More than just keeping the bills paid, a company has to manage several aspects of its finances to keep itself up and running. Financial management involves understanding the business in monetary terms and having an encompassing knowledge of the competitive strengths and weaknesses. To plan ahead for these financial investments means accomplishing the company’s objectives, analyzing the progress and protecting the commercial interests through review and documentation and thereby preparing the business for success in this dynamic market.
Most of the SMEs harbor an incorrect notion about financial management, accrediting it to their accountants or assuming it to be a complex maze of information synonymous to speaking a different language all together. This is however far from the truth, since in reality commercial management is one of the most important elements that help a business succeed. With proper financial management, a company will have access to accurate information at all times, further assisting smart decision making. With accurate education and right resources, achieving the objectives becomes easier, which will automatically make a definite difference in the firm’s performance and personal wealth.
A survey conducted by financial researches found that about 58% small businesses began their enterprise with less than USD 5000 and 79% started with less than USD 20000. The survey included service and product based incumbents which had less then 20 employees, substantiating the point that good money management has help a business prosper. Transaction management is thus important for increasing profitability and promoting business growth, as proper pricing, cost control and management of company assets are vital for financial stability especially if it is planning for a long term business success.
Objectives of Financial Management
Usually in money management, the main objectives revolve around procuring, allocation and control of the different financial resources. The key objectives can be outlined as follows:
- Ensuring a constant and regular supply of funds to the concern
- Ensuring returns to various stakeholders which will simultaneously depend on the earning capacity, market price of the share and expectations of the shareholder
- Ensuring optimal fund utilization
- Ensuring that the investments are safe, which means that the funds are only invested in field safe ventures from where adequate returns can be guaranteed
- Lastly, fund management plans a sound capital structure which ensures fair composition of capital so that balance is maintained throughout debt and equity capital
Once you have understood the objectives of money management, it is time to understand its five golden rules that will help the business achieve the desired growth and return prospects.
Without a strong financial management, your business cannot achieve success
The financial sector worldwide has been volatile in the recent years. Market analysts found more than 80% of small businesses failed in Australia due to bad money management – poor cash flow, lack of focus on profit margins, debtors out of control, especially by overtrading when the business does not have the ability to meet commitments.
Implementing accurate measures helps, however, caution should be taken and therefore, if crunching numbers is not your strength, it is imperative to hire an expert who will be able to deliver reliable information and advice that can be used to manage the funds of the business.
You cannot manage funds if you don’t take some measure
Though gut instinct is valuable in managing finances, sometimes the black and white results are harder to argue with. The first step is to determine what to measure, especially after everything has been carefully considered. Getting the focus back on the decisions or business segments that matter the most is the biggest challenge, however, once this is done, the focus shifts to giving adequate thought to the ways of measuring them and using the same information to ensure business and financial stability.
Measure and monitor causes and effects
Sometimes just measuring the outcome is not enough, especially when the company is looking only at sales figures and profit and loss statements at the end of the year. The results achieved are only lag indicators that display the events of the year, therefore, already indicating only what has happened in the past. If as the owner, you want to make more money and improve performance, you need to measure the trends, patterns and make forecasts about the tentative results. These predictions can be edited further to take decisions that will generate more sales, service the customers better and manage the resources optimally. With this knowledge, you can double the efforts and achieve results faster.
It’s always been relative, therefore compare, compare and compare
Every step taken is to achieve better results in the form of building the business and realizing a better financial self. It is also natural that owners want their wealth to multiply and in order to achieve this they may need a comparison or a reference point. This is required to measure the company’s standing from the place where its position is now, in a current reference frame, to the place where the firm wants to be. This can be accomplished by benchmarking against competitors or by focusing inwardly, comparing the business performance with monthly budgets etc. This will help in uncovering variances and patterns, which will in turn help the business to spot opportunities and capitalize on them.
Keeping it simple
Most businesses don’t have the accurate financial management that suits their business, because it became too hard or complicated to follow through. With thousands of systems available, the process is not only overwhelming but also confusing. The key lies in not getting caught up or being confused, but to strategically align the sectors that need thorough financial management.
Thus advanced technology along with investment research helps businesses take decisions about the management of various transactions as well as streamline their operations further. Everything said and done, the businesses need to maintain their determination, focus and discipline on these matters to achieve success and witness growth.