Balance sheets are the lifeblood of financial institutions like banks. They are financial statements that account for these three things:
- The company’s assets, or what it owns
- The company’s liabilities, or what it owes
- The company’s shareholders’ equity, or how much money has been invested into the company by its stakeholders.
A basic balance sheet will balance the accounting equation of Assets = Liabilities + Shareholders’ Equity. This will help the company arrive at the value of its assets, plus how much they’ve paid for assets through borrowed money or equity. Kept from period to period, balance sheets provide individual snapshots that, when taken together, paint a clear picture of the company’s financial health. They also serve as the basis for the evaluation of a company’s capital structure, the determination of its financial ratios, and the forecasting of its returns.
For a financial institution to achieve mastery over these numbers, it should put excellent balance sheet management into practice. For one, a better grasp of this skill can provide company leaders with the information they need to make important decisions. Additionally, it can also attract new investors and win their confidence in the business. Besides assets and liabilities, comprehensive balance sheet management involves putting attention on the following areas:
- The regulatory policies followed by the company for its investment securities
- Any bank-owned life insurance programs
- The company’s cash flow and the subsequent budgeting plans and forecasts that use this as their basis
- The company’s interest rate risk
- The company’s liquidity risk
To keep up with the demands of accounting for all these, your company may be considering the purchase of balance sheet management software. But before you can expect a big leap in your employees’ current skills, you should know exactly how the new software can help you. To that end, here is a list of must-have features for your ideal digital solution.
A Consolidated Platform for Managing the Data in Your Balance Sheets
The first thing you should learn about any potential digital option is its method of consolidating complex data. You will want to look for a solution that can handle all the company’s financial instruments on one powerful, consistent platform. It should help you and your staff break down silos of complex financial information so that you can balance the numbers much more easily. As a result, it should allow you to streamline all subsequent tasks related to balance sheet management.
In that respect, financial institutions should look for something that handles balance sheet data from a “single source of truth.” The platform’s faithfulness to authentic and constantly updated data will prove beneficial not just to balancing out assets, liabilities, and equity, but further financial decision-making.
Thorough Analytics Capabilities
The next thing you should look at is the extent of the product’s analytics capabilities. Modern-day financial institutions are highly dependent on data analytics solutions, and for good reason. They help companies attain a bird’s-eye view of what their most marketable assets are and what their liquidity situation is like. This will be evident in your solution’s handling of essential data related to fund transfer pricing, interest margins, liquidity ratios, or liquidity gaps.
The solution’s analytics features can also contribute to decision-making for processes that depend on the balance sheets. These include forecasting, profit planning, and capital expenditure budgeting. Lastly, some solutions are also capable of modeling “what-if” scenarios under great stress, considering prospective interest risks or liquidity risks. Your company should demand top-grade analytics capabilities from any new software that you buy.
Superior Cash Flow Planning Faculties
Another aspect that your software should assist you in is cash flow planning. Your balance sheets allow you to balance your company’s costs and earnings for subsequent periods based on what you have and what you owe. Your legacy system may only be doing the bare minimum to optimize your cash flow planning. Thus, it would be good for your new solution to cover this, too.
You should be able to use your new software to get an accurate view of your cash flow from operations, investment activities, and financing activities. If this is possible, it will be easy to implement cash flow strategies that help your company save money and be wiser about its expenditures.
A fourth feature you should look for in a comprehensive solution is scalable architecture. Truth be told, you shouldn’t be using the exact iteration of this software forever after you buy it. You should look for the type that, by its very design, will be easy to upgrade, maintain, and integrate with other financial management software.
When it comes to investing in the right software, foresight into its future capabilities is important. You don’t want it to improve your balancing abilities just for your present needs. Buy software that may eventually allow you to do more as time goes by.
The last feature you’ll want out of your new solution is very important in the eyes of your employees: user-friendliness. Truly, one that make tasks easier and more pleasant for your company staff will go a long way toward optimizing your processes for maximum efficiency in the long run.
Green flags for user-friendliness include, but are not limited to, the following:
- Extensive automation
- Notifications for workflow management
- Integration with other aspects of financial planning
- Easy-to-read dashboards
A top-notch solution will feel intuitive and natural for your staff to use. And this, of course, will allow them to do their accounting duties at an even higher level of professionality.
Conclusion: Inspire Confidence in Your Company with Good Balance Sheet Management Practices
In times of both prosperity and economic crisis, well-managed balance sheets are what inspire confidence within the company and among new investors. They allow a financial institution to buffer its liquidity and stay proficient at managing risk. If all goes well, proficiency in this skill may also allow a business to tackle not only its present profits but also its future business volume.
Think carefully about what kind of solution you’ll be purchasing for your company. Acquire the kind that will help you uphold precise, holistic, and forward-thinking balance sheet management practices.