In the world of business today, whether you are starting a new company or are running one that has been around for several years, financial hurdles are ever-present. While the demands for your money are constant, maintaining a healthy financial life for your company begins with basic economic strategies. Below, John Sykstus, a strategic finance and accounting professional with 25+ years of consulting and online experience details six points that can help you not to get caught in a cycle of financial disaster:
- Make an Effective Budget
When it comes to controlling your company’s finances, you can’t just throw caution to the wind and hope for the best. On the front end, each company’s ability to improve financially begins with a detailed process of planning and budgeting. On the back end, this financial improvement continues with rigorous and detailed variance analysis of actual results to the planning/budgeting cycle. Following each successive iteration of this cycle, the completed process ultimately provides deeper insights on performance and leads to a system of continuous improvement. In other words, the never-ending dedication to the performance of this cycle CAN and WILL lead every utilizing organization to an improved state. As Karl Pearson once pronounced, “That which is measured improves. That which is measured and reported improves exponentially.”
This means you must consider how much cash is available for each period – the detailed amounts of the cash inflows and cash outflows – resulting in any cash short or windfalls available for savings or reinvestment. Staying on top of your expenses while budgeting enables you to plan for the future of your business, as well as to ensure that you have cash flow available to stay afloat.
- Track Your Cash Flow
Cash flow on an annual, quarterly, monthly, weekly – and at times, daily basis – can be, and often is, a crucial and sometimes overlooked financial measure of an organization.
An organization’s cash flow performance, as well as their overall financial performance, is typically severely impacted for those organizations without a set of rigorous systems and processes in place. These organizations usually do not realize where their money is going from day-to-day; week-to-week; or month-to-month. They are rarely aware of any of the detailed timing, amounts, and impact to the organization for each material transaction.
Managing cash flow in your business is crucial and is essentially phase two of ensuring that your budget is working. In business, knowing where every dollar is coming from going is of immeasurable importance.
- Set Aside Emergency Funds
Most new business owners pour their heart, their soul and all of their savings into their company. In profitable periods with excess cash flow, make sure to set aside funds for emergency needs in the future. While experts may not agree on an exact amount, 2-4 quarters of cash flow set aside will provide the management team with some breathing room. During times of material growth, or other periods of tightening margins, cash flow most often becomes a serious issue. With excess funds set aside, most organizations can ride through either set of circumstances unscathed.
While it is obvious during downturns, cash flow becomes a central issue to an organization, so too is the situation during periods of growth. In a growing business, many organizations cannot take full advantage of the opportunities without additional cash flow funding.
- Get Your Managers and Key People on Board
Make sure your senior team and key personnel are aware of what you are trying to do and why. It becomes much easier when the entire top of the organization not only bought in and engaged, but they also have the ability to look at and effect key metrics in each of their areas toward this program. Ensure that KPI’s are set and tracked and that teams have incentives tied to the successful performance.
- Ensure Risk Management is in Place
Have your finance team put together a concise risk management status for the organization. Have your senior team set up a brain-storming session with their key employees as well to review all potential risks facing the organization. Then match the status to the current and foreseeable risks to ensure there are no glaring holes.
Most policies can be underwritten at reasonable rates to ensure outside risks facing your organization can be mitigated or hedged so that upon any occurrence, the going concern risk of your organization is not significantly impacted.
As the organization evolves, grows, or changes, this plan must continue to be matched with the current outside risks. Make sure that at least quarterly, these plans are reviewed and updated. Once a set of systems and procedures are established, continued upkeep should not take you, or your organization, or your people much time in ensuring quarterly updates are accomplished.
- Don’t Procrastinate – Implement as Soon as Possible
In business, as well as in life, procrastination often leads to mistakes that become larger than what they originally would have been. With your company in mind, try to develop a daily task list that keeps you and your employees accountable to complete regular budgeting, purchasing, and cash flow monitoring. Accounting work can be tedious, but with procrastination, it tends to become a larger mess.
Financial balance is not hard to achieve for your business. If you are cautious and employ the strategies mentioned above, you can avoid making some common financial mistakes and rise above potential economic blows.
About John Sykstus:
John Sykstus is a financial strategist and accounting professional who has been helping organizations realize growth potential for over 25 years. An MBA graduate from the J.L. Kellogg Graduate School of Management at Northwestern University, he is widely recognized for his uncanny aptitude for analysis. Mr. Sykstus is able to identify strengths and liabilities at a glance, and his cross-market expertise allows him to develop airtight growth plans that help management and employees evolve together.
John Sykstus around the web:
Selecting and Deploying Small to Mid-Sized Business ERP Systems