Any finance team is only as good as its data and data handling capabilities. Data drives pretty much every decision, insight, and strategy in finance, and as such it has a major impact on everything from profit margins to compliance.
Without accurate data, you run the risk of producing inaccurate financial reports and even losing revenue as a consequence. Just a small amount of unclean data can lead to a huge loss in revenue over time.
A good data strategy involving exemplary data management is crucial for financial analysis, which is in turn crucial for accurate decision making. A big part of good data management is data cleansing.
Here, we’ll go through what data cleansing is and how it can benefit finance teams and financial data.
How Inaccurate Data Leads to Setbacks For Finance Teams
Let’s start with a definition of ‘unclean’ data.
‘Unclean’ data is data that is outdated, inaccurate, incomplete, or inconsistent. This covers a wider range of data than many people realize.
An incorrect number entered into the ledger is fairly obviously inaccurate data and can have an obvious impact on things like reporting and financial analysis. But even something like an outdated inventory or a supplier list, including people you no longer work with, can contribute to inaccurate analysis.
Bad Data Means Bad Business Decisions
For example, if your financial analysis seems to indicate that your cash flow is worse than it actually is, you may hold off on making decisions that could grow your business. Or you may think that your cash flow is better than reality, and make expensive decisions that may jeopardise your operation.
Similarly, incorrect enrollment data could lead to serious problems, like employees getting paid the wrong amounts, or even the wrong wage being paid to the wrong person. This isn’t just frustrating for all concerned, it could lead to serious consequences for your company. And it could all be prevented by simple data-cleansing processes.
Bad Data Slows Down Your Financial Processes
On a less dramatic level, inaccurate data is very frustrating for finance teams and can considerably slow up any financial process.
When teams are continuously coming up against inaccurate data, triple-checking absolutely everything at every point in every process becomes second nature. As well as causing long delays, this also leads to distrust and frustration in your systems and processes.
All in all, unclean data causes a lot of problems for financial teams and the companies they work for.
The solution is to regularly cleanse your financial data. This is a relatively simple process that involves checking all your data for accuracy, relevance, consistency, and so on. Running a simple scan for unclean data and scrubbing your data banks of any discrepancies can bring big improvements to your financial analyses and operations.
6 Key Benefits of Data Cleansing in Financial Data
Many elements of data cleansing can be automated, so it’s easy to do. If you are worried about the payments, good payroll automation software will regularly check data at the point of entry, and flag anything that doesn’t look right. But to avoid any other human mistakes, here are six key benefits of data cleansing in financial data:
1. Reliable And Accurate Financial Reporting And Analysis
Without clean, accurate, and reliable data, it’s impossible to get usable financial reports and analysis. This means that your understanding of your company’s finances will be flawed.
This isn’t just bad for your bottom line. It can also bring severe repercussions. Providing inaccurate financial reports to authorities could lead to you being audited.
By regularly cleansing your data, you will be able to produce reliable and accurate financial reports that give a true picture of your financial situation.
What’s more, with the right data management software, you can generate many of these reports at the touch of a button, confident in the knowledge that all data used in these reports will be clean, accurate, and relevant.
2. Provides High-Quality Data For Better Financial Decisions
Having accurate financial analysis and reports, as mentioned above, puts you in an excellent position when it comes to making financial decisions. You can rely on the information coming from your finance teams, which means that any financial decisions you make will be based on a solid foundation of factual, accurate data.
As any accountant knows, it doesn’t take much inaccurate data to give a deeply inaccurate impression of financial status. A decimal point in the wrong place or an erroneous payment entered begins a domino effect that impacts the whole ledger.
But by regularly cleansing your financial data, you can get rid of these inaccuracies and make sound, data-based decisions with confidence.
Fuel better business decisions with reliable financial data
3. Cultivates Confidence Among Stakeholders
Being able to present accurate financial reports to stakeholders is great for improving their confidence in you. When you can prove that your data-based decisions have brought positive results, you not only impress your stakeholders, you also prove that you know what you’re doing when it comes to data management and analysis.
For example, when presenting your quarterly profits, you could match profit surges to tangible, measurable decisions you have made throughout the year. Using a data management software you can demonstrate the data trends throughout the year that led you to make these decisions.
This not only demonstrates your excellent decision-making abilities, it also shows that your data is clean, clear, and trustworthy. All of this is great for boosting stakeholder confidence.
4. Streamlines Workflows and Reduces Manual Processing
Unclean data clogs up workflows and inevitably results in a lot more manual processing than anyone wants to do. Because things have to be checked and rechecked to make the numbers add up, finance teams working with unclean data often have very slow and erratic workflows.
With regular data cleansing, you can speed up pretty much every financial process and perfectly streamline workflows. You can even cut manual processing drastically, as when automation work with accurate data, they are capable of doing a lot of work by themselves.
For example, if you have management software, like a CRM or a cloud ERP for small business, regular data cleansing will allow you to automate several regular business processes, such as payroll or inventory, without having to go back and double-check all data.
Bad data will render your software essentially useless, and it could actually be detrimental to your business in the long term as it will lead to incorrect customer knowledge.
5. Minimizes Vulnerabilities and Enhances Data Security
Bad data is a security risk for your company. For example, defunct email addresses are sometimes used by ISPs to trap scammers. If your company still has outdated email data in your system, chances are that you will eventually fall into a ‘spamtrap’ and be blacklisted by ISPs. This will make it much harder for you to reach your customers by email.
Some bad data can even present considerable security risks. So, it’s very important that you regularly cleanse your financial data to keep your databases secure and to minimize vulnerabilities.
6. Ensures Data Integrity and Regulatory Compliance
Data integrity is essential for regulatory compliance. If you present financial reports, tax returns, incorrect payrolls, and so on using inaccurate data, you run the risk of getting on the wrong side of the FINRA; or the FCA, if you are based in the UK.
Unfortunately, explaining that you were working with unclean data is rarely an acceptable excuse for non-compliance. In fact, as data security regulations tighten up worldwide, this could even land you in even hotter water.
So, if you want to be compliant with all financial rules and regulations wherever you are, you need to regularly cleanse your financial data and to combine it with the use of other automatization tools.
Cleanse Your Financial Data For Accurate, Useful, and Compliant Data Analysis
Accurate data is vital for good finances. But data isn’t static. It doesn’t take long to degrade, and it’s all too easy for mistakes to occur that render data inaccurate.
Degraded, inaccurate, and incomplete data can have a major negative impact on your company. At best, it can make life very frustrating for your finance teams and slow down your financial workflows. At worst, it could lead to disastrous financial decisions and even penalties for non-compliance.
To avoid this, it’s important to add regular data cleansing to your financial data management schedule.
ClicData can help. If you want to learn how you can easily check and cleanse your financial data using our software, let’s talk: