7 Tips For Effective Financial Management
In some organisations, managers and leaders fall into the trap of believing that financial management is something that the accounts team are fully responsible for. While there will be areas like cash management, payroll, paying suppliers and collecting payments from customers that are likely to be handled by the accounts team, financial management falls into the remit of all managers and leaders. Mangers often have concerns about this area, often believing that it is difficult and complex. The truth is that if you are an expert in your area of the business, you can excel in financial management. So what are my key tips?
Tip 1: Be actively involved in setting a budget
Most businesses now devolve budget responsibility as much as they possibly can. As a result, managers have a chance to be actively involved in determining things like:
o Sales volumes
o Temporary staffing cover for vacancies
o Staffing levels to deliver the sales
o Buying preferences in terms of products that will be used in delivering agreed volumes
o Investment in new equipment or facilities
Don’t miss out on your chance to determine your budget.
Tip 2: Be clear on your assumptions
A budget is a plan for the future based on the best evidence you have at the time you prepare it. You will have to make assumptions about things like sales growth, staff turnover, sickness, price inflation, etc. Make sure that when presenting your budgets the assumptions are clearly stated.
Tip 3: Work with your accountant
Your accountant who works with you in the business is essentially your personal business advisor. Use your accountant in this way and you will reap numerous benefits. Your accountant gets a better understanding of your area of the business and what the key drivers of revenues and costs are, which will be immensely helpful when it comes to reviewing performance throughout the year.
In addition, your accountant can model results for you based on different assumptions and help you to get a much clearer picture of the risks that might need to be managed.
Tip 4: Share the budget with your team
As a manager and leader, your success depends on the results of the team. Take the time to share your budget with your team, including the key assumptions on which it is based. If the team know what they are aiming for in terms of financial results, they will look to do the right things operationally to get the best result.
Tip 5: Take responsibility
When the going gets tough it is so easy to start to look elsewhere for excuses. If you have been involved in setting a budget which you have signed up to, focus your energies on getting results rather than the injustice of the current situation.
Tip 6: Monitor performance and take action
Make sure that you have a process in place to carefully monitor your actual performance against the budget. If things are going well see if there is more you can do to boost performance even further. If on the other hand things are not going as well as expected, focus on the changes you need to make or action you need to take to get back on track.
Tip 7: Focus on the most important numbers
When it comes to financial management, managers can sometimes get lost in lots of detail and trivia. Be clear on what are the 2-3 big numbers that you need to pay attention to, as they will more than likely constitute about 90% of your budget. In most businesses this will be:
o Income from sales or services
o Salary costs of employees
o Major non salary cost such as materials
Make sure that you have as good an understanding of what impacts on these numbers at the business unit level so that you can keep things on track.
At the end of the day, internal financial statements such as budgets merely reflect what is happening operationally in a common currency called money. Keep this at the forefront of your mind and you have a great chance to excel as a manager.