Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. Many small businesses understand the relevance of having a good financial management function in their organisations such that growth and finances are well managed. Most however still struggle with strengthening this function in their business. Financial reports are used in decision making for organisations, however, poor financial reporting is the bane of many businesses that don’t have experienced accounting departments. Today, we share some tips to improve financial reporting and the accounting function of your business.
1. Develop a financial strategy to ensure financial sustainability;
Many companies focus on a human resource strategy, marketing strategy etc., however little attention is paid to the financial strategy. A financing strategy is integral to an organisation’s strategic plan. It sets out how the organisation plans to finance its overall operations to meet its objectives both now and in the future. A financing strategy summarizes targets, and the actions to be taken over a given period to achieve the targets. It also clearly states key policies which will guide those actions. Your financial strategy should answer key questions such as;
- Where are we now (financially)?
- Where do we want to be and
- How do we get there?
What policies are guiding your operations in regards to financial management?
2. Align your financial capacity to the organisations strategy and operations;
Your company may have the best financial strategies but if it is not aligned to your overall organizational strategy and operations, it may as well not yield the much needed results. Your organisational operations depend on your financial capacity as a company. It critical to assess your financial capacity and ensure that it is in line with the financial strategy, your operations as well as the company budgets.
3. Planning and Budgeting;
Planning and budgeting are essential for any business control. Effective planning and budgeting require looking at the organization as whole and making key decisions that help maintain optimal use of resources. Planning finances and budgeting for needs such as marketing, salaries, production costs, office expenses among others and tracking these expenses from time to time e.g. monthly, quarterly, annually should be key for any business. Budgeting largely involves identifying, prioritizing, acquiring, and allocating the resources needed to carry out the plan. Budgeting is an inclusive activity that should involve all individual departments for it to be comprehensive enough for the organisation.
4. Develop strong internal controls; an internal control is a business practice, policy or procedure that is established within an organization to create value and/ or minimize risk. In relation to accounting and financial management, internal controls are policies and procedures put in place to ensure the continued reliability of accounting systems. Internal control procedures in accounting can be broken into several categories, each designed to prevent fraud and identify errors before they become problems. Internal controls are a clear way to manage company finances, especially cash.
- Do you maintain receipts for every transaction?
- Do you take record of all transactions?
- Is petty cash kept in a safe?
A subset of internal controls, are designed to ensure that the technology used for financial management within the organization operates as intended, that data is reliable, and that the organization is in compliance and regulations. Click here for a more detailed article on internal controls. Tips on internal controls over cash for SMEs
5. Embrace technology in your financial management;
A number of mobile applications have been developed for personal financial management for individuals. Luckily, financial management for organisations has not been left out. Standardized accounting systems and software have been developed to ease the accountant’s roles. Systems such as QuickBooks and Tally have simplified the accounting function by ensuring accuracy, speed and convenience for accountants. For smaller companies, where such applications may not be an affordable option, developing simple accounting templates internally or through a service provider may be a more realistic approach. However, one thing to remember even as we embrace these systems is GIGO (garbage in, garbage out). Your financial reports will only be as good as the information you input into these systems.
6. Commit to finding a dedicated staff to handle the accounting function; small businesses are challenged when it comes to handling finances. In many cases, the owners are keener on handling their finances rather than hire someone to handle this. This, in many cases causing mixing up of personal and business finances, and yet business and personal finances must be separated. A dedicated staff will support the owners focus on suggesting better business-focused decisions. Financial reports will then be more objective and the department becomes more independent. Click on this link to read more about separating business and personal finances
7. Develop a clear accounting process; Finance is one of the interrelated functions which deal with the HR function, marketing function, production function and research and development activities of the business. The accounting function rarely starts in the department. So, the organisation must have a clear process for accounting. The accounting process answers questions such as:
- What transactions and how are they entered into your books?
- Who does what in regard to finance and accounting in the organisation?
- What source documents do you use?
- Who reviews and oversees the finance and accounting function?
- Who do we share our final reports with? Among others.
8. Utilize financial reports for decision making; financial reports are meant to guide decision making. The first step here is to determine what the decisions centers in your organisation are. Next is to determine what financial reports are prepared in your organisation, and in what frequency. Managers at all levels, whether with an accounting background or not should be able to interpret financial information presented in these financial reports whether it is an Income Statement, a Statement of Financial position or the Statement of cash flows. They should be able to tell what this information means for the organisation and how it can be used for the betterment of the organisation e.g. do we need to scale down our marketing budget? Should we maintain foreign markets? How are we serving our debts? How can we manage our cash flows better?
Financial information is useful in for decision making in organisations. Managers and key decision makers should therefore maintain a robust level of familiarity with the organisation’s financial reports at all times. Accuracy and reliability are paramount in developing financial reports. The quality of decisions depends on the quality of information presented in these financial reports. Without accurate accounting records and reports, managers cannot make fully informed financial decisions.
By Sarah Achiro
Sarah is our Business Analyst . She is a growing consultant with BLEGSCOPE and has 3 years’ experience in consulting for SMEs and in the service sector. She is keen on strategy, finance and procurement. She has previously worked for Riham Foods and MTN. You can follow her on twitter >> @achirosarah