Why You Should Give Two Flux About Flux Analysis
Oct 22, 2018 | By Rob Feinstein
Hey, accountants! FloQast thinks you should give a Flux about Flux Analysis. In fact, you should give two Flux—every month—as in one for the balance sheet and one for the income statement. That’s why today we’re announcing FloQast’s version of Flux Analysis—a better way to Flux.
Before we tell you about our new feature, some background is in order.
Flux Analysis—short for the stuffier Fluctuation Analysis, and sometimes called Variance Analysis—compares ending account balances for the just-closed period to a given prior period, e.g. Current Month vs. Prior Month. It includes dollar and percentage changes—noting items with material differences—and provides written explanations for why the numbers changed.
We were startled to learn in a recent FloQast user survey that so many teams skip Flux each month. Less than 60% of accounting teams on FloQast do a Balance Sheet Flux as part of their monthly close process. It’s only slightly better for Income Statement Flux: only two-thirds of teams do a monthly check of period-to-period fluctuations in line-item revenues and expenses.
As a best practice, both types of Flux Analysis should be a rote element of every close; most accountants at midsized companies and larger would agree. There are several reasons why:
- During the financial close process, comparing the close period’s ending balances to prior periods is a useful accuracy check. If there’s an abnormal fluctuation, it could just be a symptom of missing data. Better to find and correct those issues early.
- When wrapping up a vetted close process, Flux is a great format to show confirmed variances that highlight material changes in the business.
- Being closest to the overall company numbers, the Accounting team is best positioned to provide crisp Flux explanations (fluxplanations?) of what’s driving any material changes. That gives Accounting a more important ‘seat at the table’ as part of company leadership.
So why is Flux done so spottily? What the Flux is going on here?
In speaking to our users more about Flux, we confirmed our suspicions.
It’s simple, really: it’s a matter of time.
For most teams, Flux Analysis takes a lot of time. And as if the close isn’t time-crunched enough already, Flux tends to happen last in the process. There’s simply not enough time to do it well, so teams too often don’t do it at all.
While ERPs typically can create a report to compare balances from one period to another, they don’t support a complete Flux Analysis. Most fundamentally, there’s no way to add written explanations in an ERP report. So teams wind up exporting the data to Excel, then manually identifying material fluctuations and adding explanations—when they can.
Moreover, all of that has to wait until all ending balances are locked down, lest the process need to start all over again if any figures have changed.
So our FloQast team wondered: can’t there be a better way? Spoiler alert: there is! It’s our new FloQast Flux Analysis module.
FloQast Flux is different because it’s built right into FloQast, so accounting teams can work on Flux Analysis anytime - including entering explanations text. Material fluctuations are automatically flagged. Balances in Flux update dynamically in the same way all balances elsewhere in FloQast are updated. So unlike the old export-and-report method, there’s no worry about needing to start over if any numbers change.
Other key features in FloQast Flux Analysis include:
- Flexible comparison periods, including month-over-month, quarter-over-quarter and year-over-year comparisons.
- User-set materiality thresholds for Balance Sheet and Income Statement.
- Excel export for sharing Flux outside of FloQast.
- Custom account groupings to enable accounts to be grouped any way your company likes.
- Explanations at individual account and group levels.
- Expand and Collapse views for deep dives into account detail.
During our research and beta periods, we’ve been very gratified and excited by the reception our Flux Analysis module has gotten. We asked several users to score it on a zero to five scale: with zero being ‘nice to have’ and five being a ‘lifesaver’. We knew we were onto something powerful when we heard mostly fours and fives. High five, Flux!
You and your teams, of course, will judge for yourselves.
But we’re confident that if your Flux has run amok, shucks that sucks but you’re in luck.
Interested in seeing FloQast Flux Analysis in action? Schedule a demo today!