The importance of sound financial management practices

A well-developed business plan is a tool to demonstrate the viability of your business operations. On the other hand, financial management is used to indicate possible weaknesses, areas for improvement, commercial strengths and opportunities in this plan, as well as to ensure compliance with it. Measuring past results and projecting them into the future will, under normal circumstances, decide our business decisions and ultimately will decide our future results. Unfortunately, prediction based on past results will not challenge us enough and will not produce impossible results overnight. The process alone is time consuming and demanding, and companies often lose sight of what is really happening and what is important. Externalities are so unpredictable, frenetic, and sudden that you have to do everything in your power to be safe when the bad times hit. You are the captain of your company and must assume the responsibilities that accompany it.

Good financial management and good accounting practices are the best ways to keep your business profitable and solvent. How you manage your business finances, cash flow and profitability is the cornerstone of any successful business operation. Every year thousands of potentially successful businesses fail due to poor financial management. Bad practices, improper records, unqualified advisers, unethical ways, tax evasion, etc. are just some of the possible problems you may experience. At the end of the day, we are all human. Let’s face it: it’s hard to focus on what’s important, day after day. Sometimes the challenges are huge and we can’t decide our priorities or how to tackle them. As a business owner, you will need to identify and implement policies and procedures that will lead you to meet your financial obligations and ensure that your business has sufficient working capital once and when needed. By playing here, you are increasing the probability of success.

To effectively manage your financial obligations, plan a solid, realistic (not too optimistic, not too pessimistic), but still challenging budget, determining the actual amount of money needed to open your business (start-up costs) and the amount needed to keep opens (operating costs), works and thrives.

As a business owner, you should consider the following:

1. Why is it important to monitor your cash flow? The simplest answer would be that you need the money to finance your weekly cash needs in the way of day-to-day business operations, business acquisitions, long-term investments, and loan servicing capacity. Any extra money available should be deposited into an account that earns high interest and produces constant returns. That way, you’ll be motivated to save and weigh your investment decisions, be cautious with your money, take calculated risks, and avoid the temptation to spend it on luxuries.
2. Your inventory days are important because you know that slow-moving stocks – in other words, uncompetitive or outdated – cannot fund you at the desired level to expand your offerings and grow your operations. It will slow down your growth rate and reduce your turnover. Then your business will deteriorate and you will suffer due to slow sales figures. Remember, nothing moves in business if there are no sales. By taking steps to accelerate your stock turnover, your cash flow will improve and your business will be in a better place to take advantage of opportunities when they present themselves.
3. The Accounts Receivable days of your account are critical for several reasons. First of all, slow paying accounts bring a lot of trouble to your business and to you personally. Having funds that are not available as promised can be frustrating. Also, if they are going to be late and you know that your job is already undervalued, it will only add to your pain. There is nothing more frustrating than following these accounts, especially when you know that you and your business completed the requirements in record time and with the highest quality. Others have problems too, but they shouldn’t become yours! Try taking deposits up front and doing some progressive payment practices when dealing with clients who have historically paid slowly. If you’re unsuccessful, consider unlocking some potential in your business and turning it over to other service providers. You can’t be a one-size-fits-all with pulse and check book! Set some standards and value what you have and do it well! Remember that the first sale in every business is for you!
4. Accounts payable days are just as important as accounts receivable days. Imagine, and there is a lot of validation there, that you have slow payment accounts but at the same time very unfavorable credit conditions. You’ll be out of business in no time! Check these days and negotiate them to suit you! There are, with the exception that you are a specialized and unique company, numerous suppliers in all industries and they would like to have you on their books. Don’t get attached to something that doesn’t follow your plans. Try to negotiate the best possible deal!
5. Other KPIs such as the number of new customers each month, the number of leads each month, the number of lead calls you made each month, the number of new leads you take each month, the number of new sales each month , new leads, clicks on your website, productivity rate, and profitability measures are equally important and deserve your full attention.
6. The reporting requirements of your business: accrual or cash accounting, as both have certain benefits and implications. Talk to your trusted advisor about the best reporting cycle for you and have a clear understanding of your alternatives for choosing your preferred options.
7. You must understand and have financial knowledge to analyze profit and loss statements and balance sheet statements and do it every week if possible. I will go a step further and suggest that you should know how to obtain and analyze your financial figures on a weekly basis (only 10 minutes) and if you do not, you are simply risking too much. Asked what went wrong with his business, Trump replied, “I just took my eyes off the ball.” You can’t afford not to pay a great accountant, a great accountant, a great financial planner, a great business coach, and other service providers who can add value, complement your skills, and expand your competitiveness. You can’t do it all alone without including others in your success story.
8. A correct pricing mechanism for your products and services is important as it sets your growth rate, structures your profit planning, and determines your margins. You must be absolutely clear with this one because it is the most painful. Also, you must decide not to compete on price and not base your USP on price competitiveness. This is because there will be other competitors in your market that will always outperform you no matter what you do. Once you lose this strategy, you will have nothing else to offer!
9. Basic ratio analysis and calculations such as gross and net profit ratios, returns on assets and equity, current ratio, debt-to-equity ratio should become your second nature and the main part of your trading procedures. Financial management. Strive to improve and configure your way of measuring important results in your business. Nothing fancy, nothing complicated, but the most important thing is to do it regularly and in the same way!
10. My final point is about the consistency and timing of your procedures. When you address your highest priorities on a regular basis (at least weekly), your chances of creating financially stable business operations are improving. This is due to the fact that you can act immediately if a negative trend appears in your finances. The biggest mistake you can make in your business and life is neglecting your money. When you are negligent in this area, you effectively hand over control of your financial destiny to others. Remember, no one cares about your financial future and your success more than you and no one can take care of your business more than you. Commit to visiting and / or contacting your trusted advisors at least once a quarter. Discuss your options, be open-minded, and ready to make informed decisions and calculated opportunities.