Let’s say you start a business. You have a great idea and the skills to make it happen. You take the time to research the market demand and figure out what they want. You’ve also created a specialized team so that everyone works with 100% focus.
With such preparation, you could say this company would make brilliant decisions. But what we haven’t covered in the business plan are expectations.
You see, no company starts with a perfect solution. There are some trial and error involved, which is why the entrepreneur requires market feedback. You launch a product, interpret your audience, and make new decisions based on that data.
The question is: what’s the point of making smart decisions when you base on wrong information? Failing this process could create misleading expectations, canceling even the best of strategies.
What an easy solution: just add more metrics! But there’s one little problem: you.
As an entrepreneur, you want to see your business succeed. You devote time and effort to your project and believe in it before anyone else does. Ironically, these beliefs prevent us from thinking clearly.
If you don’t believe us, take a look at your business successes and failures. Chances are you overestimated how much money you were making or underestimated the problems.
The solution? Find a person outside the company who can judge it from the most logical point. Everything may look great from the inside, but are you really getting results or just “working?” Financial analysts try to solve this problem.
What Does a Financial Analyst Do?
In its most basic purpose, the analyst will evaluate the current financial state of a company. With this research, investors can estimate worth and manage funds accordingly.
And once you know where you currently are, it’s easier to know where you’re moving. But before making status projections, the analyst must learn about the ongoing projects and how the team works. So you may find sub-types of financial analysts, each of them for every specialty/business model.
But there’s not much use in knowing the future if it’s not the one you want. That’s why analysts often work closely with the management team. One person makes the research plus projections, and the group reviews whether it aligns with their vision or not.
Once the analyst knows what the company goals are, he can explain to the team how the current projection compares with the direction they want.
It may sound abstract. But when it comes to growth, the decisions you make have more impact than the hours you put. C-level executives will relate.
Because of the problems they solve, the average financial analyst makes $85,000 a year. Here, your expectations should calibrate based on your work ethic, skills, and background. The lowest 10% earns around $50,000, while the highest 10% makes over $140,000.
Also read our guide to accounting fraud.
The Day Of A Financial Analyst
What do they exactly do to solve these problems? Your activities will depend on your skill, professional experience, and the team projects going on. You can sum up their work as gathering news information, creating theories with this data, review reports, and communicate with other members.
The most competitive brands may need metrics to update daily, which is why they hire entire teams of financial analysts.
A night of preparation
No matter what your work is, for successful people, your day starts the night before. As soon as you wake up, you want to have all the decisions made already, so you can focus on doing.
Common schedules would end around 9 PM. From there, any extra work involves preparing for the next day:
- Review client lists to contact in the morning
- Develop talking points for the next team meeting
- Send last-minute messages to clients and managers, as necessary. It may include communicating with senior analysts for instructions.
Most analysts end the day early (10-11 PM) to prepare for the news that comes out in the morning. If you’re the first to wake up and address these updates, you will start your day with an advantage.
The morning routine
Around 6 AM, financial analysts (both juniors and seniors) take some time to check the news. Not only do they need to be updated, but understand what part of those events matter and at what degree they affect the company’s goals.
Next thing in the morning, the analysis team will update every relevant file daily.
After covering the essentials, most of their time will go to gathering data, reviewing reports, and talking to clients (it depends whether the analyst specializes in accounting or selling). Because the analyst offers transparent reports, clients can easily trust the company and make an informed investment decision.
Analysts spend their time reviewing and passing reports to each other. That’s because not even the best analyst can think 100% logically. Constant feedback with a financial team helps to gather objective data.
Although it may sound overly perfectionistic, many people rely on this information. The team makes decisions based on those reports, and clients use them to choose their investments.
Having a 1% margin of error may not seem like a big deal today. The problem is that tomorrow’s reports will derive from today’s ones. If you do that long enough, your metrics will have nothing to do with what’s really going on. Hence the constant communication and reviews.
By the end of the day, financial analysts submit their research notes for approval. Their work and results will determine what their next day’s goals will be.
How To Become A Financial Analyst
Although it sounds like a simple job, every person sees it differently. Would you like to spend every day learning about finance, helping companies with their numbers? If you like the idea and are willing to develop the skills, you could one day earn what the 10% makes: six figures.
Financial literacy and reporting: You can measure results when you don’t understand metrics and how they interconnect. You need to learn the language of money before you can theorize.
Most companies will value analysts who already spent time working with others. As long as you left that company for the right reasons, you will be welcome in the new one. These days, most expect you to have received some formal training on business accounting. Having a portfolio will not hurt either.
Analytical thinking: The management team may have its opinion, but the analyst is the one who updates the information. It takes discipline to disregard what people want to hear and show the facts instead. The sooner analysts present mistakes and problems, the better the team can prevent them. Omitting bad news hurts the company long term.
Ironically, analysts must consider margins of error, since nobody can research 100% objectively. They guide on principles people would consider counterintuitive.
Technical knowledge: Things are different in 2020. Unlike traditionally, most analysis work is already automated by computers, making everything easier. Is their profession at risk?
Not really. Companies still need someone who can understand this software and use it optimally. The analysts who develop these skills will be able to earn more in less time (aka smart work).
Communication: At the end of the day, analysts work for a business environment, not a research station. The markets work because of people; you can’t make any money without interacting with others.
Even though you’re not actively selling products, as an analyst, you should communicate. Listen to the team to know what they need, explain your research to them, and how it relates to their goals. Get feedback and readjust.
The same happens with clients. They won’t invest money unless someone shows them the actual numbers to back up the marketing claims.
The Bottom Line
Financial analysis skills are in high demand in today’s uncertain markets. When people don’t know where to put their money, they will study the research made by objective financial experts.
Who doesn’t value communication, critical thinking, or problem-solving? These professionals help firms understand where they are going, what may change, and take action on problems before they happen.
Those who understand the market will have the best preparation.