Financial management is an area that most small business owners struggle with every day. It forms the heart of the business as it controls the costs, incomes, and cashflows. In most cases, finance managers offer professional services to companies on a daily. However, not all businesses can hire professional help right from the start. What then is financial management?
Financial management is how you know your business makes a profit. It helps you decide which costs you can afford to pay for either off or recurrent. It includes book-keeping, cash flow analysis, balance sheet, and income and loss statement generation. A solid financial management system helps you plan for the overall growth of your business. A financier will look at your financial plan to assess your ability to repay scale-up loans. How then do you achieve financial management in a small business?
Budgeting vs. Actual
Start with a rough scribble of expenses you are likely to incur monthly or yearly. A budget helps you plan and track all your business expenses. The tool is useful when projecting your monthly, quarterly, or yearly targets. Since a budget is a scheduled expenditure report, it can vary during the execution stage. Actual expenses can differ from what projections. The variance indicates an under or overperformance of the business.
Book-keeping is an organized way in which incomes and expenses are tracked from day one and reviewed at a specific date. The process of recording business transactions makes use of accounting software and reconciliation with bank statements. Record keeping looks at invoices, cash registers, and business accounts to generate reports.
Cash is king in business. Knowing how cash flows in and out of business is crucial in identifying whether a company is successful or not. When projected into the future, cash flow projections show whether the business will remain liquid in the future to pay off its obligations. It is beneficial when planning for a significant move, equipment purchase, or running a seasonal business.
Statement of comprehensive income
The statement of comprehensive income provides an up-to-date measure of revenue and expenses over a month, quarter, or year. It provides a yardstick to assess if your business is performing well or loss-making. Net incomes are subject to taxes in a company.