Proper financial management is not a luxury when it comes to running a successful business; it is essential if your organisation is to maximise profits and give you a high return on your investments. Therefore, you should attempt to make it a critical aspect of your company’s planning and processes.
To achieve this you need to execute excellent planning, organisation, control and monitoring of all your financial deals and resources. If your skills are sufficient enough, it will help you and your leadership team to achieve more of your business goals and reduce costs as you can get better deals from suppliers. It will also help you to please your key stakeholders while gaining a competitive advantage and be financially stable.
Time and again we see one of the biggest issues for companies is that they feel their finances are complicated. This should not be a deterrent. Your financials could become even more complicated should you undergo a tax audit and find you are missing paperwork or don’t understand it.
Yet, financial management doesn’t need to be confusing. With some simple tips, you can effectively manage your finances with limited fuss.
So what are our six top tips for better financial management of your business?
1. Clear Business Planning
There is a hot debate online about whether or not a business plan is an essential document. Some businesses have become a success without ever putting pen to paper for a business plan. Many big names like Forbes and Entrepreneur have all asked the question whether a business plan is essential in today’s modern business world. Still opinion is divided.
The problem is that while some don’t have a business plan, they do have plans. They know what they want to achieve, when they want to do it by and how they will succeed.
Planning is critical as it allows you to identify the resources you will need to pay certain bills and taxes. This will help you to pay invoices on time and not have to borrow money to pay off debts or pay late penalty fees.
2. Monitor Your Financial Position
At any given time you should know how your business is performing financially; for example how much money is in your bank account, how your sales are doing, what money is going out and what your stock levels are like.
You must then monitor this information against a set of predetermined goals to assess whether you are meeting expectations.
3. Ensure Customers Pay On Time
Your cash flow is important and it can get into serious trouble if your customers don’t pay you on time. Ensuring you aren’t paid late is a challenge, but that doesn’t mean you can’t protect yourself. The most critical thing to do is to ensure that you provide clear terms and conditions and credit terms when your clients make a payment. Alternatively, ask for payment up front.
4. Know Your Daily Costs
One of the major challenges that businesses face is having enough cash to cover their day-to-day costs. You could have all the profit you need, but if you don’t have the cash on hand, you won’t be able to meet supplier demands: whether they are tax payments, rent or wages. Being aware of the minimum your business requires to survive on a daily basis enables you to take action to prevent issues should you run into difficulties.
5. Keep Accurate Account Records
Keeping accurate records is an important step in financial management. It not only helps you to know the cash flow of your business, it allows you to quickly perform audits, tax reporting and helps you to identify problems and put into place plans to solve them.
6. Control Overheads And Stocks
There are numerous ways that your business can save on expenses without actually impacting the quality or quantity of the work you produce. Most of the cost savings can be made in several areas of your business’ operations. Here are some quick ideas for you and your team to consider:
- * Renegotiate contracts with suppliers.
- * Consider energy saving processes.
- * Reduce paper use in your office.
At the same time you need to manage your stock. You don’t want to have too much stock, as cash is tied up in purchasing it and it costs to store it;too little and you pay a premium price for receiving the delivery in time to fulfil orders.
Financial management is an essential task in your business. It will help you save costs, maximise profits and avoid potential problems. Follow the advice above to help you manage your business’ finances better.
If you need more support on this, contact Tectona now. We “get” finance and have helped many clients get their financial management right.