Business Analytics
Many of you know that ten years ago I was lucky enough to have served as Technical Editor for the book, Business Analysis with QuickBooks written by Conrad Carlberg and published by Wiley. Carlberg not only held a PhD in statistics, but was a leading author of texts on Excel and other books on business analysis. Conrad was absolutely convinced that accountants and business consultants would rely on the text to coax critical numbers from QuickBooks to garner a better understanding of the performance of their businesses because QuickBooks simply didn't provide any form of business analytics.
Please remember that ten years ago, when our text was being published, was just at the point at which Intuit was beginning to release what we think of as the 'QBO of today' and well before there were sophisticated Apps to work with QuickBooks. As a result, if you wanted critical information you had to extract the data yourself and compute the numbers, then turn that information into the kinds of meaningful analytics that most financial advisors had been preparing for years at the request of lending institutions.
As a result of my own awareness that an increasing number of business consultants were taking on a more 'advisory role', I felt it was critical that they have an educational resource that provided them with not only definitions of key business analytics, but the foundations of how those metrics were actually computed, and how the data could in fact be extracted from QuickBooks. The result was a wonderful friendship between Conrad and myself that led to a successful collaboration and a well received textbook, even if it didn't sell a 'gazillion copies'.
At the same time, the promotion of the App Developer Network by Intuit saw an increased interest in apps of all sorts. App developers soon recognized that they could easily extract the key data, crunch the numbers, and compute and display the business metrics and analytics which had typically taken hours. Best of all, these apps could do this work in 'micro-seconds'. It wasn't long before there were at least a half-dozen Business Analytics Apps or Financial Advisory Apps on the market designed to work specifically with QuickBooks Online.
Of course, a leading rationale has always been, businesses need this information, financial institutions want the information, it's too costly for CPAs or Advisors to prepare it manually, and QuickBooks doesn't offer the analytics internally within the program directly. It therefore seemed cost effective from both an App Developer and a Business standpoint when it came down to a 3rd-party-App as the method for obtaining this key data.
But within the last 10 months or so, Intuit has introduced 'Business Analytics' in QuickBooks (Online) via their Performance Dashboard. And just recently they have expanded those analytics within QuickBooks Online Advanced to include two of the most meaningful business ratios, 'the Current Ratio' and ''the Quick Ratio'.
Both of these are referred to as 'Liquidity' ratios that provide metrics of how well a company is positioned to convert its assets to cash should it need to do so in a hurry in order to meet its expected, or unexpected, liabilities. The 'Current Ratio' is probably the most common measure of a company's ability to meet its short term obligations. Both a company's lenders and creditors pay special attention to this ratio because it quickly tells them if the business is is a good position to be able to pay off their debts.
The 'new' Current Ratio analysis within QuickBooks Online Advanced.
New QBO-Adv Current Ratio Example
The 'Quick Ratio' is a very conservative look at the company's liquidity, much more 'acid' than the Current Ratio because it takes into account only those assets that really are likely to be easily convertible to cash should the company be required to do so. It dismisses those assets that typically will take much longer to 'sell-off' in order to make debt service payments or meet their accounts payable obligations.
Simply having the ratio data is one thing, understanding it is another. While the new QBO Advanced metrics give you the ability to compare the data to prior historical periods, it doesn't as of yet provide any 'interpretive analytics'. Many of the Apps (none of which I mentioned by name but which we have previously written about in various 'App Aware' and 'First Look' features) have over the past years developed such interpretive analytics and that makes them extremely valuable. But Intuit has just jumped into this metrics and analytics offering, and with their depth of artificial intelligence behind them, I trust it will not be long before they will be providing such insights into these displays.
It has been a long (ten year) history of change in QuickBooks being absent of business metrics to now being on the path of an inclusive business analysis tool. So, while I feel that the ultimate goal of our text has finally been achieved in an alternative fashion, I now fear the days are not long for the few remaining copies of the book over which Conrad and I labored. The Apps of today, and indeed QuickBooks itself, may soon turn our text of yesterday into tomorrow's kindling.