Financial management in a nutshell

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December 13, 2012
Financial managementAs financial management is of the utmost importance to any business maintaining a careful track record of your business finances is the key to the future security and healthy performance of your company. But isn’t it a strange and curious fact that a large number of small business owners neglect their finances and end up paying a steep price. In order to avoid this, business owners should set up a simple book-keeping system which helps them stay organised. The process may include not organizing your receipts and payments, files but also setting up and configuring the book-keeping software. With the system in place, it is easier to maintain accounts even if you have not done them before.Financial management comprises of three broad zones:

1. Maintaining records of Income and expenses

The very basics of financial management is the maintaining of records of all the money that is spent by the company or ‘Expenses’, and all the money that the company earns ie. ‘Income’. Therefore, book-keeping involves keeping and organizing your receipts and expenses records such as bills from vendors, invoices from your suppliers, and receipts of payments to your employees. Apart from this you should monitor your income and expenditure – receipts and payments, such as cash register, check stubs from your client’s payment checks, or your invoices to clients which have been paid.

2. Feeding the data and information into an accounting software

If you have a small business you could enter the data, once a week and if you have a restaurant or retail store, you should enter the information daily depending on the nature and size of your business. This information can be entered directly from your income and expense receipts into a bookkeeping system.

3. Generation of financial reports

Once your information has been entered into the book keeping system, you will be able to generate reports such as a profit/loss report, trial balance, or cash-flow projections to show how your business is faring.

After you have entered the data, you come to the crucial part of financial management. This is the generation of reports which will clearly indicate whether your business is performing well or not. These reports are vital to manage the finances of your business and make key strategic decisions.

These reports analyse the data in your accounting system and will show you the various aspects of the financial position of your business. The reports generated will enable you to see the patterns and trends being followed in your business and you will be able to gauge which path is the most profitable and what opportunities you should adopt for positive results. You will have a firm control over your financial position and thus you will never allow negative processes to go beyond your control and lead to failure.

The Result

You will learn to be more competitive in pricing your products or services and adjust the tempo of your growth to a reasonable and practical pace. These overall changes will also help you streamline the costs. You will also be able to effectively control the cash flow of your company as cash flow and cash management are the most critical areas that have a direct implication on a company’s financial well being. You will soon realize that when managed properly, with or without professional help, dealing with business finances can be quite smooth, once you become familiar with the system.

Entrepreneurial Learning:

As financial management is of the utmost importance to any business maintaining a careful record of your business finances is the key to the future security and healthy performance of your company. But a large number of small business owners neglect their finances and end up paying a steep price. In order to avoid this, business owners should set up a simple book-keeping system which helps them stay organised.

Image courtesy: FreeDigitalPhotos.net



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