Financial diagnosis
Financial diagnosis for companies in Panama
Financial statements say what happened. A diagnosis says why, how much of it will repeat, and what has to be dealt with first.
DB Consultants Group prepares financial diagnoses for companies in Panama that need to understand their own operation before deciding.
When
The questions behind it
- «We sell more and earn less.» The most frequent case, and almost always a problem of product mix or of costs growing faster than revenue.
- «We are profitable but there is no cash.» The profit stayed in inventory and in receivables.
- «I don’t know which business line leaves a margin.» The consolidated result hides the fact that one line is carrying the others.
- «The bank is asking for something I don’t have.» Before asking for financing you have to be able to explain last year.
- Before selling, buying or bringing in a partner. It pays to know what the other side will find, with time to fix it.
The scope
What gets analysed
Real profitability
Margin by business line, by product and by customer, with indirect costs allocated on a defensible basis rather than spread in proportion to sales.
Cash conversion cycle
Days of inventory, of collection and of payment. The gap between the three is the working capital the company has to fund every month.
Debt structure
Tenors, rates, collateral and, above all, whether the match between what has to be paid and what the business generates is sustainable.
Break-even point
How much has to be sold to cover the structure, and how far sales can fall before the company moves into loss.
Quality of information
Whether the accounts reflect the operation. It is the first thing reviewed, because everything else depends on it.
Sector comparison
The company’s indicators against its sector, to separate what is a company problem from what is a market condition.
The process
How it is done
- Information and clean-upThree to five years of financial statements, detail of sales and costs, debt and corporate structure. Non-recurring items are normalised.
- InterviewsWith the people who run the operation, not only with those who record it. The explanation for a variance is almost never in the general ledger.
- AnalysisProfitability, liquidity, leverage and efficiency, over time and against the sector.
- Findings and quantificationEach problem with its impact in money, so they can be ranked by what they cost rather than by how much they worry anyone.
- Recommendations and presentationAn action plan with owners and deadlines, presented to management or to the board.
Two to four weeks, depending on how orderly the accounting is.
Deliverables
What the client receives
- The diagnosis report, with the findings ranked by their impact in money.
- The indicator dashboard in a spreadsheet, to repeat the analysis every quarter without starting over.
- The profitability analysis by line, product or customer, as far as the information allows.
- The action plan, with prioritised measures, their estimated effect and who executes them.
- A presentation session for management or the board.
When the diagnosis points at costs, the natural continuation is an activity-based costing study; when it points at liquidity, cash flow management.
Warnings
What a diagnosis usually disproves
- «The star product is the one that sells most.» With indirect costs properly allocated, it is often the one that leaves least.
- «The problem is collections.» Often the problem is the payment term granted at the point of sale.
- «We need to cut expenses.» If it is the gross margin that deteriorated, cutting overheads fixes nothing.
- «The sector is having a bad year.» The sector comparison separates what belongs to the market from what belongs to the company.
- «The accounts are up to date.» Being up to date is not the same as reflecting the operation.
Common questions
Frequently asked questions
How does it differ from an audit?
An audit verifies that the financial statements are fairly presented. The diagnosis starts from that information to explain why the business produces what it produces and what can be changed.
How long does it take?
Two to four weeks. The timeline depends on how orderly the accounting is, more than on the size of the company.
Is it useful if the accounting is not in order?
Yes, and that is usually when it is needed most. Part of the work is pointing out what information is missing and which decisions cannot be taken with what exists.
What information do we need to provide?
Three to five years of financial statements, detail of sales and costs, a list of debt with its terms, and access to whoever knows the operation from the inside.
Does it include recommendations or only the analysis?
It includes an action plan with the measures ranked by impact in money, with owners and deadlines. A diagnosis without recommendations is of little use.
We report to a parent company abroad. Can the report follow its format?
Yes. The report is delivered in English and the indicators can be presented in the parent company’s format, with a note explaining the local practices that make a Panamanian subsidiary’s figures read differently.
Can it be repeated every year?
Yes, and that is the recommendation. The indicator dashboard is delivered open so the company can update it every quarter on its own.
Is the engagement confidential?
Yes. The nature of every engagement is confidential and is not disclosed without the client’s written authorisation.
Let’s talk about your company
A first conversation is enough to define the scope and establish what information exists. It is confidential and commits you to nothing.