What makes a good financial management system?

Imagine for a moment you had the recipe to the best strawberry jam in the world. This recipe, a closely guarded family secret, has been passed down from one person to the next for decades. When people taste your strawberry jam, they are in raptures. They can’t get enough of it. Occasionally people even write poems about the stuff. People wait in long queues in the street just to taste it.  And you’re the only person who knows how to make this product that brings in a limitless number of customers. Sounds like a recipe for success, doesn’t it?

But imagine now for a moment that you have nothing to store your jam in. You have no jam jars or bottles or cans. You could make pots and pots of strawberry jam, but you have no way of bottling it. There is simply no way to contain your precious jam. People arrive at your doorstep, eager to buy a bottle of the fruit-laden delicacy, and you have to turn them away. You offer a few good friends a lick off your wooden spoon, but you have no way of transporting any more than that.

Having no jam jars is a little like having a great business with no financial management system. You could have the best business idea, and the most talented financial staff to help you action it. But if there is no financial management system ‘containing’ the financial information of your company, then there is no way of keeping your business effective. Without a financial  management  system, your business is not much more than a big pot of jam.

There is no one financial management system that works for everyone. However, every effective financial management system is based on a few simple principles. We’ve combined our own ideas with some suggestions from Knowhownonprofit.org to help you establish good practice in the financial management of your business.

• Consistency:

  Your financial policies and systems must remain constant over time. If you establish a cash on delivery rule, for example, then your company needs to stick to that policy regardless of where you are in the cash flow cycle.

• Accountability:

  Your financial management system should create a paper trail that shows how resources have been used and who has authorized the decisions behind their use. Your system should create transparency, rather than make processes so complicated that it is difficult to determine who has done what.

• Financial stewardship:

  The processes that your business adopts should demonstrate that your organization values its financial resources and uses them for the purposes they are intended.

• Compatibility with existing technology:

  There a various bespoke financial management systems on the market, most of which come in the form of software, and all of which tout a complete financial management solution for your business. Before you spend many thousands investing in a system, make sure it is compatible with your existing technology. What computers would be required to run the system? What level of training would employees need in order to use it? In addition, investigate who or what would be required to support the system, and at what cost. 

• Accounting standards:

  Accounting standards in South Africa are rigorous and extensive. Ensure that your financial management system complies with the latest accounting standards, and that there is a process whereby the system will be updated to reflect the latest changes, when they take place.

If you need guidance in implementing a financial management system for your company, The Finance Team can assist you. We have a team of highly qualified financial professionals who can provide you with part-time or interim advice according to your business’s needs. Together we can help you establish an effective system that will be the jam jars to your company’s secret recipe.