Everything You Need to Know About Business Financial Management
Have you ever stopped to think about the importance of corporate financial management? We can say that financial management is so important, that all managers and teams should take care of it all the time. Whenever any employee identifies flawed processes or suggests some new way of performing tasks that influence business costs, he or she is participating in financial management. The financial sector of a business is one that takes care of the health and survival of the business. He needs to identify how the flow of resources occurs, what the volume, what the main demands are, and the very viability of the business.
Business financial management begins in the business plan
When we talk about a private company, it is natural to understand that the people who invested money in the business want to make a profit. So, financial planning begins on the first day as soon as you begin to structure your business plan.
What do you need to identify when you will start a venture?
– What is the initial investment?
– What is the annual cost of the business?
– What is the required working capital?
– What is the estimated billing?
– What is the expected profit for the period?
– How soon will investors recover the investment?
All of these questions need to be answered already in the business plan. It is clear that only the history of the company can give greater precision to these estimates, but it is fundamental that the entrepreneur makes a very detailed study of the opportunity that generated the entrepreneurial initiative.
Annual Planning
In general, companies make their financial planning for a period of one year, which corresponds to the accounting year. All areas of the company are heavily dependent on the decisions of the finance department as they depend on their budgets and action plans. The main financial planning tool is the budget. It is the financial sector that, based on predictions of inflows and outflows of resources, determines the overall budget. It is up to the company’s management to identify in which available resources will be applied. The financial sector can also identify the need to cut costs, aiming at preserving the health of the organization, as well as the application of capital reserves in the financial market. Returning to the budget, it identifies expected revenues and expenses, including financial expenses, if there is debt. In addition, it identifies the payment of debts scheduled for the period. With this measure, it identifies whether the budget is a surplus or a deficit, whether there is a need to reduce costs or generate new revenues.
Cash flow
The annual budget identifies the inflows and outflows of financial resources over the period. There is, however, another important control, which is cash flow. Cash flow seeks to identify cash flows on a day-to-day basis. It is possible and necessary to do an annual cash flow planning. However, this tool should be used on a daily basis. Its purpose is to prevent the company’s cash flow from being discovered, harming the operation and / or generating indebtedness to replenish working capital. Budgeting and cash flow are financial planning and control tools, but they interfere in all sectors of the business. Therefore, it is quite correct to say that financial management has to be done by all managers and employees.
Risks and opportunities as factors of financial equilibrium
In saying that everyone should participate in financial management, we assume that this is a dynamic task. Planning serves to make events more predictable, but rarely will everything go as planned. The company can identify a great opportunity and increase the billing. Everyone is working for it. At the same time, unexpected expenditure may arise from a risk ignored in planning. An accident at work, poor supply chain, raw material enhancement, anything can happen, especially if the risks are not calculated. Therefore, financial planning must always be pessimistic.
Control Tools – ERP/Accounting
On the other hand, the company must also monitor the results. Accounting, as we know, is responsible for preparing the financial statements, which provide a financial picture of the company, which includes the result of the year, the balance between assets and liabilities and the equity situation. In addition to meeting fiscal demands and taking care of the proper collection of taxes, accounting contributes to financial control with powerful planning tools, including the annual balance sheet. At the other end of the process are ERPs, powerful management tools that allow managers to have real-time control over accounts payable, cash flow, revenue evolution for the month, and other business variables that impact on finance. Remember when we said that financial management is so important that it should be everybody’s business in the company? It is the IT and management tools that can make this possible, giving all managers a unique and up-to-date view of the business situation. The marketing department, for example, can better understand purchasing behavior and thereby improve the quality of the turnover of goods in the stock and on the shelf, in order to generate smaller cycles and less waste of resources. This will contribute to the improvement of the company’s cash flow.
The big step that all companies will need to take is the integration of business management software with the accounting office system. The idea of accounting integration makes one think of the choice between going up 50 floors of stairs or taking the elevator. Through it, the accountant has remote access to all information and documents with book value. It migrates this information straight to your system, without having to leave your office.
This simple tool reduces to almost zero the risk of errors in the preparation of the financial statements and eliminates all the tasks of the company related directly to accounting. Most important, though, is that your demos can be published almost in real time.
