Financial management refers to looking after your money (or funds) in an efficient way. One where every penny or cent is used effectively, with as little waste as possible. In a business sense, strong financial management is essential to ensure that a company keeps ticking over soundly and does not get into monetary trouble, as the consequences could be severe. Whether you’re part of a large, established company or setting up a new start-up, strong financial management for your business is vital for various reasons.
Reduce Expenditure, Increase Profits
Business expenditure can cover everything from buying supplies and equipment that are essential for the daily running of your company, to expenses when visiting clients and more. Some of these costs will be unavoidable but many are can be streamlined or cut down.
Good financial management will identify areas of overspending or that can be adapted. For example, it could be something as simple as switching to a cheaper supplier, improving the energy efficiency of your office to lower electricity bills or reducing delivery costs with an international delivery service. All such actions and other expenditure cuts will be reflected in rising profits as the money is spent elsewhere.
Financial management is often out-sourced in a business, in order to make sure something so important is being handled correctly. If you choose to hire someone you work in-house, make sure you are taking on someone with strong skills. A financial advisor, such as someone who has been through a financial advisor internship, can also be useful to have on staff.
Stay on Top of Legal Costs
There are all sorts of legal fees businesses must pay, from corporation tax to public liability insurance and many more. It is essential that every business stays on top of these to avoid falling into any legal trouble and has costed them in to their business plan from the start.
Clear financial planning is a vital trait for any good financial manager, ensuring the business has enough funds to cover taxes along with back-up in case of tax increases. Poor planning can lead to fines on top of taxes owed or even your business overpaying.
Ensure a Smooth Cash Flow
It is often poor cash flow and not a lack of finances that sees a business go under, with 82% of small businesses and start-ups failing due to this. Therefore, as well as securing starting capital, excellent financial management involves balancing the financial incomings and outgoings for your company.
Some of the common mistakes made are overestimating sales volumes, having little or no financial back-up, overspending on unnecessary expenses and not using a cash flow budget. With poor cash flow, you can end up with greater outgoings than incomings, leading to financial problems, while with greater incomings you will need to know where to reinvest effectively.
Please the Board and Employees
Finally, good financial management will bring greater rewards not just for the business but for those invested in it. This includes the board of directors and individual investors along with fellow employees. It could be a boost to their bonuses or an increase in benefits or salaries through solid financial management that has cut costs and improved profits.
Good reporting of financial information will be demanded by the board and require skills in planning and management of funds. Strong financial management is vital in every business, little or large, so developing such skills or hiring someone highly capable is a must for any company.