Posted: November 20, 2014
Good financial management can mean the difference between a business that grows and is ahead of the market, and a business that falls at the first hurdle.
Martin West, Partner at Burgess Hodgson, explains why financial management is so important, and how a business can go about implementing it.
What is Financial Management?
Financial Management refers to the processes and controls that assist a business with planning, and ultimately improving business performance.
This could include anything from developing a business plan to help identify your business goals, knowing your financial position in real-time, or having the processes and tools in place to ensure invoices are raised and debts are chased in a timely manner.
Why should I do it?
Good businesses and business models can fail if consideration isn’t given to financial management; and any inefficiencies can be amplified over time, rather than addressed at the outset.
Carrying out (or outsourcing) this important function allows a business control over their finances and can help with growth in the longer term.
Implementing financial management processes shouldn’t necessarily mean a cost to the business. In a lot of cases this can be carried out internally, or even outsourcing it could actually save money; by recovering bad debts, or saving money through avoiding fines and penalties.
In addition, the additional time you could spend earning and generating new business, usually far outweighs the cost of outsourcing or any additional administration costs.
When should you consider it?
Financial Management should be considered from the outset of setting up a new business, but understandably in reality this isn’t always the case. There are however a number of ‘trigger’ points which can point towards a need for proper financial management practices as your business grows, including:
- Missing important deadlines such as payment of bills or VAT return submission;
- You have less time to spend generating sales and new business, or completing orders, as administration becomes a burden;
- Invoicing not being completed in a timely manner and outstanding debts not being chased;
- You may be suffering from stress and work may be taking over personal time.
How do you implement a financial management plan?
Taking some time to develop a proper business plan will help you to identify any short or long term objectives. Alongside this, we recommend talking to an accountant to help identify any areas of weakness in your business, as this could assist with highlighting where your business needs additional support.
Whether it’s in administration, financial control or something else, you can begin to piece together some management ideas to help keep your finances in order. You may find it beneficial to employ someone to take over the financial administration, such as raising invoices and chasing payments, or you may be able to draw on existing internal support which has been under utilised so far.
With a business plan in place, and your current financial position at your fingertips, you will be in a much stronger position to improve your business performance and focus on making the right decisions to take your business forward.