Achieving Success with Financial Management

Financial management is the term used to describe the most effective management of your money or funds in relation to the objectives of your business. This can incorporate raising capital, budgeting, bookkeeping and spending strategies- in both short and long term perspectives. Because achieving success with financial management is vital to any business, let’s take a look at the processes involved in a yearly accounting cycle. A yearly accounting cycle should include bookkeeping, the generation of financial statements and the analyzing of information from those statements.

Create an Accounting System and Record Financial Transactions
All successful financial management strategies start with basic bookkeeping. Your bookkeeping system needs to be as simple and effective as possible; so many businesses opt to use a cash-basis and chequebook system when they are starting out. As your business grows you will begin to implement an accrual method of bookkeeping, where you’ll need to keep a selection of journals to track all of your monetary dealings. When you use an accrual-based system, you will need to post entries into specific journals to track as you earn money, and when you owe it out. Some businesses find it easier to use a blend of the two systems to help them to generate more accurate financial statements.

Financial Planning and Monthly Budgets
Every financial management plan needs to have an annual budget that needs to be adhered to throughout the financial year. This budget should take into account any revenue and expenses that may occur, working from the strategic and business plans that have already been put into place to both obtain and develop resources.

It’s a good idea to create individual categories that need their own separate, smaller budgets. Compartmentalize salaries, benefits, computer equipment, office supplies, etc to really get the best out of your speculated yearly finances.

Budgets can be updated each month to include actual revenue and expenses, so that you can get a better idea of what your outgoings are each month. Now that you can compare your planned expenditure to your actual expenditure, you’ll better understand how to save money and meet specialized budgets in the future.

Cash Management and Financial Statements
In order to stay on top of your businesses current financial standing, you will need to know how your business is doing from one month to the next.  Creating ongoing financial analysis strategies, such as creating financial statements from your bookkeeping information, will keep you in the know with all sectors of your financial health. For instance:

• A Cash Flow Statement will depict any changes in your cash flow through the financial year
• A Profit and Loss Statement will depict all changes to your assets over the previous year to signal areas of profit or loss
• A Balance Sheet will depict the total value of your business, at any given time

The most important statement to create for your business is the cash flow statement because the main purpose of managing your money is to ensure that you have enough of it to pay your bills. Balance Sheets will give you an understanding of your businesses worth as you go along, dealing with the aspects of your overall net worth, or net loss.

Managing your Accounts Receivables
Many businesses are in receipt of accounts receivables and managing these will be crucial to the maintenance of positive cash flow. Companies that are in a position to bill their customers for services rendered will face the problem of actually making those customers pay up. Accounts receivables are the money owed to you by customers, or even other companies, who have purchased goods or services from you on the basis of credit.

Develop strong collecting practices and be consistent with them. Make sure to document everything when dealing with every credit-based transaction- from contact names, phone numbers, dates and times and even who was present when the bill was issued. Any information that may help when collecting on a bill needs to be kept in case of legal action.

Make your entire company aware of all accounts receivables too, and get them to chase up on collections where possible. Your sales staff come into contact with customers on a daily basis and will often have direct access to those who owe you money.

Financial Reporting
If you aim to achieve success with financial management, you will need to compile financial reports. The types and frequency of the reports that you chose to create will depend on the nature of your particular business and its situation, but in general you should look to create at least one financial report for every important business meeting.