According to Investopedia, a financial gap analysis is “a method companies use to measure their current performance with their future or desired performance.”  In short, this means taking a hard, honest look at where you are financially as a company, where you're falling short, and comparing that to the often optimistic vision of where you would like to be. This is a necessary first step in making improvements in your financial outlook and preventing problems down the line.  Let’s dive in.

What is a Financial Gap Analysis?

A financial gap analysis is a powerful tool designed to dissect and analyze your company's  current financial health, highlight areas of improvement, and set the stage for strategic, planned growth. This process not only demystifies your current financial position but also provides a roadmap allowing you to bridge gaps, adress necessary risks and capitalise on opportunities. 

Whether you're a startup navigating initial growth phases or an established company ready to scale, understanding the nuances of your financial gap analysis is vital to making informed decisions that make that long-term financial vision a reality. After the gap analysis, your executive team, along with a consultant from Outsourced CFO, will be in a much better position to make informed decisions that can bridge any gaps and tackle issues to minimize and mitigate these risks where possible.

How do you conduct a financial gap analysis?

There are a number of ways in which to conduct a gap analysis, but the following steps will offer a good overview of your business's current position. 

1. Identify your objective: Define the specific business areas you want to analyse. Based on the information provided, this would include aspects such as company structure, financial analysis, compliance, and more. It pays to get an overview of all the moving parts. 

2. Data Collection: Gathering as much data as possible about your company and its current situation is a crucial starting point. If your in-house team is not fully able to handle such a comprehensive overview, call a part-time CFO from Outsourced CFO to lend a hand. Concentrate on the following:

• Company Structure and Ownership: Obtain details about ownership distribution, corporate hierarchy, and organisational design.
• Product and Services Offering: Catalog all products and services, including their revenue streams, profitability, and market positioning.
• Industry Analysis and Trends: Research current industry benchmarks, emerging trends, and potential disruptions.
• Business Model Analysis: Understand how your company creates, delivers, and captures value.
• Financial Analysis: Assemble key financial statements and conduct a detailed review.
• Asset and Liability Structures: Review the current asset distribution, liabilities, and overall capital structure. 
• Systems and Processes: Evaluate the current systems that are already in place, focusing on efficiency, integration, and scalability. 
• Compliance: Check for adherence to industry regulations, standards, and best practices.
• Management and Human Resources: Analyze the competency, distribution, and effectiveness of the managerial team and broader staff.
• Funding Considerations: Understand the current funding model, evaluate its efficiency, and explore potential alternatives.

3. Analyze & Identify Gaps: Using the collected data, pinpoint areas where your company falls short of desired standards, industry benchmarks or in-house objectives across all areas.

4. Risk Register Compilation: List key risks and gaps, especially within the finance function. This is a critical document that you will use in your planning and as guidance for your roadmap to success. 

5. Recommendations: The Risk register, coupled with actionable recommendations, are a  pivotal part of the gap analysis. These allow you to prioritize the main areas within the finance function that need your immediate attention, then set up a plan to minimize and mitigate these risks as much as possible, in consultation with your CFO. This could involve, for instance, strengthening internal controls, optimizing cash flow management, or addressing compliance issues. 

6. Roadmap Creation:

Develop a strategic plan or roadmap that outlines practical, actionable steps to enhance your finance function. This roadmap should provide detailed short-term and long-term initiatives, outline resources required, timelines, and specify expected outcomes.Given that the finance engine often drives business growth, ensure your roadmap also aligns with your broader business growth strategies. As always, we recommend that you talk to the team at Outsourced CFO in order to align and optimize all parts of your business. 

7. Report & Share Findings:

Working with your finance team, consolidate all findings, recommendations, and the roadmap into a comprehensive report. Present this to key stakeholders, ensuring a clear understanding of the present state, areas of concern, and the way forward. It is important that management and staff are on the same page here, as everybody needs to work together to ensure a positive outcome.

8. Implementation & Monitoring: There’s no point in identifying problems if you aren't going to take action. Begin executing the strategies outlined in the roadmap, and make sure to monitor progress, make adjustments and ensure alignment with the broader business goals.

9. Periodic Review: Regularly revisit and revise the financial gap analysis. Things can change very fast in the business world, and it pays to stay agile and reactive. 

What are the benefits to a business of a financial gap analysis?

In short, a financial gap analysis offers businesses a clear insight into their current financial health compared to desired outcomes, identifying discrepancies and potential risks. By spotlighting these gaps, companies can prioritize areas that need immediate attention, formulate targeted strategies to bridge these deficiencies, and ultimately drive informed decision-making, optimize resource allocation, and benefit the bottom line.

Outsourced CFO offerings

The Outsourced CFO financial gap analysis looks into every aspect of your company, allowing both you and your CFO to gain a full overview of your business, highlighting problem areas and plotting these out into a sustainable roadmap for growth and financial success. Business risks are highlighted and recommendations for building a world-class finance function are made. After the gap analysis, you and your executive team will be in a much better position to make informed decisions when taking the next steps toward growing your business.

The Financial Gap Analysis is often the first step in our CFO Services Retainer Package at Outsourced CFO. Make sure there are no gaps in your business future. For more information or to contact our team, visit www.ocfo.com