SMEs often have the wrong idea about financial management.
It’s either something their accountant takes care of, or a complex maze of information that’s like speaking another language that’s too hard to learn.
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In reality, financial management is one of the most important elements of managing your business. Financial management allows you to have the right information at the right time, in order to make the right decisions.
With a little education and the right resources, you can achieve this and it will make all the difference to your business performance and personal wealth as a result.
Here are my five golden rules of financial management every business owner should know:
1. You can’t be successful without strong financial management
According to Dunn & Bradstreet, more than 80% of small business failures in Australia are the result of bad financial management – poor cash flow, debtors out of control, lack of focus on profit margins, and overtrading beyond your business’s ability to meet commitments.
All of these issues can be overcome simply by implementing the right financial management systems and processes.
I have never seen a successful business that does not have strong financial management.
However, even when it’s your business, you can’t know and do it all. So, if crunching the numbers is not your strength, either hire or outsource to someone who is an expert, then make sure they deliver frequent and reliable information and advice that you can use to manage your business and financial position.
2. You can’t manage what you don’t measure
While I’m a believer that gut instinct is sometimes valuable, having your results in black and white is hard to argue with. Deciding what to measure is the most important first step in this process.
You can measure just about anything, so get focused on what matters to you most. What’s your biggest challenge right now? What keeps you up at night?
If it’s sales then focus on lead generation, conversions and purchase value. If it’s cashflow, then collection days, turnaround time on issuing invoices or the amount of time sales staff spend explaining payment terms might be important.
Or maybe the most important feature for your customers is speed of delivery; so productivity, assembly, shipping and accurate completion of order forms is important to measure.
Once you’ve decided what to measure, make sure you give adequate thought to how you measure and use the information.