Ten top tips to improve your financial management

Effective financial management is vital for business survival and growth. It involves planning, organizing, controlling and monitoring your financial resources in order to achieve your business objectives. Good financial management will help your business to make effective use of resources, fulfill commitments to your stakeholders, gain a competitive advantage and prepare for long-term financial stability. Financial management should become part of the key processes within your business and be included in your ongoing planning. You might feel that your finances are complicated and confusing but the following ten top tips should help you to gain control of them.

1. Have a clear business plan

A business plan will establish where you are and where you want to get to over the next few years. It should detail how you will finance your business and its activities, what money you will need and where it will come from - see write a business plan: step-by-step.

2. Monitor your financial position

You should regularly monitor the progress of your business. On a daily basis, you should know how much money you have in the bank, how many sales you're making and your stock levels. You should also review your position against the targets set in your business plan on a monthly basis - see cashflow management.

3. Ensure customers pay you on time

Businesses can run into major problems because of late customer payments. To reduce the risk of late or non-payment, you should make your credit terms and conditions obvious from the outset. You should also quickly issue invoices that are clear and accurate. Using a computerised credit management system will help you to keep track of customers' accounts - read ensure customers pay you on time.

4. Know your day-to-day costs

Even the most profitable of companies can face difficulties if there isn't enough cash to cover day-to-day costs such as rent and wages. You should be aware of the minimum your business needs to survive and ensure you do not go below this - see how to measure cash in your business.

5. Keep up-to-date accounting records

If your accounts are not kept up-to-date, you could risk losing money by failing to keep up with late customer payments or not realising when you have to pay your suppliers. Using a good record keeping system will help you to track expenses, debts and creditors, apply for additional funding and save time and accountancy costs - see financial and management accounts.

6. Meet tax deadlines

Failing to meet deadlines for filing tax returns and payments can incur fines and interest. These are unnecessary costs that can be avoided with some forward-planning. Keeping accurate records saves your business time and money and you can be confident that you're only paying the tax you owe. Therefore, it's important that you meet your obligations - see set up a basic record-keeping system.

7. Become more efficient and control overheads

Is your business operating at its most efficient? Saving energy and therefore money can happen by implementing changes in behaviour and using existing equipment more efficiently. It's one of the easiest ways to cut costs. Areas to look at in an average office include heating, lighting, office equipment and air conditioning - see save money by using energy more efficiently.

8. Control stock

Efficient stock control ensures you have the right amount of stock available at the right time so that your capital is not tied up unnecessarily. You should put systems in place to keep track of stock levels - taking control of this will allow you to free up cash, while also having the right amount of stock available - see common business mistakes: poor stock control.

9. Get the right funding

It is essential that you choose the right type of finance for your business - each type of finance is designed to meet different needs. Smaller businesses usually rely more on business overdrafts and personal funding but this might not be the best kind of funding for your company - read business financing options - an overview.

10. Tackle problems when they arise

It is always very stressful facing financial problems as a business, but there is help and advice available to help you tackle them before it gets too much to handle so seek professional advice as soon as possible. There are also some initial steps you can take to minimise the impact such as tackling priority debts first and assessing how you can improve your cashflow management - see business debt: help and advice.

Review your household spending

Taking the time to review and assess your household income and expenses is the first and most important step in gaining a clear understanding of your financial position. First, list your total income from any earnings, allowances and investments. Then, factor in all your weekly, monthly and annual expenses, including the costs to repay any debts such as credit cards, personal loans or your mortgage. That way, you’ll know exactly how much you have left over each week (or month) for leisure and entertainment – or where you might need to tighten your belt.

Focus on clearing debt

Clearing your debts might be easier said than done – but whatever you do, don’t stop chipping away at them. Remember, the longer your debts stay with you, the more you’ll have to spend on interest.

If your debts are getting you down, talk to us. We may be able to help with a strategy that could make managing and reducing your debts a bit easier. For example, if you’re surrounded by credit card bills, you may be able to consolidate your debts onto a single card with a lower interest rate than you’re currently paying. Or if you feel like you’re not making any progress paying off your home loan, consider switching to another provider with a more competitive rate.

Manage your cash flow

If you find yourself living from pay cheque to pay cheque, it’s time to examine your incomings and outgoings to see if there’s a more efficient way to smooth out your cash flow. One option may be to set up automatic payments for regular bills so that you avoid late payment penalties and to take advantage of discount rates offered by a number of utility companies for payments received by the due date.

If your income is insufficient to meet your outgoings, consider whether there may be opportunities to supplement your income either by working more hours in your current job, or doing some extra work on the side, or finding a new role that pays more. If neither of those options are realistic, you may need to revisit your budget to see where other savings measures can be made.

Create a savings plan

Once you have your cash flow and debts under control, it’s much easier to create a realistic savings plan and stick to it. To stay motivated, remind yourself that every bit you put away adds up – and could make an enormous difference in the long run. Saving can become easier if you open a dedicated savings account and keep it separate from the account you use for everyday expenses. And by setting up a direct debit, you can automatically deposit a fixed amount from your everyday account as soon as you get paid (in other words, before you even notice it’s gone). This will give your savings a better chance of growing without you having to put in the hard yards.

This can also be a helpful way to budget for larger expenses that come around once a year, like your home insurance or car registration, so they don’t sneak up on you.

Focus on the future

Once you have your finances under control, you’ll be in a stronger position to start thinking about your longer term wealth and wellbeing.

Courtesy: financial management in Saudi Arabia