There are several key functions to regularly undertake, for the successful management of finance within any business. The most critical in my experience, is to ensure that the internal accounts are reconciled with the bank account(s) frequently. Virtually all transactions of a business pass through the “in house” accounting process, and the bank, therefore it makes sense to ensure that one is in harmony with the other.
A disciplined approach to this task, will identify problems at an early stage, and will produce more control and smooth running for the business as a whole. Probably, the next most important task is to keep tight control of the debtor and creditor positions at all time After all, efficient monitoring and appropriate timely action in this area will maintain a satisfactory cash flow; the life blood of any enterprise. As part of this aspect, it is vital to make sure that firm agreements are concluded with each customer and supplier, with regard to the terms of trade.
This will make your business a professional outfit to deal with, and avoid any ambiguity, should disputes occur with invoices. An efficient process in this area will produce more accurate cash flow forecasting. The time spent on constructing a cash flow forecast is important. Bearing in mind that it is a forecast, put it together in a realistic fashion. Do not build in undue optimism. In fact, as a tip, err on the side of pessimism. Build a sound relationship with your Bank.
Inspire confidence by sticking to any arrangements made regarding financial assistance. It will pay dividends later on if you need additional help in the future. Another area to consider is to make sure that any statutory payments e.g. taxes etc, are paid on time Failure to meet these liabilities, is perhaps the most common reason for business collapse. Often a business will over estimate the value of stock, and/or work in progress, when putting together annual and/or interim accounts. Any error here will directly affect profitability.
So be careful, because any artificial boost in value, will come back to haunt you A defined depreciation policy will help to keep your fixed assets at a sensible value. Too little depreciation applied over time will produce an embarrassing loss, if and when an asset is sold or disposed of Finally, it is strongly recommended that interim management accounts are produced, say monthly, to monitor progress.