What Does Financial Management Include?
We know what is financial management. It’s a personal decision in making wise choices about our cash. Financial management involves a lot of areas. Here, I list out 5 of the most important areas that you should know.
These are the main areas you should concentrate because it is these areas that we either mismanaged our money, or it will enable money to work for us.
The following are the key areas that you should look at:
Cash flow management
This involves assessing your current net financial net worth (what you own minus what you owe). This should generally tell you whether you are on your way to financial freedom or financial disaster.
In short, most financial experts would advise you to keep a high savings and this should be your MAIN PRIORITY in financial planning.
Investment planning
Once you have decided the amount of money you would like to save, you should consider where to put your savings with the aim of getting a higher returns than your normal savings account.
Forget the 2% p.a. interests for saving. You require something more sophisticated than that! At a minimum, you should go for fixed deposits. Otherwise, a good investment program will be nice.
Insurance planning
Insurance planning is required to in ensure that all your properties are protected and that your family members are well protected by having enough insurance coverage.
Tax planning
The topic of tax planning affects everyone who receives income, yet it is an area that is mainly forgotten or forgotten by most individuals. Therefore, this area involves strategies making the most under the local tax regulation in the area of your income, stocks, real estate, and property.
Retirement planning
You are not going to toil your whole life, are you? When old age symptoms begin to kick in or you have reached the mandatory retirement age, you will want to retire. There is no choice.
Therefore, having a retirement plan regardless of of your age is essential! You wouldn’t want to be forced to go back to work due to lack of money!
Estate planning
Having an estate plan or a will shall ensure that your wishes for the future are carried out. In addition, an estate plan or a will can supply financial protection for your family, ensure your property is preserved and keep off dispute among family members.
The above are just 5 of the many other financial decisions. It is important to take note of your above 5 becasue they are mainly responsible for your financial success or failure.
7 Tips For Effective Financial Management
In some organisations, managers and leaders fall into the trap of believing that financial management is something that the accounts team are fully responsible for. While there will be areas like cash management, payroll, paying suppliers and collecting payments from customers that are likely to be handled by the accounts team, financial management falls into the remit of all managers and leaders. Mangers often have concerns about this area, often believing that it is difficult and complex. The truth is that if you are an expert in your area of the business, you can excel in financial management. So what are my key tips?
Tip 1: Be actively involved in setting a budget
Most businesses now devolve budget responsibility as much as they possibly can. As a result, managers have a chance to be actively involved in determining things like:
o Sales volumes
o Temporary staffing cover for vacancies
o Staffing levels to deliver the sales
o Buying preferences in terms of products that will be used in delivering agreed volumes
o Investment in new equipment or facilities
Don’t miss out on your chance to determine your budget.
Tip 2: Be clear on your assumptions
A budget is a plan for the future based on the best evidence you have at the time you prepare it. You will have to make assumptions about things like sales growth, staff turnover, sickness, price inflation, etc. Make sure that when presenting your budgets the assumptions are clearly stated.
Tip 3: Work with your accountant
Your accountant who works with you in the business is essentially your personal business advisor. Use your accountant in this way and you will reap numerous benefits. Your accountant gets a better understanding of your area of the business and what the key drivers of revenues and costs are, which will be immensely helpful when it comes to reviewing performance throughout the year.
In addition, your accountant can model results for you based on different assumptions and help you to get a much clearer picture of the risks that might need to be managed.
Tip 4: Share the budget with your team
As a manager and leader, your success depends on the results of the team. Take the time to share your budget with your team, including the key assumptions on which it is based. If the team know what they are aiming for in terms of financial results, they will look to do the right things operationally to get the best result.
Tip 5: Take responsibility
When the going gets tough it is so easy to start to look elsewhere for excuses. If you have been involved in setting a budget which you have signed up to, focus your energies on getting results rather than the injustice of the current situation.
Tip 6: Monitor performance and take action
Make sure that you have a process in place to carefully monitor your actual performance against the budget. If things are going well see if there is more you can do to boost performance even further. If on the other hand things are not going as well as expected, focus on the changes you need to make or action you need to take to get back on track.
Tip 7: Focus on the most important numbers
When it comes to financial management, managers can sometimes get lost in lots of detail and trivia. Be clear on what are the 2-3 big numbers that you need to pay attention to, as they will more than likely constitute about 90% of your budget. In most businesses this will be:
o Income from sales or services
o Salary costs of employees
o Major non salary cost such as materials
Make sure that you have as good an understanding of what impacts on these numbers at the business unit level so that you can keep things on track.
At the end of the day, internal financial statements such as budgets merely reflect what is happening operationally in a common currency called money. Keep this at the forefront of your mind and you have a great chance to excel as a manager.
Financial Management – Things All Business Owners Should Know to Succeed
Statistics show that 87% of small business failures are due to one reason: Lack of proper financial management skills! This is a horrible statistic and it can easily be turned around for you! The formal definition of financial management is “the planning, directing, monitoring, organizing and controlling of the monetary resources of an organisation.” Basically; do you understand, track and control where and when your cash flows in or out of your business.
I have seen evidence of this statistic over and over again. There are so many small business owners out there that pay a fortune every year for their financial statements to be prepared by their accountant, and have very little understanding of what this document actually means. No sooner have they written out the cheque (with a very heavy heart) to their accountant, and the next cheque is on its way out -to the tax man!!!
Financial Management is not something you only worry about after year end, when you need to report to the tax man. Its a process of understanding and tracking how your business is performing on at least a monthly basis. Some business’ require a more frequent review depending on its size or even how desperately the business needs it. To prevent you from becoming part of this 87%, I have formulated a few DIY tips in my report so make sure you sign up for it before you go!
It is designed specifically for you (the local business person with little or no understanding of financial numbers or processes) and you can use them to gain an understanding and eventually confidence in your business today, and tomorrow…… your business’ future. You can also sign up for our DIY templates package to get you started “understanding, tracking and controlling” your business. Be part of our database and you will be able to get started “number crunching” the Turnover you desire – and qualify for 30 minutes extra expert time for FREE.
Financial management is a big part of a running a business and it’s likely to determine your long term success.
Every business owner should have a strong skill in the area of financial management. If not, it is important to have someone on your team who is a specialist. You should take on financial management with great focus and importantly, take into account the strategies and plans that offer growth, stability, as well as continuous profit for the business. Managing your finances will always involve some risks but these can be reduced with the assistance of experts like the team from “Confident Cashflows.”
Don’t become an all to common statistic!
You can learn and understand the basics of financial management, but as a business owner, it doesn’t mean that you need to know everything. It is your role to steer the ship and have an understanding of what is going on in the engine room is critical.
Sign up for our “Financial Health Check” which can help you truly understand how “healthy” or how “not-so-healthy” your business is. Don’t wait – tomorrow may be too late!
Regardless of what specific tools you adapt for managing your finances, you will certainly be on the right track if you consider a team of financial experts who can help and guide you well on how to handle your finances.
Benefits of working with financial experts
Financial experts let you focus on your technical and operational expertise of your business – but help identify potential stumbling blocks along the way – BEFORE your business falls down!! Financial management experts help you employ BIG business principles to small(er) business enterprises. Remember you will never be able to handle BIG profits if you cannot manage smaller profits NOW! Financial experts give you advice based on your specific industry and your specific business. Every business is unique – with its own strengths and unfortunately its own weakness’. Without the knowledge of where you stand – it’s very difficult for you to make informed decisions about your business’ future!
The key to success is always a solid foundation and knowing your goals and more than anything else, choosing the best financial management experts to help you reach your financial goals and run your business effectively.