Managing Your Finances

One of the most important jobs business owners and managers have to do is financial management. This includes controlling, monitoring, recording and analysing all of the finances that your business carries out, such as your assets and your receivables and payables. Controlling your finances helps you know at what point you are making a profit and at which point you have closed the money loop. Unfortunately most people typically concentrate on the day-to-day running of the businesses and forget to look at business system review as a key management task that requires regular scrutiny.

However, that control is vital if you wish to keep up with threats to your business’ financial health such as competition, regulation and annuity rates. Aside from providing a snapshot of your business financial situation at any point in time, business system review also helps you to manage any short- and long-term business finance requirements. Furthermore, just like all other large businesses, you may need to rely on external funding and an injection of fresh money to manage your business finances.

We all have a financial plan of some sort, whether we refer to it as a business plan, when writing tax returns or even when talking to our bank manager. However, a financial plan typically deals primarily with financial requirements such as finance, investment and loans. Financial planning deals with lots of other things but financial planning does not only include your capital requirements. It also covers your borrowing requirements, funding needs, business planning and your succession planning. As a business begins to grow it develops a cash flow forecast, business system review becoming more and more sophisticated in the planning requirements and management of the finances.

No doubt with an existing strong financial base a business would find carrying out cash flow forecasts very simple. Some of the challenges with process improvements, and even some organisations new growth, is that our 'hierarchical' understanding of finance and finance models is still very much ad hoc; for example transactional finance can be impeded by an ad hoc approach to forecasting. However, adopting a set of simple business system review guidelines and measures will enable you to hone and refine your review process to ensure that you manage your finance processes effectively. These following guidelines are:

Have systematic plans for managing your finances

Carry out cash flow forecasts

Though it may seem obvious, setting money performance targets can be a major issue when it comes to finance forecasts. Here are some critical tips:

"Most of the finance staff at business system review organisations tell their clients that financial forecasts prefer them to have projections for several years prior to every expenditure, rather than the organisation's short-term profit and loss. This makes perfect sense, as their organisation may be considered a sales cycle rather than a capital cycle. They are also more accurate, as they are forecasted at the price levels at which they will be paid." (Moody Manufacturing Plc in the UK)

"In general, a forecast should not be a forecast for the same period the finance department will have to use instead. A single forecast will provide a check and balance" (Baker Steel,Australia)

The better the business system review forecast, the more likely it is that markets will stay relatively buoyant and are pleasantly predictable. It also is more likely that there will be a rapid return from the modest growth this forecast brings back to the finance division. Having said this, there doesn't seem to be any convincing evidence, so the finance department may find it difficult to get these disciplines instilled throughout the company,

Ensure that forecast accuracy is always managed

It is always easier for people with forecasting authority to guess at future market trends. Use tried and tested machines and methods to verify the accuracy and precision of your business system review forecasts. It could be as simple as identifying low cost opportunities that can be profitably explored.