Importance of sound financial Management

Sound financial planning and management for any business is more than just keeping an accurate set of books or balancing your double entry accounts to zero. Finance is the lifeline of a business, so any business that mismanages its financial aspects has no chance of standing over the long haul. Sound financial management involves a deliberate and consistent control of all incomes, expenditures, assets and liabilities to ensure not only the sustainability and profitability, but also the efficiency of the business. Below are some reasons why financial planning and management is key to any business;

Income – Expedient financial management not only secures your revenue streams, but also ensures continuity of the same over a long run. It therefore underscores the going concern aspect of the business.

Cash flows – Many profitable businesses struggle or eventually pack up because of poor management of cash flows. It is therefore important to manage effectively the business cash flows so that recurrent expenses and obligations are met on time. Tax planning, prudent spending and careful budgeting will help you keep more of your hard earned cash. Effective credit management therefore becomes very important to your business.

Capital – An increase in cash flow, can lead to an increase in capital. Allowing you to consider investments to improve your overall financial well-being. On the flipside, poor cash flows can put the invested capital at risk. All your financial considerations of capital expenditures must balance the amount of income the asset will produce with the amount it will cost. If you manage your capital expenditures effectively, you will not overextend your company by borrowing too much for assets that don’t provide enough income to justify the expense.

Tax Planning – Tax obligations must be met as and when they fall due. Therefore sound financial advice and consequent management ensures that there is enough cash to pay these promptly. Failure to meet tax obligation places the business on a collision course with the government which jeopardizes its survival.

Expense Management – Every business owner’s desire is to reduce expenses and increase on sales/revenues. This enhances the business wellbeing and even gives it muscle for future expansions. Therefore financial management becomes very key for any business with the dream of expansion.

Enhances Decision-making – Sound financial management is based on measurable financial goals set, the effects of decisions understood, and results reviewed. This approach through budgeting allows the organization to make effective decisions.

Measurability of goals – When goals are expressed in figures, it’s possible to gauge performance of the same if the organization has a good financial management policy.

Reporting and Accountability – A sound financial management policy enables the organization to be more accountable to its shareholders, directors and the government.

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