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Eight Tips For Effective Financial Management

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Eight Tips For Effective Financial Management

Many managers and leaders fall into the trap of believing that financial management is something that the accounts department are fully responsible for.

While there will be areas like cashflow management, payroll, procurement, paying suppliers and collecting payments from customers that are more than likely handled by the accounts team, financial management falls into the remit of all managers and leaders.

Managers often have concerns about this area, often believing that it is difficult and complex. The fact is that ant manager who is an expert in an area of the business, can excel in financial management. There is no need to be affraid of financial management. So what are my key tips?

Tip 1: Be actively involved in setting a budget

Most businesses now delegate budget responsibility as much as they possibly can. As a result, managers have a chance to be actively involved in determining things like:

Sales volumes
Temporary staffing cover for vacancies
Staffing levels to deliver the sales
Buying preferences in terms of products that will be used in delivering agreed volumes
Investment in new equipment or facilities

Don’t miss out on your chance to influence your budget. This is an important area of financial management.

Tip 2: Be clear on your assumptions

A budget is a plan for the future, which is based on the best information you have at the time of preparation. You will have to make assumptions about things like sales growth, staff turnover, sickness, price inflation, etc. Make sure that when presenting your budgets the assumptions are clearly stated. All assumptions should also be tested and something called sensitivity anaylsis is a good idea.

Tip 3: Work with your accountant

Your accountant who works with you in the business is essentially your personal business advisor. Use your accountant in this way and you will reap numerous benefits. Your accountant usually has a better understanding of the financial implications in your area of the business, and what the key drivers of like revenues and costs would be, which will be immensely helpful when it comes to reviewing performance throughout the year.

In addition, your accountant can model results for you based on different assumptions and help you to get a much clearer picture of the risks that might need to be managed.

Tip 4: Share the budget with your team

As a manager and leader, your success depends on the results of the team. Take the time to share your budget with your team and involve them, including the key assumptions on which it is based. If the team know what they are aiming for in terms of financial results, they will look to do the right things operationally to get the best result.

Tip 5: Take responsibility

When the going gets tough it is so easy to start to look elsewhere for excuses. If you have been involved in setting a budget which you have signed up to, focus your energies on getting results rather than the injustice of the current situation.

It is worth getting training in financial management. There are a number of finance for non finance managers courses that you can undertake.

Tip 6: Monitor performance and take action

Make sure that you have a process in place to carefully monitor your actual performance against the budget. If things are going well see if there is more you can do to boost performance even further. If on the other hand things are not going as well as expected, focus on the changes you need to make or action you need to take to get back on track. Variance analysis every month is a useful exercise to bring about changes.

Tip 7: Focus on the most important numbers

When it comes to financial management, managers can sometimes get lost in lots of detail and trivia. Be clear on what are the main big numbers or KPI’s that you need to pay attention to, as they will more than likely constitute the bulk of your budget. In most businesses this will be:

Revenue from sales or services
Renumeration costs of employees
Major non salary cost such as materials and overheads

Make sure that you have as good an understanding of what impacts on these numbers at the business unit level so that you can keep things on track.

Tip 8: Get training

There are a number of courses like finance for non finance managers and business finance courses that will assist managers to be better skiled in finance issues.

At the end of the day, internal financial statements such as budgets merely reflect what is happening operationally in a common currency called money. Keep this at the forefront of your mind and you will have a great chance to excel as a manager.

Stay ahead of the game when it comes to financial management.

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