3 Key Components of Successful Business Finance Management
Essentially, business finance management involves handling an organization’s finances in a way that supports long-range financial stability and growth. However, a lot of moving parts make up a well-designed financial management strategy. Business finance management starts with the essential building blocks in place. There are three key components that create the most effective finance management strategies in business. Below is a closer look.
The Building Blocks of Business Finance Management
From the back-office tasks of bookkeeping to the upper-level financial strategies, good business finance management covers all bases. Taking good care of the organization’s funds requires essential building blocks and key professionals in place. The setup can look slightly different depending on the size of the business. However, the key building blocks often include:
- Efficient accounting technology behind the scenes
- Accountants and bookkeepers balancing ledgers and overseeing day-to-day financial record-keeping
- Financial controllers to make the most of financial data analyses
- Executive-level financial planning and strategy with a Chief Financial Officer (CFO)
In other words, all aspects of finance are managed with the right essentials in place. When all the essentials are in place, the business has the ability to meet current and future objectives in a satisfactory way.
3 Key Components of Business Finance Management to Consider
Business finance management involves quite a few objectives and tasks. However, three key components prove to be some of the most important.
1. Maximize Cashflow
Maximizing cash flow is critical to business finance management. This area is actually where many businesses struggle the most. According to Quickbooks, 61 percent of small business owners struggle with cash flow and around a third run into issues paying their bills, including payroll. Unfortunately, this one struggle can lead to the downfall of the business. Something like an inability to pay vendors or meet payroll deadlines could very well compromise an organization’s ability to keep its doors open.
Nevertheless, simply adjusting a few practices make all the difference in funds availability at any given time. A few examples of how to reorganize to maximize cash flow include:
a) Stagger vendor payments
Opt for vendor payments spread throughout the month instead of all at the same time. If possible, schedule vendor payments around forecasted sales spikes and outside of other large financial responsibilities like payroll.
b) Aggressively monitor accounts receivable (AR)
As much as 93 percent of companies deal with late customer payments. Tighten AR practices in order to limit the amount of late payments your company receives.
c) Price services strategically
Adjust pricing models as needed to ensure cash intake is enough. Don’t forget to factor in all costs, including overhead.
2. Budget and Strategize for Now and the Future
Budgeting forces a company to strategize what happens with cash flow. However, budgeting also gives greater insight for building the most effective goals. When current financials are laid out and clear, determining new goals and sales projections are easier. Plus, this information can be used to decide how the business should handle extra revenue when goals are reached. After creating a budget:
- Define a target revenue or sales volume
- Determine how to bring goals to fruition
- Consider expenses, cash flow needed, and how to allocate additional revenue when it is generated
3. Be Knowledgeable and Flexible Enough to Pivot as Needed
In business, the only true constant is change. Even with the best-laid plans, business finance management must involve perceptions regarding what may not go according to plan. Even further, a business must have a plan in place to pivot and adjust when necessary.
Create plans for perceived curveballs that could force deviation from the financial strategy. For example, if revenue in a high-sales-volume month is allocated toward certain expenses, create a plan B in case revenue doesn’t flow as expected. Know what steps will be taken if that sales volume is lower than forecasted. Businesses most capable of pivoting during periods of change have more staying power than those that don’t.