How to Use ChatGPT to Analyze Financial Statements

If you have the paid version of ChatGPT or Microsoft Copilot, you can upload the file along with your prompt. If not, you can copy and paste the data as part of your prompt. Here’s a sample prompt to enter into ChatGPT:

This is the 2023 income statement for a landscaping company. How healthy are they financial speaking? What would you recommend?

Anonymous Landscape Company

Category	Revenue	Expenses
Revenue – Individuals	120000
Revenue – Organizations	180000
Salaries – Owner		75000
Salaries – Supervisor		60000
Salaries – Workers		240000
Equipment and Maintenance		30000
Supplies		20000
Fuel and Transportation		15000
Marketing and Advertising		10000
Utilities		12000
Rent		24000
Insurance		18000
Professional Fees		5000
Taxes		30000
Miscellaneous		5000
	300000	544000

Here is ChatGPT’s answer:

Based on the provided income statement, the landscaping company seems to be facing significant financial challenges. Here’s a breakdown:

1. Revenue: The company generated a total revenue of $300,000, with $120,000 from individual clients and $180,000 from organizations. While the revenue is decent, it appears insufficient to cover the expenses.
2. Expenses: The total expenses amount to $544,000, significantly exceeding the revenue. Key expense categories include:
   • Salaries: Total salaries amount to $375,000, which is a substantial portion of the expenses.
   • Equipment and Maintenance, Supplies, Fuel and Transportation, Marketing and Advertising, Utilities, Rent, Insurance, Professional Fees, Taxes, and Miscellaneous: These expenses also contribute to the overall cost of operations.
3. Net Income: With expenses surpassing revenue, the company incurred a net loss of -$244,000. This indicates financial distress and an unsustainable business model in its current form.

Recommendations:

1. Review Expenses: Conduct a thorough review of all expenses to identify areas where costs can be reduced or optimized. This could involve renegotiating contracts, finding more cost-effective suppliers, or improving operational efficiency.
2. Increase Revenue: Explore opportunities to increase revenue streams. This could involve expanding services, targeting higher-paying clients, or diversifying into related areas such as property maintenance or landscaping design.
3. Budgeting and Financial Planning: Implement a robust budgeting and financial planning process to ensure better control over expenses and revenue projections. This can help in forecasting cash flow and making informed decisions.
4. Employee Productivity: Assess the productivity and efficiency of employees to ensure that salary expenses are justified by the value they bring to the company. Consider training programs to enhance skills and productivity.
5. Debt Management: If the company has debts, consider restructuring or refinancing options to alleviate financial pressure and improve cash flow.
6. Marketing Strategy: Review the effectiveness of the current marketing and advertising efforts. Invest in strategies that yield the highest return on investment and focus on targeting the most profitable market segments.
7. Seek Professional Advice: Consider consulting with financial advisors or business consultants who specialize in the landscaping industry. They can provide tailored recommendations and strategies based on the company’s specific circumstances.

By implementing these recommendations, the landscaping company can work towards improving its financial health and sustainability in the long run.

This is Gemini Advanced’s answer:

Here’s a breakdown of the landscaping company’s financial health based on the 2023 income statement, along with key recommendations:

Overall Health:

• Significantly Unprofitable: The company has a net loss (negative net income) of $244,000, indicating they’re spending far more than they’re earning. This is not sustainable in the long term.

Problem Areas:

• Labor Costs: Salaries represent a huge percentage of expenses. Salaries alone exceed total revenue. This suggests the company may be overstaffed or paying above-market rates.
• Revenue: Overall revenue seems low for a landscaping company with this level of payroll and expenses. It’s possible they’re underpricing their services.
• Operating Expenses: While equipment, supplies, etc. are typically necessary for a landscaping business, these costs might still be optimizable.

Recommendations:

1. Immediate Cost Cutting:
2. Reduce Staff: This is a hard choice, but the company likely needs to lay off employees or reduce salaries and hours to bring labor costs in line with revenue.
3. Renegotiate Leases: See if lower rent on facilities is possible.
4. Trim Supplies/Equipment: Analyze what is truly essential and find ways to reduce these expenses if possible.
5. Increase Revenue:
6. Raise Prices: Analyze the market and determine if prices are competitive. Consider a price increase if feasible.
7. Expansion: Can they take on larger commercial projects? Offer additional services? These options carry added costs but could generate substantially more income.
8. Improved Marketing: Current marketing spend seems low. More effective marketing could increase leads and revenue, but it requires a well-crafted strategy.
9. Seek Professional Help:
10. Accountant: Get a detailed financial analysis to identify other possible cost saving opportunities.
11. Business Consultant: A landscaping-industry specific consultant could help streamline operations and find ways to boost revenue.

Important Considerations

• Debt: Does the company have any debt (loans, etc.)? This adds another financial burden to consider.
• Market Conditions: Is there a downturn in the local landscaping market? This makes addressing these issues even more urgent.
• Owner’s Goals: Does the owner want to grow the business aggressively? Are they nearing retirement? Goals heavily influence the best course of action.

Disclaimer: This is a general assessment. A deeper financial analysis is essential for making specific, impactful decisions.

Remember, all answers need to be checked for accuracy by an expert.

A Draft for Your Client Report

As you can see, both AIs suggested competent recommendations for this client. With either of these answers, you have a draft you can use to start your report for the client. The time savings are not huge, maybe 15 minutes, but they are there. If you hate writing, there is an additional benefit to having ChatGPT help you get started. 

Required Disclosures

OpenAI’s terms of service require that you disclose to the client your use of ChatGPT in your report. Be sure to read their fine print so that you’re in compliance.

Three Golden Rules of Generative AI

Remember when using any public-facing generative AI, you should never enter any private client data. Second, any output you use should always be checked by an expert. Last, make sure you understand the full terms of service, privacy issues, copyright issues, and other legal ramifications of using AI output. 

Getting Started with Financial Analysis and Generative AI

The best way to get started so you can see the possibilities is to use test data until you can become comfortable with the technology.

Using ChatGPT, Copilot, or Gemini for financial analysis can save time and generate ideas you may not have thought of. Our example included a simple income statement but the possibilities go way beyond that. Think about sales analysis, financial ratios, asset management, developing graphs and charts, inventory cost improvement, and so much more.