Why financial management is a big deal

Financial management not only affects the day-to-day running of your business but also the broader strategic planning. Proper financial management helps you manage proactively rather than re-actively. Some say that financial management is at the heart of running a successful business.  This is true because it affects tracking business performance to managing cash flow.  A good financial management system enables entrepreneurs to access a great decision-making tool for key financial considerations and minimise risk.

We recently held a Masterclass on financial management which was facilitated by Asif Noorani – Investment Principal at Fanisi Capital. He started out by challenging the entrepreneurs to evaluate their business in terms of; Where have I come from and where am I now?  Where am I going? How will I get to my destination? Though every business is unique, business processes cut across every industry.

Case study during the Financial Management Masterclass

Participants of the Financial Management Masterclass during a break out session

Some of the key insights he shared are highlighted below;
Audited accounts

  1. Have the right auditor who will add value to your current business processes
  2. Understand what you are signing – remember that as the business owner you are responsible for the accounts, not the audito
  3. Manage your cash flow statements – Consider the amount of cash you have coming in & going out and the out-of-cash date

Management accounts

  1. Costing – get your costing right.  Your accountants or Finance Managers should be in a position to predict how your current cost will be affected 6 months ahead and how it can be adjusted to fit the shifting economic environment.
  2. Internal controls
    • Have the right corporate governance policies such that the internal auditor will directly report to the board
    • What checks do you have in place to ensure that internal control is efficiently conducted to avoid mismanagement of goods coming in and out?
  3.  Dashboards
  4. Ensure that you have daily tracking of operational and financial metrics

According to an Entrepreneurs guide by ACCA Global on Financial Management and business success, careful consideration of your financing goals will help you decide what your financial priorities are. Although you may not be able to achieve everything you would like, you will have a better understanding of which trade-offs you are prepared to accept.

This guide highlights the following aspects every entrepreneur must consider

Financial strength
You will want to ensure that you will be able to cope if your business is less financially successful than you hope or if you face a sudden, one-off cost.

Financing cost
You will want to minimise the costs of financing, whether that means the interest you pay or the share of the business you give up in return for funding

Financing the business
Your business plan – and the cash flow forecasts in it – gives you a clear indication of the financing the business needs.

Financial flexibility
Your business should retain flexibility, for example so that you can obtain additional money to help you pursue new opportunities in the future.

Business control
You will want to retain control of the business, with lenders and investors placing as few restrictions as possible on what you can do; and you will want to restrict their entitlement to a role in decision-making.

Financial risk
You will want to limit your personal financial risk, and the risks to any family and friends who have invested in the business, minimising the risk of losing more than you can afford if things go wrong.

Personal finances
Your financing plans should take into account how much income you require from the business, and to what extent you are prepared to limit your income in order to reinvest in the business.

Business strategy
Your ability to raise financing will determine whether you can afford to invest for growth or need to focus on controlling costs and generating cash.

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