Financial Management In Organizations (Guide)

New entrepreneurs and startup owners have to develop at least basic skills in financial management. Expecting others in the organization to manage finances is clearly asking for trouble. Basic skills in financial management start in the critical areas of cash management and bookkeeping, which should be done according to certain financial controls to ensure integrity in the bookkeeping process.

New entrepreneurs and startup owners should soon go on to learn how to generate financial statements (from bookkeeping journals) and analyze those statements to really understand the financial condition of the business. Financial analysis shows the "reality" of the situation of a business -- seen as such, financial management is one of the most important practices in management. 

This module will help you understand basic practices in financial management, and build the basic systems and practices needed in a healthy business. You can only achieve effective financial management if you have a sound organisational plan. A plan in this context means having set objectives and having agreed, developed and evaluated the policies, strategies, tactics and actions to achieve these objectives.

Sound financial management will involve you in long-term strategic planning and short-term operations planning. This financial planning should become part of your organisation's ongoing planning process.

Good Financial Management Will Help Your Organisation To:

  • Make effective and efficient use of resources
  • Achieve objectives and fulfill commitments to stakeholders
  • Become more accountable to donors and other stakeholders
  • Gain the respect and confidence of funding agencies, partners and beneficiaries
  • Gain advantage in competition for increasingly scarce resources
  • Prepare for long-term financial sustainability.

Even though there is no one model of a financial management system that suits all organisations, there are some basics that must be in place to achieve good practice in financial management. What makes good financial management is a clear finance strategy and a plan for generating income.

Putting in place a clearly-defined, detailed and structured growth plan can help you deliver real success for your business. It also serves as a map for the future, outlining the practical steps you need to take in order to achieve your financial goals. Not to mention it gives you peace of mind that you’re on the right track. Now, more than ever, it’s important for startups to have an achievable financial strategy that can help manage business ups and downs.

While most businesses have a business plan, a growth strategy goes beyond this – it is a clear statement to grow the top and bottom lines over the long-term, a clear reason as to why you want to do it and, crucially, what needs to change to make it happen. From hiring new staff to increasing marketing, product development or expanding into new markets, there’s a lot to consider.

Every business experiences highs and lows in cash flow and it is important to understand when they happen, why they happen and how to factor them into a financial plan. There’s a big difference between “trying to make as much money as you can” and “setting out to make a specific figure by a specific date”.

Without specific goals to aim, you may feel overwhelmed and lack focus. If this sounds familiar, set aside a day to brainstorm exactly what it is that you want to achieve. Is it Growth? Identify your ideal outcome and set a figure that will help you reach this goal. Think about how you need to prepare your business for the lows and don’t get too excited and extravagant during the highs. 


Here Are Key Tips To Make Your Financial Planning Easier:

Forecast Cash Flow - Now it’s time to crunch some numbers. Establish Profit & Loss and Balance Sheet projections.

These projections will provide you with a realistic snapshot of where you currently are, and what you need to do in order to get to where you want to be.

You may have to consider how you want to fund your financial strategy and look at making further investments to create wealth opportunities.

Review As You Go - Establishing a financial strategy is not a ‘set and forget’ task. Most strategies require frequent adjustment as time goes on to ensure they remain relevant. It’s recommended to review your strategy quarterly, but you may want to do this more often depending on the complexity of your goals.

As a general rule, you should also schedule in an official review if you change your goals, or if your business undergoes any major transformations.

Plan For Generating Income - The first thing we need to be clear about is that not all startups will be focused on sales. If you look at Instagram, Snapchat or even the early days of Facebook and Twitter- there was no revenue model or early sales. If this is the case for you, then your seed raise should reflect this, and you will have enough dollars in the bank to fund you through the early stage.

Every business needs money to stay open, but without building a strategy to funnel the revenue into the business, the foundation is shaky at best. Every startup is different, but whether the focus is to start sales from day one or to build up the user base first, getting out there and selling the brand will always be an advantage.

As a business owner, it's essential to be constantly on the lookout for new profit-making opportunities. What you may not realize, however, is that creating a business within your business can be one of the best sources of hidden profits there is--in fact, most businesses have multiple ways of increasing profits just waiting to be discovered.

Generate More Prospects - This means that you develop specific tactics to increase the number of people who are aware of your company brand and interested in your services and products. While there are literally hundreds of approaches you can take to increase your visibility with your target market, don’t take a shotgun approach. 

Instead, choose around least 2 to 5 marketing systems that you commit to implementing on an ongoing basis. These will work for your company to attract more prospects using multiple marketing channels. This means your company must hone its sales process. For instance, many professional service businesses put up a pretty new website and then focus on driving lots of traffic to their website. Traffic by itself does you no good if your visitors aren’t buying your products and services. 

A more profitable strategy would be to focus first on having a website design and copy writing that converts your visitors to customers. Similarly, if your business has an in-person or cold-calling sales-oriented businesses model, you must develop a consistent, constantly-improving sales process, so that every sales person follows proven best practices that converts prospects into customers.

Depending upon who you're marketing to, you may have a profit center hidden within your clientele--by seeking more affluent clients, you may be able to increase your business's annual profits dramatically with hardly any work. Just be sure to approach these potential clients the right way--don't appear too needy or pushy, know your stuff, and reach these potential clients through networking.

Develop a company brand with an amazing value proposition that not only keeps customers coming back but have them raving about your business to others. It’s always more expensive to attract new customers. Therefore, developing ongoing relationships with customers and generating a high lifetime value – is essential to your success and your sustained growth. 

As a business leader, it’s your responsibility to develop processed and systems to build ongoing relationships with your customers that provide high value. By doing this, you’ll be the first business a customer thinks to call when they have a need.

Most companies have an opportunity to earn more revenue by being creative about how the business sells its products and services. By acquiring customers more creatively--and more efficiently--you can reduce your acquisition costs and therefore improve your ROI (return on investment), benefiting from a previously unexploited profit center. Improving your advertising and marketing is key for improved customer gain and retention.


Developing The Right Financial Strategy

The business world is constantly evolving, and you must be able to plan ahead.

Financial strategy puts the company's financial resources to work where the benefit is greatest. It examines whether it makes sense to buy a building or rent it, and looks at whether the company should own or lease equipment. An analysis of the strategy looks at whether it evaluated all possibilities, such as leasing or buy-back, and looked at all possible sources of financing. It then examines the actual benefits of the strategy versus projected results.

Achieving the goals of corporate finance requires that any corporate investment be financed appropriately.

In conclusion, when Starting a business, there will be twists and turns, no new business perfectly follows the original financial strategy. You will need to constantly adapt and make changes to stay at the top of your game and become a successful entrepreneur. This needs to be done without compromising on the reasons why you started your business.

Entrepreneurial journeys can be long and filled with pitfalls. If you’ve got the grit and determination to push through, build your network and lay strong foundations, you will eventually achieve your dream. 

Steve Jobs once said: 
“Life can be much broader, once you discover one simple fact, and that is that everything around you that you call life was made up by people that were no smarter than you. And you can change it, you can influence it, you can build your own things that other people can use. Once you learn that, you’ll never be the same again.”
Make it a habit to do more with less, and focus on working smarter.

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