With a growing fascination surrounding data and its various business uses, today’s accounting professionals need to make the most of this valuable resource to stay ahead of the curve and drive the best outcomes for their clients.
Although not known for their technical prowess, CPAs are analytical at heart, making them the perfect candidates to harness the power of predictive data analytics in their daily operations. By doing so, they stand to gain clients, grow their business and future-proof their firm.
Continue reading to learn more about predictive analytics in finance and accounting and discover the importance of leveraging data to inform your decision-making.
Simply put, data analytics is the process of collecting, evaluating, organising and transforming data to identify useful information and trends for improved decision making. It’s more than a tool — it’s a process that, when performed correctly, can offer a complete overview of the problem to help pave the way to a robust solution.
Accountants can use data analytics to help clients uncover powerful insights into their financial statements to slash costs, increase efficiency and improve risk management.
Without data analytics, accountants risk spending hours on manual processes to help their clients reach their financial goals. In a world dominated by convenience, this won’t cut the mustard anymore. Embracing data analytics is an important part of future-proofing your firm.
There are four main types of data analytics:
Descriptive analytics
Descriptive analytics answers the question “What has happened?”. It’s used daily in finance and accounting, as CPAs frequently generate reports on spreadsheets, using functions such as sums, averages and correlations to determine what’s been happening with clients’ finances.
Diagnostic analytics
Diagnostic analytics is used to answer the question “Why did it happen?” to investigate anomalies, variances and historical performance. This analysis of past events is critical to building reasonable forecasts in the future, which leads us to the next category.
Predictive analytics
Predictive analytics helps determine what’s going to happen. Clients depend on their accountants to build accurate forecasts and identify the patterns that shape these forecasts. The process requires a theoretical foundation and using existing data and statistical tools to confirm the theory and drive accurate predictions.
Prescriptive analytics
Prescriptive analytics informs the future steps that a business needs to take to achieve the desired results. In other words, accountants can use their forecasts to make recommendations to their clients or raise alerts on poor choices.
Predictive analytics helps accountants offer insights into their clients’ business problems and identify areas for improvement. Here are some ways CPAs are putting predictive analytics to good use in their day-to-day operations:
- Building budgets: Creating an annual budget is no small feat, especially for larger clients that may have thousands of entries. However, many items involve predicted costs and not actual costs. If not accurately estimated, the business may be left with a significant difference between budgeted costs and actual expenditure. Predictive analytics processes data from a range of sources to help you spot subtle patterns and trends, resulting in a more precise budget for your client.
- Analysing loss drivers: As an accountant, your clients expect you to advise them as well as crunch the numbers. By employing predictive analytics, your firm is equipped with invaluable foresight about potential resource drains. Relaying this information to your client and offering advice on how to prevent the situation from worsening boosts their confidence in your firm and bolsters your relationship with them.
- Forecasting sales: What drives people to make sales is a complex equation with a number of variables, so manually predicting future sales is practically impossible. However, predictive analytics technology can accurately and quickly assess data from various sources to reach a precise sales forecast. Accountants can, therefore, empower their clients with the data they need to make critical decisions concerning expansion and recruitment.
- Expanding your firm: Predictive analytics doesn’t only give you a competitive edge in terms of your service offering. It can also help you grow your own business. Predictive analytics can compute the many variables involved in scaling a business to help determine whether your firm can support growth from both a financial and operational perspective.
Analysing data is considered a must-have skill for accountants these days as we move towards a more advice-driven profession. By mastering the art of predictive analytics, CPAs can deliver unmatched results for their clients, ensuring a thriving firm in the future.
There will always be challenges along the way. For example, you may need to take a short course to get the most out of data analytics and provide your employees with training. But one thing’s for sure, big data and predictive analytics hold a wealth of opportunity for firms.
In fact, the process can help you:
- Make better judgments based on the insights gathered to help grow your firm
- Create added value for your clients by providing solid advice that they can use in their business decisions
- Achieve automation for greater efficiency and productivity in the office
The widespread use of data analytics will continue to expand in the coming years. Consider getting ahead of the curve to set your firm apart from your competitors and begin developing your expertise in data analytics today.
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