Are you keeping an eye on the critical financial management events in your business? Are finances just something left to the beancounters?
Over the years I have seen hundreds of business owners (and this includes me!) make really poor financial decisions simply because they did not have their finger on the pulse of the financial position of the business. One of the key strategic areas of all businesses is that of finance and that is why it is so important to have a sound structure around financial management.
In my previous life as a chartered accountant, my work predominately focused on the mop-up at the end of the financial year for the financial decisions made, or not made, during the year. What was clear was that not enough time and effort went into this vitally important area of the business either by the business owner or the accountant.
So what are the things that makeup “Financial Management”?
I’d put them under 5 main headings:
- Financial Reporting
- Budgetary and Cashflow Procedures
- Revenue Management
- Cost Control
- Working Capital Management
Okay, that looks pretty self-explanatory and probably all business owners incidentally cover off on this stuff most of the time. This might be true, but in my travels, I have seen some pretty lousy financial management.
I was recently called to have an initial discussion with a potential client who was not travelling as well as he had in the past and who needed some help in turning the business around. This was not a strategy session or business diagnostic so I was not delving into marketing, systems or people strategy at this stage.
I was wanting to get a feel for what the numbers could tell me from a quick overview.
Unfortunately what I found was that the only financial reports available were those that had been prepared by the external accountant for last year’s tax returns. There was no budget or cashflow forecast, no adequate job profitability analysis, a cost structure too high for the current level of turnover and now a business that was running out of cash! Absolute disaster.
So while this and many other businesses trade profitably over an extended period of time, owners cannot ignore the fundamentals of financial management. It is so important to keep a very close eye on your profit and loss statement, balance sheet, trade debtors, creditors, cash position, sales performance and results against budget.
What do you need to set up to manage your finances?
So what are the 4 things I’d do to set some structure around managing finance:
- Devise a Monthly Reporting System
- Prepare an Annual Budget and Cashflow Plan
- Identify Key Performance Indicators
- Establish a Monthly Advisory Board
Once again this list of my 4 tips looks easy but there is a little bit of work in putting it together. The key is to get something done… you don’t have to get it perfect. Future success in your business relies on making such improvements and being diligent in all aspects of management.
I hope that you have found this helpful and am always here to help in implementing such a process in your business.
READY TO BE CREATING CHANGE TODAY?
Learn how to eliminate 30% of your operating expenses with my free guide.
