What you need to do to get better financial control
Business owners are always ready to tell you how much of their day is consumed by dealing with problems in their companies. Problems that you know might occur, usually raise their head at the worst possible time. To solve a problem you first have to know that you have one. Business managers who are not competent problem solvers have no place in a good business.
Good financial controls are critical to the successful management of any business. Think of financial controls as a sentries that sound the alarm when a financial problem occurs. Without the reports to be found in most good small business accounting software packages you cannot hope to implement financial controls. For example actual costs versus budgeted costs, differences in the performance in current and previous periods of revenue and expenses, behaviour of cash flows and profits are all things you have to be able to comprehensively report and therefore should be easy to generate from small business accounting software packages. Start with a simple set of the critical operating ratios and balances and make sure your reports can highlight these.
You must closely monitor the margins on what you sell and any deviation from what you set out to achieve regardless how minor should be immediately investigated and understood. Pay close attention to any minor change in the volume of products sold or the expected margins as this behaviour can quickly lead to a significant decrease in profits. Watch fixed costs closely at the commencement and progress of the financial period and make sure they are occurring in line with your business plan. Debtors collections should be monitored closely, the best way to do this is to run reports that highlight the average number of days it takes to collect payments (small business accounting software is particularly adept at this.
Experience is the way to learn and over time you will learn which financial controls should be highlighted in your accounting reports, just make sure you have the right small business accounting software that can generate these.
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