How to implement better financial controls
Posted by Writer on Jul 29, 2009 in Entrepreneurs • No comments
Experienced business managers will always share with you how much time the spend dealing with problems. Things don’t always go according to plan or turn out the way they are supposed to. Knowing you have a real problem to solve can only happen if you know what you should be watching. There is no place in a management team for a manager who is not adept at problem resolution.
In summary, every business manager has to have good financial controls. The purpose of financial controls is to identify financial problems and raise the alarm. Good financial reports, the type you can produce from small business accounting software is a key element in implementing good financial controls. Make sure you have sufficiently competent small business accounting software that can produce the reports you need to track and monitor budget versus actual performance in areas such as revenue, fixed expenses and profitability. To help you develop the right monitoring processes you should start with a very small set of the critical numbers and relationships you want to track and then create reports that highlight these.
You must closely monitor the margins on what you sell and any deviation from what you set out to achieve regardless how minor should be immediately investigated and understood. Pay close attention to any minor change in the volume of products sold or the expected margins as this behaviour can quickly lead to a significant decrease in profits. Watch fixed costs closely at the commencement and progress of the financial period and make sure they are occurring in line with your business plan. A good financial control to have in place is the monitoring of the average number of days it takes for payments on invoices to be collected, use the DSO or days outstanding (a.k.a. Debtors report) available in most small business accounting software.
Experience is the way to learn and over time you will learn which financial controls should be highlighted in your accounting reports, just make sure you have the right small business accounting software that can generate these.
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