Financial management is one of those phrases that can feel irrelevant to your small or family-owned business. What does it actually mean? Does it involve hiring a Chief Financial Officer or holding long board meetings?
When we talk about financial management at Henry H Jones, CPA, what we’re helping you understand is far more than knowing what accounting records you should keep, or even the current status of your finances.
Good financial management means that you have a clear and up-to-date view on how your business is performing in all the critical areas. This is not something that is left to your bookkeeper, or even to your accountant! It’s your responsibility as the owner of a family owned business, and it involves the following:
Planning your financial resources
For proper planning, you’ll want to know:
- How much cash do you have?
- When will additional cash come in?
- Will you be able to make those purchases you have been considering?
- When can/should you hire another person? Should you outsource instead?
Organizing your financial resources
Organization seems like a luxury for small businesses, but it is absolutely imperative. This includes:
- Creating a system for tracking finances. This could be Xero or Quick Books, or it could be as simple as an Excel spreadsheet (although we wouldn’t recommend that, since it has security issues and is not as easy to access as something like Xero).
- Making sure that the right people are doing the right tasks. Is your manager doing the bookkeeping because they are the only person available? Did you give this task to one of your children or a student, just to get it off your back? If your financial records aren’t organized well, you won’t be able to make the decisions you need to.
Controlling and monitoring financial resources
Once you’ve planned ahead and everything is organized on a regular basis, it’s critical to stay on top of these on a regular basis, including:
- Family Business Council – use this as an opportunity to discuss the finances at a strategic level. Read more about Family Business Councils.
- Monthly management meetings – Talk to your accountant (us!) about reviewing your finances, numbers, graphs, and reports on a monthly basis. The last thing you want is to get a nasty surprise in April when the taxes are due.
When you’ve addressed these major elements, your good financial management will help you to:
- Be more efficient in the use of your resources – people, time, money
- Use your resources better
- Have a better understanding of your finances (not a rough guess)
- Be better able to discuss your finances and your family business with others invested in the business
- Achieve the goals you set out to achieve
- Come through on any commitments you have made to business partners and family
- Sustain your business in the long term
- Prepare your family business for sale or transfer
Hopefully you can see how effective financial management is not a dull phrase, but a reality that will make your family business a better place to be.