Financial management is the set of practices and actions that, within a company, seek to analyze, plan and control any and all financial activities.
Its importance is enormous for any business to be able not only to remain active but also to prosper and grow gradually.
Running a business is far from an easy task – and you know it very well. The daily challenges are enormous and worries are sometimes unavoidable. Bottom of Form
Therefore, seeking efficiency in all processes is constant. Within this reality, it is essential to have a financial management that is:
- And providing peace of mind for business is essential.
More than keeping, it is necessary to invest. After all, competition is growing, customers are increasingly demanding. So, to stand out, more needs to be done.
Today’s article addresses the concept of this practice. And also how it can occur more safely within companies.
Let’s cite the advantages that organizations have when this mission is successfully accomplished. And we’ll even show you how technology helps right now.
Stay with us. Good reading!
Understand what financial management is
Plan, analyze and control finances. Financial management involves practices, actions and routines. The aim is to ensure that this work is always done well within companies.
In other words, these are procedures that aim to maximize the gains of any business. And this must be done regardless of your size and/or segment.
These practices involve investments, variable and fixed expenses. They also include profits, financing, loans and the company’s equity value.
This is, of course, crucial to ensure good results all the time. But more than that.
It is only possible to establish the goals and objectives of a business when managing finances really efficiently.
Setting deadlines and analyzing whether the results are within or below expectations are also possible realities in situations like this.
So please answer. Do you know how your company’s finances are doing? Or better. Which sectors generate the most profit and expenses?
And which ones need an assertive decision-making to change course? If you don’t have enough grants to answer a question, pay attention! A yellow signal needs to be turned on.
The financial health of your business is too important. Do not neglect this task at any time. This cannot be a headache.
Therefore, it is vital to carry out close administrative management. An administration that takes care of all the details relevant to the business.
Within these scenarios, some factors need to be closely observed. But, about that, we’ll talk in the following topic…
3 financial management models for you to take care of
Factors are also models that financial management needs to be aware of. Of course this will vary from business to business.
Every company has its peculiarities, of course. And the market in which it operates will dictate a lot the pace of how to manage.
But, in general, we separated 3 models to be closely taken care of by any manager.
Ah! We cannot fail to mention something very important to be worked on by both directors and accountants. Do you already know what it is? Tributes, of course.
You know better than anyone that you need to provide the amount to pay for them. In addition to working smartly on the company’s capital.
That said, let’s go to the models we’ve separated:
Controlling what enters and leaves each company’s cash register is an essential and non-negotiable item. It’s something that needs to happen assertively.
The first step is to know exactly what the fixed expenses of the business are. Rent, water, electricity, internet, etc. These are all recurring expenses – and need to be remembered.
The primary intention of cash flow is to fully control the financial movements of any business. Both what goes in and what goes out.
This management must always be carried out with organization and rigidity. So, daily, weekly, biweekly or monthly, it doesn’t matter.
The period will refer to the needs of each company. But let it be clear that it needs to exist and be fulfilled.
This will give managers clarity about the best time to raise or apply resources. And also to direct them to the most urgent needs of the business.
Keeping track of inventory is equally important. Therefore, it is part of a really good financial management in any company.
Stalled merchandise means idle money. And, in many businesses, this can come at a loss as time goes on. Therefore, it is vital to make the stock rotate in the correct time and shape.
This will ensure constant liquidity. What does that mean? Balance. Not having so much more or so less stocked products.
Otherwise, one of the two. Either you will have idle goods or unhappy customers. And, one way or another, this is very bad for the company’s image.
Therefore, managing finances correctly will give the manager answers. For example, there will be clarity about whether or not to reorder the supplier.
Or perform (or not) a promotion. If this is the case of the first option, another good practice is to have a management that is so efficient that it allows for a bargain.
Buy in installments, in cash, in larger quantities and acquire a discount… Having control, there is management. And with management, there are ways to reduce costs and optimize gains. Remember that.
The customer success is essential for all businesses. Something vital not only to survive but also to be a reference more and more in what they intend to do.
Therefore, managing the customer base is managing the companies’ money supply. In addition to focusing on the customer who consumes, it is necessary to look to the horizon.
In this, it is important to attract more and better customers. The first step is to get to know the company’s buyer persona very well.
Thus, efforts and resources are directed towards the prospect of the right people. Keep a close relationship. Have a customer service that is responsive and creates value.
These are all key elements for success. The ideal scenario is to have a variety of consumers.
This would prevent the company from relying on one or two types of customers who hand over a larger amount of money. Because, imagine the scenario where you can no longer sell to him.
What would be the measurable impact of this on your business operations? Therefore, focus on customer loyalty. In making them so happy to consume you that they will refer you to more people.
And if that happens, we’re definitely talking about the perfect context. In it, the CAC, Cost of Acquisition of Customers, will be increasingly smaller.
This will leave money and time to invest in improvements. Focus on other processes necessary for the smooth running of the routine.
The importance of financial management for a company
By now you have already understood why you should carry out organized and disciplined financial management. But, it costs nothing to reinforce and debate a few more points. Is not it?
Also because, the more efficient it is, the greater will be the results achieved and the quality of delivery. Managing finances well means having a complete picture of how the company works today.
By knowing this, reduce unnecessary costs and reallocate them. No one better than the manager to know where they are needed right now.
Are your businesses today operating at profit or loss? Do you know how to answer that and do you have numbers “on the tip of your tongue” to expose?
It doesn’t mean that because there is a surplus of cash that there is a profit. And vice versa. Look – and here is the central point of the advantages of correct financial management:
- This practice is essential for any type of decision to be taken in the company.
Know the amounts to be paid and receivable. Understand how the balance of financial resources is. These actions are decisive for honoring the commitments.
And to know what can be done for improvement. Without this management of finances, it is not possible to take a step forward.
The company will always be afraid of making mistakes or making new commitments. How to walk assertively in the dark? Hard, right?
4 pillars of how financial management should work within organizations
Concept, models, benefits… how about now we talk a little about the practice? How should financial management take place within companies? Again, always important to reinforce.
It is necessary to respect the peculiarities of each business and market. However, there are rules and procedures that are general and basic. And that must be followed.
We have separated some tips on how to set up this management within companies. Regardless of your size and field of activity, check out the actions:
1 – Plan Yourself
It all starts with good planning. Financial management would obviously not be an exception to this rule.
The planning will provide the guidelines and the path of the business and must be directed towards some specific objective. For example, seeking to reduce operating costs in all areas – or in a specific one.
However, this goal needs to be both attainable and make sense for the corporate reality.
After defining this, the next step is to list which strategies will be put into practice. If reducing costs is something that is sought, why not promote a digital transformation in the sector?
It is a way to, in the long run, reduce unnecessary expenses. As the last act of this plan, define the metrics that will be used.
They will serve to monitor the actions and their consequent results. Thus, it will be possible to know whether or not there is a need to promote changes.
They can occur in the goals, strategies or even in the chosen metrics.
2 – Make a budget
A budget needs to be provided at the time of planning. That is to say, without budget planning, you will not be aware of the resources available for the business.
It will give a broad, clear vision and ensure the identification of sectors as well as activities that are truly essential.
Still in the example above, the manager needs to invest in software to reduce costs in the sales sector.
However, you don’t need to put money at this time to buy new office furniture.
Therefore, the focus of the budget will be on making the work of the sales team more efficient. And, if that happens, you will have a bigger budget and will thus be able to better equip the office in the near future.
This is how a well-crafted budget works. It focuses on the most urgent need while fighting the problem, it creates conditions for the next task to be performed.
3 – Have the right tools
Much of the assertiveness in financial management involves using tools that really help employees and managers on a daily basis.
Software such as ERP, for example, especially integrated into a sales system, makes a lot of sense for a company’s operations.
Controlling inventory, which is one of the most important actions, can be done through a sales force application, for example.
But about technology, we’ll talk a little better later. It is important at this point to understand how your company’s processes work and map out where they can be most efficient.
Ask yourself and assess: How much time do your employees spend doing robotic work, from filling out spreadsheets to filing documents?
Put the cost of each professional’s hours at the tip of your pencil and you’ll see what makes sense to be transformed.
4 – Analyze the results regularly
Last but not least, there is the constant analysis of the results obtained and the measurement of their impacts.
It’s a circle – and the PDCA cycle speaks volumes about it. It is an ongoing process that, when monitored frequently, is always improving.
Use a system that has complete reports for each industry you want to analyze.
Which, with integrated tools as we mentioned above, becomes an even more valuable and complete element of analysis.
Thus, there are many more subsidies to decide and adopt strategies if this is necessary.
The most common mistakes in financial management
When it comes to managing a company’s finances, some mistakes are common – and many of them compromise the operations of a business.
Therefore, we have separated some failures that are quite common and that can be avoided within companies. Are they:
- Perform management absent from the company;
- Not knowing how employees work;
- Not analyzing the short, medium and long term performance of the business;
- Neglecting cash flow management;
- Do not manage product inventory ;
- Mismanage working capital;
- Mix company accounts with personal accounts;
- Poor accounting and fiscal document organization;
- Poorly prepared professionals in the financial sector;
- Lack of management software.
When this occurs, some consequences are unavoidable, such as:
- lack of working capital in the company;
- error in calculating the sale price;
- excessive and unnecessary expenses;
- products stopped in stock, resulting in a loss;
- lack of fundamental information for budget planning;
- without control of what goes in and out, debts can increase;
- the dissatisfaction of employees in the work environment and customers;
- Weakened organizational culture, etc.
The use of technology is essential
You’ve seen what a lack of control can do to a company. The technology exists to end both missing information and unnecessary spending.
Well know that the integration of an ERP with a CRM, for example, gives managers all the information they need to know how much money comes in and goes out of the company.
Take advantage of the sales forecast module, which makes the financial director much more active than passive in the process, to plan ahead and assertively.
Knowing predictably what will be sold monthly, managers have valuable information about the amounts they can count for each month.
Technology to go beyond
The fact is that technology is a strategic ally to optimize, organize and make any company more efficient. This, of course, combined with a reduction in costs and much greater security regarding data.
After all, filling out a spreadsheet, in addition to being laborious, is something totally susceptible to error. A wrongly typed or misplaced number can jeopardize a company’s entire budget – and you know it well.
Furthermore, by reducing time with robotic tasks, organizations give much more autonomy to their employees.
With the robotic work done by software, they – who are immersed in the operations on a daily basis – will be able to contribute valuable insights.
This will help to improve each and every process within the company. When that happens, everyone wins, without a doubt.
So, how can we help you?
Take the opportunity and read two articles that will help you to have much better processes every day.
The first talks about the importance of BPM, Business Process Management in the organization of any business.
The second is about OKR, a different methodology that improves results in companies.