Do you know a positive balance at the end of the month isn’t the only metric you should worry about for the sound financial management of your company?
Other ratios should be monitored to make sure you are developing your assets not only for the immediate but also for the medium to long term.
Otherwise, a “positive” month may be merely illusory for you to plan more precisely and according to market fluctuations – without imprecise investments, therefore.
Want to generate this kind of awareness in your financial management? So check out our tips on the subject below!
What is financial management?
In short, it is about all the control your company has over corporate capital. This includes financial planning, revenue monitoring, attention to expenses and costs, and even fundraising.
Based on these aspects it’s easy to understand that your financial management, when done carelessly and without good planning, can put your business in a tricky situation gradually.
What is its importance?
Through close and accurate control of your accounts, it’s possible to assess the appropriate time to make large investments, for example, and the months in which cost caution should be taken to avoid the need for loans to close accounts in the months ahead.
This is how big business owners identify the best time to spend, retain or avoid financial follies. Not for nothing, bankruptcy is among the main reasons why small and medium-sized businesses close their doors precipitously – in the country, they account for 96% of the number of bankruptcies declared.
What are 5 tips for improving the financial management of the company?
Now that we have seen why you should invest more in financial management in your business, how about putting into practice some simple and functional ideas to do this in the short term?
Here are five tips to ensure the financial health of your business!
1. Analyze your finances
Begin by diagnosing all the financial movements in your company. This consists of determining all the moves made in order to identify what is having an effect and what can be adjusted — or entirely replanned — within the organization.
Not to mention, of course, the relevance of ensuring precise control over all inflows and outflows for a specific period – such as a month or semester.
Then, delimit all the fixed and variable costs you have over the month. Knowing this allows you to keep in mind how much your business should generate revenue so as not to close the period “in the red”.
2. Define your break-even point
To do this, evaluate your contribution margin. For example, the selling price of your products and services and their profit margin based on each business conducted.
Then it’s time to calculate the break-even point, which is precisely the amount you need to maintain your company’s financial health.
This can be done by the following calculation: fixed costs/contribution margin.
In a simple example: let’s say your fixed costs are around $40,000 and your contribution margin is 50%. Therefore, your company would need to sell $80,000 monthly to reach its break-even point, which over time will allow you to generate profits for your company.
3. Update cash flow daily
Your cash flow must be continually monitored in order to understand when your company is generating profits and losses.
Consequently, you find time within your financial management to remedy any detrimental situations to the development of the organization.
4. Plan, always
Remember to have short, medium and long term goals. These are the elements that allow you to evaluate what you can do strategically so that your company never settles down and has the tools available to always sell more.
5. Attention to stock
Finally, your financial management may be impaired without proper attention to your stock. After all, many stocked products don’t generate a profit and neither does an empty inventory, which is also capable of affect negatively your customers’ experience.
Therefore, do a turnover analysis of your products so that inventory management can be applied effectively.
It is then worth paying attention to these fundamental factors for sound financial management. And to complement everything we’ve seen here throughout this post, we invite you to read our 5 essential tips for separating personal and business spending now!