Some large companies spend over a billion dollars a year on accounting and financial analysis. These firms employ thousands across accounting, audit, finance, treasury and business development who’s core job function is to budget, plan and analyze numbers. These companies understand that this expense is an investment in information. An investment that will them enable to make more profitable business decisions and pay for itself many times over.
While these same principals hold true to businesses of all sizes, most small and medium sized businesses do not have a financial management system beyond basic accounting systems. Christian Harsh of Confluence Advisors (a Pittsburgh based middle market investment bank) said, “The first thing I do on any new engagement is analyze the company’s numbers, most could be doing a lot more to get a handle on their financial situation.”
This is because for many small businesses the costs appear greater than the potential benefits. This article highlights the benefits of budgeting, planning, performance measurement in addition to explaining why the total cost involved with implementing and maintaining a financial management system has declined significantly.
Why your company should implement a financial management process.
You need a plan to run your business. What good are last years numbers if you are not using them to get a better understanding of how you can increase the bottom line in the future? At the most basic level businesses should have a short term budget. This budget should serve as a financial roadmap to achieve your short term goals. Comparing results to the budget at the end of each period will help you identify the most important factors in improving your bottom line. Longer term planning (3-5 years) helps business owners make decisions with multi-year implications. Budgeting and planning using an integrated income statement, balance sheet and statement of cash flows help businesses determine cash implications and capital funding requirements for a given forecasts.
You need a plan to finance your business. Being able to effectively measure and articulate the financial position of your company can help you obtain more attractive financing options. This is true for a growth oriented business trying to find equity investors or say a restaurant attempting to secure a construction loan. Unfortunately many businesses find themselves putting these projections together after they determine they need to. When faced with a need to raise capital, companies who engage in financial management on a regular basis are able to focus on refining the data and telling the right story instead of building from scratch.
Why implementing a financial management system is less costly than ever.
For many small businesses hiring a finance department (or a dedicated person) for planning/ budgeting/ financial analysis is not and option. Even if the financial resources are available, finding someone with the right skills and knowledge of your business can be difficult. The good news is that your access to tools and resources that can help you with this process is greater than ever before. This will allow you to drastically improve your company’s financial management using your existing team (even if that is just you). Here is a short list of places to start.
•Software: There are many software products available for budgeting and planning. These range from enterprise solutions for large organizations all the way to stand alone spreadsheet software. A spreadsheet package like Excel may seem to be a cost effective option but building a 5 year plan in spreadsheet is can be very time consuming and complex.
•Search Engines and Wiki’s: Once you are in the process of setting up a budget or plan you will have questions. If you want to learn more about amortizing a loan or cost of capital just search for it on the internet. Investopedia is a great resource dedicated specially to financial information.
•Academic Resources: Many universities and professors make coursework and research available for free online. Find a course of study and learn in a structured way but at your own pace and without paying for classes. There are also many organizations that create materials that cater to small business owners; one example is SmallBizU eLearning University.
•Financial Professionals: Many financial professionals offer budgeting and planning services; these can be accounting firms or corporate finance consulting firms. However for you to truly extract valuable information from the budgeting and planning process it must be a collaborative effort.
There is nothing else to wait for. If the primary function of your financial analysis is to determine how much you own in taxes then you are not doing enough. Take the time to construct a basic budget and build your financial management process from there.
Author Ed Wielage is co-founder of New Horizon Technologies, Inc. The company develops and markets PlanGuru business budgeting and forecasting software . With PlanGuru small and medium sized business can do multi-year budgeting, forecasting and planning without spreadsheets.
Article Source:http://www.articlesbase.com/small-business-articles/does-your-business-have-a-plan-it-should-1298643.html