Battening your financial management hatches for 2016Emma
2016 looks set to be a tight year for South Africans. The energy regulator has just announced that electricity tariffs will go up again, by almost 10%. The price of food has soared thanks to the drought, with staples such as white maize (from which pap is made) having shot up by over 140% in a year. Commodity prices – upon which South Africa, as a mining economy, is dependent – have slumped to their lowest in years. And the rand has been weak and volatile, ping-ponging with every latest piece of news surrounding the president and his fractious relationship with certain members of parliament.
Business owners have every reason to feel apprehensive. They’re looking for solid ground during these times of economic uncertainty. At The Finance Team, we can’t control the ways in which the markets or currency will move. But we can offer one thing to act as a steadying force this year: ensuring that your company practices basic principles of sound financial management.
Putting basic good financial management practices in place will ensure transparency, predictability in planning and enable you to put money aside for the unforeseen headwinds that will almost certainly come your way.
It’s difficult to answer the question: “how sound is my financial management?”. So as a starting point, we recommend standing back and holistically evaluating your financial management in terms of four key areas. Answer these questions as honestly and comprehensively as you can.
• Is your financial management guided by clear financial strategy? This point invites you to determine whether your company’s overall strategy is manifest in the way in which you manage your money. For example, if you have a goal for quick growth, are you investing your cash as aggressively as possible? If your overall plan is to consolidate market share, are you spending your money on marketing and retention?
• Is your financial management underpinned by a plan for generating income? In other words, have you planned how you are going to meet your cash flow requirements, not only your profit goals? Have you planned where, when and how much money will come in, and from whom?
• Do you have a robust financial management system in place? Take a good look at how your company tracks, monitors and manages expenses. Is your invoicing system fluid and accurate? Do you have automatic follow-ups for those companies whose payments are overdue? On this note, spend some time determining whether your employees understand the financial management system you’re using. There’s no point in having top-of-the-range accounting software if your employees can only understand 5% of it. It’s worth investing time in training. Your processes will be more efficient as a result.
• How conducive is the company’s internal environment to achieving your financial management goals? Does your company culture reinforce responsible financial management habits? Do you reward employees for following payment processes or getting clients to pay invoices ahead of time? It’s one thing to have a strategy, but another thing to create the right environment to implement it. Small businesses mostly fall prey to accounting fallacies. The checks and balances aren’t as established as in a large business therefore it’s easy to go out and make a several purchases with the company credit card before realizing you don’t have enough cash to pay salaries at the end of the month.
As you batten the hatches through sound financial management in 2016, your company will be able to weather the economic storms that arise. Contact The Finance Team to get in touch with a finance professional who can provide part-time assistance in asking the questions outlined, and getting the right answers in place.
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