Unless you have found a way to use the barter system to obtain the things you need, finances are likely to have an impact on your life. After all, money makes the world go around, right? The management of money is crucial to both personal and business operations. It is the reason why people go to work and why businesses succeed or fail. Without good management, money can quickly become depleted even when large sums are being generated. Here are a few topics to begin the process of mastering your finances to ensure you are getting the most from your hard-earned money.
Is Finance Management a Science or Art?
The definition of finance has several meanings, all of them involving money. Professionals, like CPAs, spend many years studying finance management. The topic is considered both science and art. There are many mathematical equations, historical charts, and algorithms that are used in good financial management practices. There is also a “gut feeling” or judgment call that is required to solve unique financial problems. This is the art behind the practice. The blend of the two creates a very unique field that is challenging for many business owners to conquer. Those that work in the field spend years building their knowledge of the facts and developing the ability to make sound decisions for their clients. The answer to the question of is finance management a science or is it an art is definitely a resounding both!
Building a Foundation
Good financial management practices are more involved than simply putting numbers into an Excel spreadsheet or accounting software and letting the numbers calculate. That process is bookkeeping and will show you exactly where your money is currently, but you will not know where it has been and where it is going. Having a good process in place to gather the basic data is a crucial element and will lay the initial layer in your financial plan. Financial Management will allow each layer after that to be built upon this first row (your numbers.) When engaging with a professional, questions like the ones below will allow you to begin building up on the basics.
- What are the Key Performance Indicators (KPIs?)
- Are reports being reviewed to reflect the KPIs?
- Do I have a budget?
- How is my cash flow?
- Is the business profitable?
- Are the employee performance metrics in place?
- Am I investing properly?
Establish Routines
People waste a great deal of time and money by designing a strategy but never implementing it. Plans are wonderful and they should be developed. However, developing the routines associated with the plan really makes it come alive. This is an area that often goes off the cliff for some business owners as they simply have too much on their plate. Dedicating some time to your financial management will ensure your business is going in the right direction and that your future will be stable. Outsourcing some tasks to a professional will help keep you on track and give you an outside perspective of your data. It will also be a trigger to remind you that you need to do your part as well. They can help you establish routines like these:
- Schedule reports for KPIs to be delivered to you.
- Create meetings to review the reports.
- Develop action items from meetings.
- Follow up (you know that you need this!)
Analyze Your Business
You now have the foundation and the routines necessary to make it happen. What now? These are simply numbers on a screen or piece of paper. You have to spend the time to understand them and adjust if needed. This is not an easy process. CPAs do this on a daily basis for lots of businesses. They can fill in any knowledge gaps you may have and also clue you into industry specifics. The best practice is for you to spend some time reviewing the reports. Then as part of your established routine, review those with your CPA. A quarterly review is good for many businesses, but you can make that as little as annual if you would like. The more you review, the better you will understand your business. A strong understanding will allow you to identify potential problems and head them off before they become an issue. It will also allow you to maximize the money coming into your company.
Strategies for Now and Later
When you analyze your business, you will find areas that need to be adjusted. These adjustments may be minor or may take additional thought to change. While some business owners “fly by their seat,” many prefer to think issues through and develop a plan of action. This plan is a strategy for how you will tackle both the good and bad portions of your business. Your CPA may realize you are flush with cash and can give yourself a large bonus (yay you!) You may have to determine if this is something you want to take personally or if it should be used to grow another area of your business. This strategy will impact your future either way. Taking the time to talk it through with your CPA will ensure you do the best thing for now and later.
CPA’s can do so much more for you than your taxes. Take advantage of their in-depth understanding of the science and art of financial management to build a successful business. Hayes Accounting has a strong team of experts ready to get you started. Contact us to begin a better financial management process for your business.
