If you are building a business, of course you realize that how to manage your company's finances is the most important thing in determining the success of a business. In simple terms, how to manage the company's finances is of course successful in getting more profits than issuing them.
Excess profits are called profits, and everyone must expect to get profits to be shared with the owners of the company, and some are used for business expansion. When this happens, you have succeeded in finding a way to manage good corporate finance.
To help you make the right decisions about how to manage company finances, we have 9 important factors that you need to learn to avoid negative cash and the failure of the entire operational system:
9 Factors that Have a Big Impact in How to Manage Corporate Finance:
- Profit Scoreboard
- Management of Key Performance Indicators
- Accounting System Program
- Management of Cash Flow
- Team Building
- Metric Productivity
- Right Client
- Financial Targets
Want to know more? We will discuss it one by one.
1. Profit Scoreboard
Try asking members of the core management team about the key indicators and drivers of your company's business growth. What are their answers? Do they answer the scoreboard? Do you agree?
Then how can monitoring the score affect the way the company's finances are managed? Do you have access to monitor these numbers, and how often do you monitor them?
Every company must have 4 main scoreboard or score card:
- Gross Profit
- Gross Profit Percentage
- Nett Income
Each scoreboard needs to be monitored every quarter to get data about:
- What are the current trends? Is it up, down, or stagnant?
- What are the targets that have been set before? Is it achieved or not?
Furthermore, the results obtained must be analyzed for development in the next period.
That is the cycle: analysis-decision-action-results, which will continue to rotate in each period. The profit scoreboard will show trends and anticipation in the future that will help you find ways to better manage your company's finances. If the trend shows an increase, then you can allocate funds for posts that need it. If there is a decline, of course you need to immediately tighten spending.
2. Management of Key Performance Indicators
The second factor is how you manage KPI. Before discussing it further, it's a good idea to make sure: Do you have a KPI that can be used to make decisions? Do you get financial reports and management reports?
If you only get financial reports and don't get a management report, it's time to find out the importance of using management reports that can improve the company's performance and profits.
There are 2 types of KPIs for management reports, based on what you sell. Companies that sell goods will focus on KPIs on:
- Sales figures
- Production cost
- Inventory Turnover
- The ratio of DSO (Days Sales Outstanding), which is the period of collection of certain receivables
Meanwhile, companies that sell services will focus on KPIs on:
- Selling price
- ROI (Return on Investment) of the salary costs incurred
- Hourly salary costs are paid
- Hourly earnings received
- The ratio of DSO (Days Sales Outstanding), which is the period of collection of certain receivables
The Management Report will greatly benefit you in knowing the specific description of the condition of the company. However, make sure that you can follow up the report as a consideration in making your next business decision, including how to manage the company's finances.
Unfortunately, many business people have not yet realized the importance of management reports due to cost factors and time constraints. The thing that must be considered is if you do not analyze management reports every month, you will lose the opportunity to develop and avoid running high-cost programs that do not provide returns on investment (ROI - Return On Investment)
Now, you know the importance of management reports on how to manage company finances, especially for production and salary costs that suck the most funds.
3. Accounting Program System
Do you have a computerized accounting program? By building a more modern accounting program, you can ensure that data is more relevant, faster, and less likely than a manual process.
In addition, the reports you get will also be more useful, accurate, and timely with lower costs. This is a major advantage that small-scale businesses have not had in the past, and you can use it now to analyze how to manage the company's finances that are suitable for your business.
If you need a system that can be customized and more integrated between accounting and other business processes, then you can use ERP (Enterprise Resource Planning).
4. Improvement of Cash Flow
What is cash flow? Before conducting an analysis to find ways to manage your company's finances, you must first understand the relationship between cash flow and company profits. By understanding cash flow, you can find out where your money flows. Although for some business people cash flow and profits can show different things, but cash flow management is an integral part of the success and financial health of the company.
To better understand it, consider the comparison below:
Your company's money is located in assets such as:
- Fixed Assets - Machinery and Buildings
- Accounts receivable
- Prepaid expenses
On the other hand, you use money to pay debts like:
- Account payable
- Tax payable
- Cost Debt
- Bank Loans
Cash flow can help you in making decisions in determining when to invest or delay investment, whether delaying spending money or time to spend money.
Thus, improve the company's cash flow with various management strategies, because generating profits is not enough to guarantee the success and growth of the company in the long run.
5. Team Building
Have you ever thought about how to motivate your team to drive business performance and generate optimal profits?
It is important to continually evaluate the productivity of your human resources, and provide a common understanding of the business strategies that you want to run, including:
- What is the purpose of your company
- Why do customers have to buy from you
- What will they get by working in your company
When you and the team have the same vision and vision, contributions will arise from all members so as to encourage increased productivity and company profits.
In addition, the most important thing you have to ask is to keep your team happy with the support of their performance. If you win the team as the main resource, you need to discuss training needs, career goals and support them for your business.
There are several ways to measure whether you are happy and produce quality work, and one of the simplest ways is to require supervisors to lower and listen to the needs of their teams.
Remember that employees with a good level of happiness will make the company better, they will be more motivated to serve clients wholeheartedly. Unproductive team members will only spend in vain, and must be replaced immediately because it will burden the company's finances. This is one of the most important factors in financial companies.
6. Productivity Metric
If you have never taken this measurement, you should do it immediately.
If your business is "people business" - a business that makes money by providing services provided by employees - you need to focus on employee KPIs.
There are many things that must be prioritized about controlling numbers, which are related to what is important and assessing KPI together with the team. Of course, there are many questions that you have to ask as a leader. But with the right KPI determination, employees will be able to set targets on their respective scorecards and you can analyze to ensure that the trend line of hourly income paid increases at a rate equal to or greater than the hourly labor costs paid.
Leaders who think strategically view employees as business assets. Lower employee turnover will help them achieve the targeted profit margins, and this will make it easier for companies to find ways to manage the company's finances.
Based on an article published in an Entrepreneur magazine, only 47% of small business owners have a budget.
The company's financial budget is your guideline in measuring and monitoring financial performance. Therefore, as one way to manage company finances, the budget must always be evaluated or even revised. Perform a budget evaluation for 6 months. In that period, you already have important information to help you evaluate, but it is not recommended to make corrections in this period because it is still too early.
Unfortunately, only a small number of small business companies have a budget. If you don't have a budget, how can you answer the questions below:
- How will registration change in the second half of the year?
- What is the% gross profit target? (How to quickly estimate cost of goods sold)
- What is the adjustment of costs that must be made anticipating changes in income?
- Is it to spend more on marketing or sales to achieve the revenue target?
- Does it need a bigger place to accommodate new employees?
Many business owners feel that making a budget is frustrating, and this is understandable. The difficult thing is to predict operational costs for one year and provide space for unexpected expenses that might arise. However, planning an annual budget can be easier if you divide it into 2 parts a year.
8. Right Client
How can choosing the right client help you find a way to manage your company's finances? This is the answer.
There is a service-based business model where companies attract and retain a client base. All things that the company does focus on networking, marketing, and other activities that aim to keep clients using the services of the company.
But what happens if you are a client who provides low margin value? What about clients who always pay not on time? Will you defend it? Solely for cash flow or fear of not being able to find new clients with higher margins?
Leave a bad client so that it doesn't become a disaster for the team and the success of your company. It is not easy, especially when you are looking for new clients. But breaking a bad client allows you to relocate your resources to a more productive place.
9. Business Financial Targets
Finally, take a big step towards your company's success by writing financial targets. It will also help you take control of the company, because you are making arrangements for the company's financial arrangements.
Remember there is nothing too early to write down the targets you want to achieve in the future. This can only be done by you as a business owner, which is not possible for employees. Only you understand the focus of business direction and company goals, and how to manage company finances to achieve optimal profits. By writing financial targets, you will connect elements of success, namely customer satisfaction, achievement of revenue targets, and employee performance to achieve these targets.
It's Time to Fix How to Manage Your Business Finances
You are an entrepreneur and haven't done the 9 factors above? It's time for you to take the first step. You cannot do it at once, but if you do it gradually and carefully, you will feel the results. These 9 factors are the best learning tools as a way of managing company finances to grow and develop quickly.
Your success in finding ways to manage your company's finances can start now.