Financial Analysis Made Simple

The Numbers Problem

Most small business owners aren’t accountants. But you need to understand your numbers to make good decisions.

The result? Many business owners avoid their finances until tax time, when it’s too late to make changes.

AI can help you understand what you’re looking at, ask better questions, and catch problems early.

What AI Can and Can’t Do

AI CAN help you:

Understand what financial terms mean
Analyze patterns in your data
Create forecasts and scenarios
Generate questions to ask your accountant
Summarize reports into plain language
Build budgets and track against them

AI CANNOT:

Give professional tax or legal advice
Replace your accountant or bookkeeper
Guarantee the accuracy of financial projections
Make decisions for you

Always verify important financial decisions with a professional.

Understanding Your Key Numbers

Numbers to track monthly:

AI: "Explain these key financial metrics in plain language
for a small business owner. I don't have a finance background.

For each, tell me:
1. What it means in simple terms
2. Why it matters
3. What range is healthy
4. Warning signs to watch for

Metrics:
- Revenue
- Gross profit / Gross margin
- Net profit
- Cash flow
- Accounts receivable
- Accounts payable"

Key insight: Revenue is vanity, profit is sanity, cash is reality.

Analyzing Your Financial Data

When you have data from QuickBooks, your bank, or a spreadsheet:

AI: "Analyze this financial data and tell me what you see.

[Paste monthly data: revenue, expenses, categories]

Questions I want answered:
1. What trends do you notice?
2. Where is money going? (expense breakdown)
3. Any unusual items or red flags?
4. How does this month compare to previous months?
5. What questions should I be asking?"

Remember: AI gives you analysis and questions. You provide context and make decisions.

Cash Flow Analysis

Cash flow is how money moves in and out of your business—and when.

AI: "Help me understand my cash flow situation.

Monthly income: [amount]
When it typically comes in: [timing - beginning, middle, end of month]

Major expenses:
- [Expense 1]: [amount], due [when]
- [Expense 2]: [amount], due [when]
- [Expense 3]: [amount], due [when]

Current bank balance: [amount]
Accounts receivable (money owed to me): [amount]
Accounts payable (money I owe): [amount]

Questions:
1. Do I have a cash flow problem?
2. When during the month am I most at risk?
3. What would help smooth out the ups and downs?"

Budgeting with AI

Creating a budget:

AI: "Help me create a monthly operating budget.

My business: [type]
Average monthly revenue: [amount]
Goal: [what you're trying to achieve]

Current major expenses:
- [Category 1]: [amount]
- [Category 2]: [amount]
- [Category 3]: [amount]

Create a budget that:
1. Accounts for my current expenses
2. Allocates appropriately for growth/savings
3. Includes a buffer for unexpected costs
4. Is realistic for a business my size"

Quick check: Before moving on, can you recall the key concept we just covered? Try to explain it in your own words before continuing.

Budget vs. actual analysis:

AI: "Compare my budget to actual spending this month.

Budget:
[Paste your budget]

Actual:
[Paste actual numbers]

Tell me:
1. Where did I go over budget?
2. Where did I come in under?
3. Which variances matter and which are noise?
4. What should I adjust for next month?"

Pricing Analysis

Not sure if your prices are right?

AI: "Help me think through my pricing.

My product/service: [what you sell]
Current price: [amount]
My costs to deliver: [amount or description]
My competitor prices: [what you know]

Questions:
1. What's my margin at current pricing?
2. How does that compare to healthy margins for my industry?
3. What would different price points mean for my revenue?
4. What should I consider before changing prices?"

Forecasting and Scenarios

Simple forecasting:

AI: "Create a simple 6-month revenue forecast.

Last 6 months revenue:
- Month 1: [amount]
- Month 2: [amount]
- [etc.]

Known factors:
- [Seasonal pattern, if any]
- [Planned changes]
- [Market conditions]

Create three scenarios:
1. Conservative (things don't improve much)
2. Base case (current trajectory continues)
3. Optimistic (things go well)

What assumptions are behind each?"

“What if” analysis:

AI: "Help me think through this decision financially.

I'm considering: [investment, purchase, hire, etc.]
Cost: [amount]
My current situation: [brief financial context]

What would need to be true for this to be a good investment?
What are the risks?
How do I calculate the ROI?"

Talking to Your Accountant

AI can help you prepare better questions:

AI: "I have a meeting with my accountant. Help me prepare.

My business situation: [brief description]
Recent financial events: [anything notable]
Decisions I'm facing: [choices ahead]

Generate 5-10 questions I should ask to:
1. Understand my current financial health
2. Plan for taxes
3. Make smarter decisions going forward"

Red Flags to Watch

Signs of financial trouble:

Consistently negative cash flow
Growing accounts receivable (people not paying)
Profit margins declining over time
Increasing reliance on credit
Not knowing your numbers

Catch them early: Monthly review of key numbers, even just for 15 minutes, prevents surprises.

Exercise: Analyze Your Last Month

Take your financial data from last month.

What was your revenue?
What were your total expenses?
What categories were the biggest expenses?
Did you have more cash coming in or going out?
Any surprises when you look at the breakdown?

Use AI to help you interpret what you find.

Key Takeaways

Cash flow is reality—track when money comes in and goes out
AI helps you understand and analyze; it doesn’t replace professional advice
Monthly financial review (even 15 minutes) catches problems early
Use AI for budgeting, forecasting, pricing analysis, and preparing questions
Key metrics: revenue, profit, cash flow, receivables, payables
Red flags: negative cash flow, declining margins, growing receivables

Next: Managing sales and leads with AI assistance.

Up next: In the next lesson, we’ll dive into Sales and Lead Management.