Financial management lies at the heart of business, since the area is responsible to supply all resources so that the whole operation can effectively exist as a whole.
Financial management professionals have very important responsibilities: manage the company’s money to pay bills and work to identify unnecessary expenses.
Regardless of the size of the company, it is utterly important to invest in the good financial management of one’s company so as to have a proper resource utilization process. This way, you can strengthen your presence in the market, invest in new investments, and develop your business.
To help your business, We has put together the main information about Financial Management and how it is essential for the success of your business. Check it out!
What is financial management?
The analysis, planning, and control of an organization’s financial operations are all part of the management activities and procedures that make up financial management.
Therefore, every company must adopt financial management. Thanks to it, you can analyze scenarios, set goals, deadlines and monitor the company’s results.
With effective financial management, a company can understand how much it should receive, how much it should pay and what the balance is between these two variables.
What is financial management for?
Balanced financial management ensures that the company’s revenues remain profitable. But let’s not limit ourselves to theory: not all companies make enough profit.
But it is precisely due to a lack of good financial management that many of them are unable to recover. This is a widespread issue, but one that mainly affects SMEs. Not surprisingly, according to Dow, 94.2% of those in debt are micro and small businesses.
To reverse this, it is a good idea to focus on financial management.
This makes it possible to pave the way for the company’s successful operations, benefiting its financial condition and promoting growth.
How to manage your finances efficiently?
Improving financial management is a common goal for many. However, action is needed to achieve real results. Find out now how to improve performance and take control of your company’s financial health.
Make a good plan
Strategic financial planning is essential for organizing activities within a company, prioritizing and planning the resources needed to carry out these activities.
It is during planning that the financial management team must analyze the macro-scale scenario (without disregarding the micro-scale) and define goals and objectives.
In strategic planning, metrics are defined and reviewed along with performance monitoring tools.
Know how to control costs
More than just a fraction of your cash flow, it’s imperative to understand what your priorities are at the end of the month.
In fact, knowing the type of costs is one of the factors that provides greater precision in pricing a product or service. This is pure business intelligence.
This will give you information on what is needed and what can or should be cut, making each machine more efficient and cheaper.
The key to keeping these charges under control is to map them to their source so they are always up to date. This way, you can monitor their movements and take quick action if inferred.
Define performance indicators
When developing a plan, it is important to consider the most appropriate KPIs, the key performance indicators. Mainly KPIs for revenue, current liquidity, net profit, profit margin, break-even point and contribution margin.
Manage cash flow
Controlling cash flow will let you know about the short-term health of finances of your business. It is usually done by simply keeping a track of all expenses and income of your company.
With proper organization according to the principles of good financial management, you have excellent potential.
Cash flow management will allow your company to predict, plan, and control cash inflow and outflow.
By doing so, you strengthen your own financial condition, anticipate decisions and develop your working capital.
Set goals
These goals will serve as guidelines for the work for a certain period of time. Therefore, it is important to define them according to the company’s objectives.
If you want to grow, you may need to increase revenue, but that will also increase costs. The metrics above are fundamental in this process and serve as a parameter to understand the sector’s progress in relation to the goals.
Use technology
When it comes to managing your organization’s finances, one thing is certain: you’ll be dealing with an endless amount of data. Here are the numbers and more. So you need to assess whether you have the resources to do the job well.
Better financial management can only be achieved using technologies such as management software. It is possible to do this process manually, but the potential for error is enormous – and of course it becomes very inefficient.
The answer is a technical financial management system that centralizes all of the department’s operational responsibilities.
So you are responsible for the strategy, and the technical solution will take care of the rest automatically.
The main mistakes in financial management
Find out what can hinder good financial management and uncontrolled money in the company.
Lack of control tools
If a company only uses a spreadsheet for financial management, at some point it will become buggy and confusing.
Ideally, you want ERP software that integrates multiple business domains for broader analysis and data compatibility.
Mixed accounts
In smaller companies, a partner’s personal expense account is often confused with a corporate account. This is one of the main mistakes that affect financial management.
This is because the company’s cash flow has deteriorated, which may affect strategic spending investments.
To prevent this from happening, it is important to define the support team, respect it even in case of emergency and keep the owner’s personal account separate from the corporate account.
Lack of priorities
It is essential to understand your business and which activities have the greatest impact on your results.
If you own a gym, it may be more strategic to invest resources in quality equipment to keep your members top of mind than to buy a super server for your website.
Overall, you need to analyze and decide where to invest your working capital.
Inefficient inventory management
If your company uses physical products and has its own inventory, the most common errors in inventory management can harm the financial health of your business.
This happens because business owners can lose products without knowing it and even invest capital unnecessarily in low-volume products if they do not control inventory.
Finally, another common mistake due to lack of inventory visibility can be failing to replenish important products and losing sales due to lack of delivery. This creates an imbalance in sales and, of course, in financial controls.
It is essential to keep an eye on this important source of costs for your business.
Uncontrolled anticipation of receivables
For many entrepreneurs who accept credit cards as a form of payment, the prospect of accounts receivable is an attraction.
Advance payment is an option offered by the machine operator so that the entrepreneur can receive their card sales before the standard deadline.
For example, in a credit sale, it takes about 30 days for the operator to transfer the money to the merchant. Well, in installment sales, the term is extended based on the number of installments.
Many entrepreneurs then choose to pay in advance to receive the money faster and cover emergency expenses. In this specific case, this option is better than resorting to a loan because the rates are more competitive.
But if this becomes a habit, it can greatly affect the company’s financial control in the long term. Therefore, it is advisable to be very careful with expectations and look for the best price before executing.
How to carry out company financial planning
Every successful business needs money, and learning to manage your finances is the first step to financial well-being.
Discover how certain methods and tools can simplify your company’s financial management process and increase its efficiency.
Conclusion
As you can see from this guide, managing your finances is key to organizing and developing a strategy to grow your business.
Among the most important points for effective management, we can highlight the need to monitor the company’s results in their entirety, focus on cash flow, and prepare and respect budgets.
In addition, it is possible to count on the support of professionals with experience in financial management and invest in the use of technology that can simplify and a management system that optimizes the company’s internal processes.