In last week’s post in our series Becoming Financially Well Organised, we discussed Financial Management Systems with an emphasis on the term “cash is king”. This week we want to take a closer look at timely and accurate reporting methods, in order to ensure you are making the right financial decisions for your business.
Timely and accurate reporting
Like any business process: garbage in=garbage out.
You must ensure that the appropriate care and attention is being paid to your financial reporting systems.
Business decisions are often made by owners on a hunch. They often perceive the financial situation to be different to the reality. They implement a marketing and sales campaign to drive the revenue up, but the cash flow systems aren’t working to manage the growth. While their profits might increase, so will the cash gap. The financial ramification of implementing such a plan must be known from the beginning, so the cash flow can be managed to support the strategy.
For you to delegate decision making to others, you must ensure they are provided with accurate and timely information so they can make accurate and timely decisions. As a minimum, you should ensure that your internal Financial Management System is computerised and can provide:
- An accurate balance sheet and profit and loss statement. If you don’t know what these are, you need to implement a Financial Management System in your business quickly;
- A list of customers that owe you money and details of how much they owe and for how long they have owed it to you.
- A list of suppliers that you owe money, which details how much you owe and for how long you have owed it to them;
- A list of employees pay and entitlements you owe to them such as holidays, sick leave and long service leave;
- Accurate information on what stock items you have bought and sold, and the cost of what is in stock.
These systems can be purchased over the counter, but you should consult an accountant to make sure you select the correct one to meet your needs. You must then ensure that your key people are appropriately trained or have the skills to use it.
- Garbage in = garbage out
- Garbage out = poor decision making
- Poor decision making = dysfunctional business
- Dysfunctional business ≠ your ideal day at work
Remember that the two core Financial Management Systems for any business are a profit and cash flow plan, and timely and accurate reporting. A business must ensure it measures its profit and cash flow monthly, if not weekly or daily, and also make sure that the financial information is accurate and provided in a timely fashion so the key people in your business are making decisions based on sound financial information.
We hope that this information has been useful to you in becoming financially well organised! Next week we continue on with the business plan and provide more key insights for improvements to your business.
In the meantime, if there is anything we can do to try and help you on your path, please call us on 61 7 3833 3999