While having a well-organized bookkeeping system is essential to business operations, more vital to success is having established methods to control how finances are managed. Essentially, financial management is the procedure of putting numbers to work for your business. The goal is to reach for success with a good financial management system designed to offer guidance and updates of how your business is performing.
Joseph stone capital says that financial management allows you to make accomplishments in daily financial objectives. A good system will allow you to:
- Borrow easily as required by planning in advance
- Be proactive and not reactive to situations
- Share budget information with your banker to make simpler the loan approval process
- Update investors on financial planning information
- Have money-making and efficient operations
- Access a good decision-making tool when considering key financial problems
On the micro level, solid financial planning and control authorizes you by:
- Performing better tax planning
- Avoiding needless heavy investments in fixed assets
- Setting sales goals that are growth-oriented and not just operating as an order taker
- Maintaining adequate short-term working capital needs that support inventory and accounts receivable collections
- Enhancing gross profit margins with efficient pricing of goods or services
- Operating competently with overall administrative expenditure
- Decreasing supplier prices, direct labor costs, and other items that affect the cost of goods sold
- Planning ahead for employee benefits
- Performing a sensitivity analysis, which determines how independent variables will impact a decision
Developing a financial management system helps to manage capital expenditures that each business should consider. In general, you make asset purchases to generate income. Any financial considerations associated to capital expenditures should balance with the amount it takes to make the purchase and the income it will generate. Managing your capital expenditures efficiently guarantees you will not overextend the business by borrowing too much. Income generated should substantiate the expense.
One of the key financial responsibilities of any business is to keep expenses as low as possible. You can try to accomplish this in several ways such as asking vendors to lower prices, decrease staff or reduce energy usage – all without compromising the quality of business production. Nevertheless, if you do not manage costs, your business will be on a never-ending cycle to stay floating just to pay operational costs.
Another reason to develop a financial management system is to supervise your cash flow. Operating expenses such as office supplies, payroll, utilities and insurance should be paid. You want to look ahead to see how much is due in your accounts receivable and whether it is enough to meet those expenses by the due dates. Better management of your cash flow is possible if you cut down the amount of time customers have to pay invoices. In addition, you could renegotiate due dates with vendors.
Joseph Stone Capital says that the first step towards developing a good financial management system is to create financial statements generating these statements monthly allows you to manage proactively for targeted success. Important financial statements include cash flow statement, a balance sheet, and income statement.