Advantages of Good Financial Management

To make a business operate effectively, a business needs to consider the management of each and every aspect of their operation with finances being one of the primary aspects. Finances greatly affect almost every other aspect of the business, which is why it is so important that is managed properly. Financial management should be executed in such a way that it will provide security and growth for the business for many years to come. You cannot achieve the success you seek for your business without good financial management. Just take a look at the following advantages of good financial management so you can assess and start applying it to your own business.

The Concept of Risk Versus Gain

Under the principle of Risk Versus Gain, large risks are taken to get the largest possible financial gains. What you should be aiming to do is to find the right balance for you personally. You also need to consider the idea that high risk strategies yield more make sense when you are younger. This is because if the risk results in a loss you will still have plenty of future years to recoup your loss.

Set Goals for Sound Financial Management

Just in so many other things you do in life, setting your goals and organizing them according to their priority is a must. This will lead you through a life that will less likely require you to merely react to the changes that may occur along your way as you already have direction. Such an initiative will help to ensure that you remain grounded and move towards a greater overall goal as yet setter smaller goals along the way.

The Rightly Planned Approach

Review of the financial data of your business is a must when managing your business. This allows you to identify the specific trends that occur within your business and determine possible future trends before they occur. This will also help you establish new strategies in planning at a departmental level and also for the operation of your business overall. Lastly, such an approach will also help you evaluate the high risk areas of your business and take the appropriate steps in fixing associated problems or heading off potential problem in the future.

Taxes for the Business

The income tax system is structured to enable financial management strategies to be implemented. The tax burden for your business could be reduced when you have the foresight to take advantage of any loopholes or exemptions which are available. For example You may take advantage of charitable deductions by allowing specific amount of charitable donations to be deducted from the business’s income or make a large capital purchase towards the end of the financial year and take advantage of large capital purchase write down’s.

Cash Flow Management

You will know exactly what the business is spending and earning when you properly handle your business finances. Well-managed finances will give you an idea when cash will become readily available for use. The business will then be less likely to evolve into an insolvent operating position through a heavy debt burden. A cash flow forecast will also act as a compass for your business when you need to know what you need to pay and when you are able to pay it.

The Confidence It Brings

Liken this point to trying to find a destination you have never been without a map. You are not going to be confident of reaching your destination, however put a map in your hand and all of a sudden it changes your perspective on your journey instantly. Good financial management can be likened to the previous example, put an accurate cash flow forecast in the hands of a business manager and all of a sudden he knows what to expect for the duration of the forecast. This will lead to confident pointed decisions which will have been evaluated with consideration to the business holistically.

If you are able to successfully implement the points above you will have taken one giant step towards the future viability and sustainability of your business for years to come.

Outsourcing Bookkeeping and Accounting For Your Business

Knowledge can transform lives. Wise use of accounting procedures can transform lackluster performance into outstanding leadership in its industry. If you haven’t given your accounting department much though, and have been content to keep your books clean as a financial record and not a living system, then it might be time to rethink your ways. With financial engineering and new technology these days, you can bring about order from numerical chaos; deliver keen business insights that can be translated into plans, actions and powerful new systems. Then, you can focus on what owners and managers do best: growing your business.

Not everyone is a whiz at math, however. And many a wise entrepreneur or businessman has wept at managing the numbers. Take heart! Why not try out how effective an outsourced accounting department can be? Once you find knowledgeable people with the best practices, people who utilize the power of information technology, you can streamline your financials faster, and growing your business can be a breeze.

Bookkeeping is often viewed as a necessary task that creates no value for businesses, but it is still the core function of every financial department in any business. Without proper bookkeeping, meaningful business analysis cannot be delivered for management to make informed decisions.

Accounting delivers useful business insights to business owners, presenting all the information that is most relevant, in different forms. Empowering you with reports that access your key performance indicators allows you to evaluate your choices and decisions in your operations. When done for the right reasons, outsourcing the back office functions of your business offers many advantages.

Consider these Advantages. During periods of rapid growth, the back-office operations of a company, especially bookkeeping and accounting, often experiences a greater volume of transactions. Seasonal changes and surges in demand may be good for the bottom line but it can also use up the human and financial resources at the core of your business. You won’t want to sacrifice the success of your own business. Outsourcing bookkeeping and accounting activities will allow your managers and key personnel to refocus their business talents on activities that contribute most to its growth.

Expensive operational costs are a clear signal urging managers to consider outsourcing services. If the overhead costs of doing your bookkeeping and accounting in-house are extremely high, outsource these functions if it is no longer viable to do it at a reasonable cost. This reduces overhead and simplifies processes, which translates to reduced cost and increased efficiency.

Companies plagued with a high turnover see outsourcing as a way to provide continuity to the company while reducing risks of mistakes in its operation. It is another way to bring in better management skills to your company via your outsourced partners, in times when your staff does not possess the required skill set.

If one considers advantages, you may wonder what the disadvantages are. The downsides to outsourcing your accounting department have to be considered before making your decision on which service provider to choose.

A major disadvantage of outsourcing the accounts of any business, is the staff are not situated onsite with the rest of the core operations of the business. This could be disruptive to business operations where clear and prompt communication mechanisms do not exist within the business between staff and outsourced accounts personnel. Overcoming the communication dilemma is the single biggest hurdle to having any outsourced accounts operation function efficiently. The best way to do this is to ensure expectations are clear from the beginning between both parties and to make sure there is a strong flow of organized information in the form of regular reports being issued as well as status updates of key business objectives being fed back to business management.

Data security and confidentiality is also a core issue of the outsourced accounts initiative. Expectations once again must be made clear by both parties. However, any outsourced accounting operation should have procedures and systems in place to ensure the integrity of all data is maintained. But even beyond this there is a sensitivity which is associated with the finance function of any business which must be addressed and preserved especially the payroll aspect. Outside of having strong information technology systems and confidentiality agreements in place there is a strong element of trust that exists in these business arrangements, as such both the business and the outsourced accounting personnel need to be comfortable working with one another.

Though physical distance and data security may pose an initial hurdle, consider this: how do you feel about the prospect of having your back office have the accounts up to date and processed by professionals who are qualified and experienced at a minimal cost?

These are some of the key considerations wise business leaders have resolved for themselves in making a choice to outsource their accounting department. Once you’ve found possible partners, weigh carefully the advantages that they bring to your company. You may just find outsourced accounting departments to be the best solution for your needs!

Preparing A Business Budget

If your business is like most other businesses, as the year winds down, your finance departments are preparing the budgets for next year and factoring in what’s likely to happen. You’ll need to use historical data and calculate projected income and costs, but what sets this budget apart from last year’s is the fact that trading conditions and tax law continue to change and evolve year after year, and most businesses will have to rethink the way they do business.

The annual budget process is a key part of running a business successfully and achieving your strategy, but your company’s 2013 budget, should be viewed as a living document and continuously reviewed in light of the current business environment and your company’s actual performance throughout the year.

Regular monthly or quarterly reviews provide the discipline for management to thoroughly examine accomplishments and realign tactics to achieve your objectives, for executives to commit to supporting the budget and investment plans, to grow the business organically or source outside funds for the coming fiscal year.

Without a plan, you could easily go out of business. How else can you be sure that you can maintain cash flow and profit so that you can cover all your expenses? Only a planned budget can give you a basis for control. Make sure your numbers are realistic, cover all the details and try to avoid mistakes… but when mistakes are made, learn from those mistakes. Factor in all the key elements that should be there for your particular business. Don’t make it too general, but don’t get stuck on requiring accurate figures. Refer to your 2013 budget often, noting differences in your income and expenses as the days go on.

No matter how small, businesses need to use budgeting and have a working business budget for good financial management. Entrepreneurs are usually so focused on business that managing finances becomes their Waterloo. You have to have a game plan for the business.

A working financial budget is necessary from the time an entrepreneur conceives an idea until that idea is put into operation. An entrepreneur can’t know if an idea is even realistic for a business without a working budget. For the small business owner, the working budget helps them assess the financial health of the company. The business owner can’t know where they are going or what potential opportunities or pitfalls lie ahead unless they have a budget. But is there a right way to put that critical budget plan together?

The 2013 Budget is your business plan for the coming year, so make sure your management is involved. After all they are the experts in your business. Make sure everything is time bound. Are you experiencing negative, flat, slow growth? Is the market shrinking, expanding, seasonal? What do you plan to achieve this year, and what has to be supported in order to achieve it? What’s the competition like? How are the key players and new entrants expected to affect your bottom line? Are there dynamic changes or new operational processes that redefine the business? Will you launch new initiatives?

Once business analysis is complete, top management must decide financial goals, which is what management will base their budgets on. Then the real numbers-crunching begins in earnest. The budget process needs a timetable and deadlines must be set to get the ball rolling. Often, managers create a traditional detailed plan based on previous years’ performance and project that into the coming year. They then intuit an aspirational budget that factors in the assumption of achieving their business goals. These two budgets should also include metrics and ratios that drive business growth, for example revenue per sales employee and profit per business unit.

Another way budgets can be prepared would be to project profit-and-loss following the format of financial statements. Businesses that operate on credit or extend credit should additionally prepare a cash-flow budget. It is critical to how much you’ll need – and when – to give management room to maneuver in finding new sources for capital.

Smart Cash Flow Management

Fiscal management concerns itself with how money flows into a business along with how it is utilized to ensure positive growth. With Australian based businesses worrying about a turbulent international economy, and the effect this will have on trading conditions domestically this presents a very uncertain stage for trading in 2013. Despite the grim picture of the future painted by some doomsday economists, 2013 is turning out to be a year with exciting prospects for growth – but just not in the way your business may usually expect it.

How should business owners and managers prepare for this coming year? There are conflicting reports from leading economists that predict in the short term, consumer spending and state spending will remain relatively unaffected. Since various experts are divided politically and economically on how the changing taxation policy will take effect and how it will affect both individuals and businesses, reviewing and utilizing time-tested tenets of accounting will help you take control of your cash flow situation and ease your worries about the uncertainty ahead.

Where to Look

You will need to take a look at what affects the cash coming into your business, the components that control overhead spending and the relationship between a balanced checkbook and an increasingly healthy amount of flow. Clearly analyzing these factors will reveal key differences in the cash you will have for spending, and the payments you will need to make for both inventory and services. Every cash flow gap that you can identify is an opportunity to take control of your business, and secure it for success.

Since every business exists because transactions increase value, the more products you sell and the more services your business renders, the more your customers will value your business. Corollary to that would be the expectation that you are turning a profit as well, and it all seems like a win-win situation. However, when you have sold your products or rendered services in return for a customer’s promise to pay at a later date, you create a value where none existed. After all, how much would you pay for a promise?

Give Credit only where Credit is due

Accounts receivables represent successful but as of yet unpaid sales, so to manage your cash flow, you must know the negative effects that extending credit may cause. By the time your customers actually pay up, you may have needed that amount to pay off suppliers, pay your employees or you may have expanded operations at an earlier, more opportune time!

Take a look at your credit terms. What are the policies you set when extending credit? How do you set the limits on credit; how do you set deadlines for payment and collection? What are the processes? All credit terms affect the timing of cash flow into your business. Are you comfortable with high and dry lean seasons that routinely come into your business? Is your business affected by seasonal ruts?

Establishing correct credit policies ensure that your cash flow won’t surge then dry up or get all dammed up with creditors or the banks. Many businesses routinely offer trade discounts, on longer or shorter terms, to improve their cash flow during such times. Re-thinking this for 2013 will position your business at the head of your given industry at a time when businesses which would have once seemed immune to adverse trading conditions now seem very vulnerable.

Balance vs. Flow

The real value of a business can be evaluated in terms of cash value only or based on other factors – sustainability vs. profitability; social factors vs. overall value as well. Traditionally however, accountants divide their methodologies into cash-on hand or accrual accounting based on how money flows into a business. They routinely encourage business owners to ensure a healthy cash flow by projecting how and when money needs to be utilized.

Despite the amount of money flowing into or out of a business, value is also assigned to its physical assets. Among these assets are of course the goods you deal in. Examine your need for keeping inventory and just keep what is needed for the smooth operation of your business. Did you buy on credit? When you purchase your goods or services on credit, your business creates accounts payable that are owed to your suppliers, usually within 30 to 90 days.

Just as you paid close attention to the payment schedules of your clients, re-examine how you schedule your own payments. As your business grows and as profits increase, don’t automatically expect your bank balance to grow – it may, but in the coming year, smart cash flow managemnt may be the best security for surviving these nervous and uncertain times for trading.