Financial management – you might be wondering whether it is really necessary to achieve your goals. After all, it’s just numbers.
Well, I’m not so sure about that.
Financial management is all about having accurate, up-to-date financial information so you can make informed business decisions. You want to protect your investment and make sure that you don’t do anything that can jeopardise that investment.
Good financial management will ensure that you can detect, if not prevent, any problems.
With this in mind, you’ll need to make sure that your financial controls are detailed enough to provide you with enough information to make the right decisions.
Here is a list of some key controls:
Compare budgets and cash flows to results. You need to ensure that budgets and cash flows are compared to actual results and that any significant variations are investigated and reviewed accordingly. Setting up the budgets and cash flow forecasts clearly define where your business is headed. Reviewing them regularly enables you to see how you are tracking so you can make any adjustments you need to get back on track.
Prepare financial information regularly. Financial information should be prepared and available on a regular basis so you can make informed business decisions as required. With the advent of more sophisticated online accounting systems, you can get real-time data and reports on exactly where you are.
Approve all price and payment terms. Ensure all sales quotes and orders are agreed and approved for price and payment terms. The better this is communicated to your customer the less likely problems will occur. It’s one thing to get the job, it’s another to get paid when you want/need to. Communicate regularly with your client.
Review debtors regularly for outstanding amounts. In an ideal business world, you would have no debtors because every client would pay you on completion of the job. In the real world, this is not the case. So you need to make sure you are following up with clients to ensure they pay as soon as possible. Agree to suitable payment arrangements if need be.
Reconcile all bank accounts. All accounts should be reconciled on a regular basis so you have accounted for all receipts and payments. That will allow you to know exactly where you sit with both your debtors and creditors and what your cash position is. In addition, it will provide accurate reporting so you’re not missing anything and are therefore looking at up-to-date reports.
Ensure payments are approved and recorded. All wages, salaries, commissions and contractor payments should be approved and accurately recorded. Your labour force is a major component of your costs for your business. You must check and review this cost regularly to make sure the correct payments are made and that any variation is investigated and accounted for. You need to make sure your employees’ time is managed effectively and that your contractors are charging you for the work they have performed based on either quotes provided or your expectation of hours worked for the jobs completed.
Record all cash payments. You need to ensure that any cash payments are recorded appropriately against accounting records. This may not sound important, but you may be surprised how much you and your business spends on its smaller expenses on a day-to-day basis. It could add up to be quite a significant amount by the end of the year, and you want to ensure that nothing is missed so you can claim your rightful tax deduction.
You need to put in place all these controls to ensure that your business is protected.
A regular review of these procedures will ensure that you have good financial controls in your business so you can spend your time on growing your business and achieving your goals.
Tony has 33 years’ experience as an accountant, and 13 years’ experience as a CPA. His first 18 years’ experience involved financial, management and operational accounting roles at a senior management level, in the security, transport, and forensic accounting industries