales for an early product launch. A transitionary analyst can also help with a move into a new region or a push into a new market. Whether it’s temporary or permanent, when the current staff lacks the bandwidth – or expertise – to effectively handle the workload required for financial upkeep and future-focused planning, a financial analyst can help.

How Much Do Financial Analysts Cost?

A financial analyst for a large firm may earn a sizable paycheck, but the financial analyst role can also be an entry-level staff job. According to the BLS, the median annual wage for financial analysts was $81,410 in May 2021. The lowest 10% earned less than $48,740, while the highest 10% earned more than $163,640.

Key variables affecting compensation include the size of the company, industry, location, experience, and responsibilities. 

The Takeaway

When your accounting staff doesn’t have the available time or skills to create the analytical reports needed to grow your company, it may be time to hire a financial analyst. From creating focused product profit-margin profiles to 10-year growth and investment forecasts, a good financial analyst can integrate internal and external data to provide valuable recommendations and strategies for the future.

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