Beyond the Box

Beyond the Box - Business Series, smart business ideas to make your business fly from the best professional in the business

Financial Management, get it right!
This is the process of managing the financial resources, including accounting and financial reporting, budgeting, credit control, risk management, and insurance for a business.

The financial management system for a small business includes both how you are financing it as well as how you manage the money in the business.

In setting up a financial management system your first decision is whether you will manage your financial records yourself or whether you will have someone else do it for you. There are a number of alternative ways you can handle this. You can manage everything yourself; employ someone who manages it for you; keep your records inhouse, but have an accountant prepare specialised reporting such as tax returns; or have an external bookkeeping service that manages financial transactions and an accountant that handles formal reporting functions. Some accounting firms also handle bookkeeping functions. Software packages are also available for handling bookkeeping and accounting.

Bookkeeping refers to the daily operation of an accounting system, recording routine transactions within the appropriate accounts. An accounting system defines the process of identifying, measuring, recording and communicating financial information about the business. So, in a sense, the bookkeeping function is a subset of the accounting system. A bookkeeper compiles the information that goes into the system. An accountant takes the data and analyzes it in ways that give you useful information about your business. They can advise you on the systems needed for your particular business and prepare accurate reports certified by their credentials. While software packages are readily available to meet almost any accounting need, having an accountant at least review your records can lend credibility to your business, especially when dealing with lending institutions and the taxation authorities.

Setting up an accounting system, collecting bills, paying employees, suppliers, and taxes correctly and on time are all part of running a small business. And, unless accounting is your small business, it is often the bane of the small business owner. Setting up a system that does what you need with the minimum of maintenance can make running a small business not only more pleasant, but it can save you from problems down the road.

The basis for every accounting system is a good Bookkeeping system. What is the difference between that and an accounting system? Think of accounting as the big picture of how your business runs -- income, expenses, assets, liabilities -- an organised system for keeping track of how the money flows through your business, keeping track that it goes where it is supposed to go. A good bookkeeping system keeps track of the nuts and bolts -- the actual transactions that take place. The bookkeeping system provides the numbers for the accounting system. Both accounting and bookkeeping can be contracted out to external firms if you are not comfortable with managing them yourself.

Even if you outsource the accounting functions, however, you will need some type of Recordkeeping Systems to manage the day-to-day operations of your business - in addition to a financial plan and a budget to make certain you have thought through where you are headed in your business finances. And, your accounting system should be producing Annual Accounts. Learning to read them is an important skill to acquire.

Another area that your financial management system needs to address is risk. Any good system should minimize the risks in your business. Consider implementing some of these risk management strategies in your business. Certainly, insurance needs to be considered not only for your property, office, equipment, and employees, but also for loss of critical employees. Even in businesses that have a well set up system, cash flow can be a problem. There are some tried and true methods for Managing Cash Shortages that can help prevent cash flow problems and deal with them if they come up. In the worst case you may have difficulties meeting all you debt obligations. You will need to learn more about ways to manage situations in which you have more debt than income.

It is possible you may even be at the a point where you want to sell the business or simply close it and liquidate assets. There are financial issues involved for these circumstances too. So, be certain that you know what steps you need to take in order to protect yourself financially in the long run.

Clearly, financial management encompasses a number of crucial areas of your business. Take time to set them up right. It will make a significant difference in your stress levels and in the bottom line for your business.

The UK is going through a severe period of austerity. It is even more important that business owners have their fingers on the pulse during these times of moving goalposts. The order of the day is timely information so that change can be quick to implement.

Opportunities in the current climate
The current turbulent economic climate has created extraordinary opportunities for business failure and success. Many businesses will not survive, others will be permanently disabled, but others will take advantage of this crisis and advance their operations to a higher level.

The winners and the losers will be separated by those willing to assess their current situation and be outward looking, to make the changes necessary early enough to adapt to the changes in the market place and to continue to be innovative.

Many well known names from football clubs to car manufacturers and coffee shops to TV broadcasters have all been hurt by these challenging times, exposing the depth and severity of the current recession.

The question is how has this affected the Asian business sector if at all?

Many Asian businesses operate primarily on a cash basis and as a result don’t really experience the tightening of cash through working capital movements. Nevertheless falling sales, rising overheads and the consistency of supply will have an effect on these businesses. Making the right decisions at the right times will be crucial for their survival.

Building a successful organisation is no easy task. A number of key factors must be in place and then regularly revised and updated. With the countless distractions and difficulties that are faced by many organisations in this climate, it is vital to maintain focus on these

· There must be a clear and solid management structure with goals embedded in a strong mission statement. These values should be able to be transferred to each and every stakeholder within the organisation, and more so in these tough times. Clarity of purpose and direction needs to be demonstrated by the management in order to maintain the confidence in the organisation.

· The smooth running of the internal organisation is paramount. This is only achieved by having the right people in the right positions. Without this there is a constant drain on management resource in non business critical tasks. Having the right people will ensure the organisation maintains its focus on the objectives.

· Management need to constantly be able to look forward to the future in anticipating consumers' needs. They must employ all the cutting edge techniques to deliver what the consumer wants and when. It’s all too easy to start inward looking and loose track of satisfying the consumers’ needs.

· There needs to be strong financial management at all times. Up to date information of the performance of the business and its financial resources will support the correct strategic decision making. In good times, many organisations become complacent and relax their attention on the financial performance of the business.

Having said that, there will still be situations where more radical measures need to be taken. An understanding of the options available will help organisations select the most appropriate route to recovery of their business.

At the first signs of difficulties, seek professional advice from an accountant who has experience of dealing with recovery and turnaround situations. It could be that the problems are only at their very earliest stage and with a measured amount of restructuring and close financial management the company can be steered into clear waters.

It could be that the company is in need of some short term funding to relieve it of some cashflow pressures. Working with lenders at the earliest possible times can ensure that the funds can be raised and put to the most effective use. The longer the time period the greater the cashflow hole is likely to become, thus eroding equity and making it more difficult to raise the required funding.

But in some cases it may be that the company is so deep in distress that the only solution is some form of insolvency. This can have many different forms but again the earlier it is dealt with the better the resulting solution that can be found.

For many Asian businesses these situations and the processes involved in dealing with them are quite alien. However, there are a growing number of them that are discovering the wider options available to them. Turning to the professional who have the experience in these fields are helping many to overcome their difficulties.

It can be argued that a major contributory factor to this is the number of Asian professionals who are taking up positions in these sectors and breaking down the barriers behind understanding these options.

Their professionalism coupled with an in-depth understanding of the cultural nuances affecting the Asian business market is helping many businesses through some very difficult times.

The current recession does not distinguish between Asian and non-Asian businesses. All are being affected by the downturn in some way or other. Some are taking this climate and making it a time of great opportunity, but there are a great deal who are not averse to acting promptly. For them this time could well signal the end of their organisations. But this needn’t be the case.

Statistics show that businesses becoming insolvent are worse now than the previous recessions of the 70’s and the 80’s. But what can be done? Unfortunately for some businesses, it can seem that there are no ways around their financial problems. In reality there are now a number of ways to try and save your business.

Arshad Chaudhry Strategic Solutions

Roundhay Chambers Leeds LS8 5AN England

Phone 0113 2481778 Fax 0113 2488088 Mobile 07956861976