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| Effective Financial Management - Tips |
Effective financial management is important when growing a successful business. Here are my top tips:
Prepare and maintain your Financial Business Plan
This document will set out where the company is now and where it wants to be in say 5 years’ time. It will detail a plan to achieve future financial objectives and this will include targets, Profit and Loss and Cash Flow projections and sources of funds.
Keep accounting records up to date and reconciled
Use a recognised accounting system to control the transactions. Keep accounts up to date and reconciled. This is a key requirement for effective cash management, credit control and managing supplier accounts.
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Check your financial position and performance
Regularly check the bank position and update forward projections. The business should monitor key performance indicators and compare these against targets set out in the business plan. Prepare accurate management accounts at least monthly and use these to monitor performance against budget. Check your prices and margins against competitors and remain competitive. Benchmark your business.
Control direct costs and overheads
Regularly review your costs and check that they are in line with budget and forecasts. Consider sourcing materials, services and utilities from alternate suppliers to gain a better price.
Structure your debt in the most efficient way
It is essential that you choose the right type and mix of finance for your business. Equity, mortgage, loans, leasing, hire purchase and bank overdraft are a few common examples. They all have different purposes and service costs.
Have effective credit control
Carry out due diligence on new customers and repeat periodically. Implement strict credit limits and terms of payment. Review debtor balances regularly and have strong systems for chasing payments. Send invoices to customers as quickly as possible after the supply of products or services.
Manage stock and work in progress levels
Have a system that controls stock and work in progress levels. Values that are too high could impact adversely on the business cash position.
File returns and pay tax on time
File your periodic VAT, PAYE and other corporate returns on time to avoid unnecessary penalties. Late payment will incur interest charges. It is advisable to stay off the HMRC radar.
Staff
As a business owner, it is important to surround yourself with quality people and this equally applies to your finance team, who should have the right level of qualifications and experience.
Professional advice
Do not ignore problems and shortfalls in the finances. Seek professional advice early to address any issues before they have a serious negative impact on the running of the business. Consider engaging a Part Time FD. Mike Firman FCA is a Chartered Accountant and Director at Firman Financial Solutions Limited. Specialist in providing a Part Time FD service to business clients in Teesside. Call for a chat if you would like to know more.
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The Author: Mike Firman FCA
About:
A Chartered Accountant, Part Time FD and Charity Trustee with a wealth of commercial experience working with SME's in Teesside and in the wider area. Take a look at my website at https:www.firmanfinancial.co.uk and have a read through my client testimonials.
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