Financial management is more than keeping accounting records. It is an essential part of managing your business. It involves planning, organizing, controlling and monitoring financial resources in order to achieve organizational objectives.
- Cost Analysis
It is vital to do a regular review of the expenses acquired by the business, particularly when employees are authorized to spend on behalf of the business. Each line item should be questioned from the standpoints of requirement and worth.
- Monthly Cash Flow Analysis
Cash flow analysis compares cash revenues (aka inflows) with cash outlays (aka outflows) of a business on a month-by-month basis. This allows for the consideration of how seasonal factors impact the cash flows of the business. Furthermore, it makes it easier to plan for growth and reserve funds for equipment needed to meet an expected increase in sales.
- Ratio Analysis
Ratio Analysis compares the financial ‘health’ of the business to industry norms and to historical financial measures of the business as well. Several categories consist of: Growth, Efficiency, Profitability, and Liquidity. Growth ratios provide an indication of how the business is handling an increase in sales.
- Credit and Collections
The extension of credit is a powerful device to use for increasing sales; on the other hand, it does impose a larger risk. Businesses need to develop policies related to who is approved credit and the terms linked with credit sales. In addition, the business needs to have an aggressive and timely approach for addressing those customers who are late with payments. The longer an account goes unpaid, the likelihood of collection decreases.
