In United Arab Emirates, more than 20% of companies with up to 2 years of operation are extinct. The study did not present information about the reasons for the mortality of these organizations, however, it is possible to infer that a company’s poor financial management directly contributes to these numbers.
Don’t want to get into that stat? This article presents 3 great tips to help you improve your money management processes and stay active in the market. Also check out some fundamental practices for the preventive control of finances!
1. Keep up to date on business management
Some of the business knowledge is gained in daily work, in the form of experience acquired by managers. However, seeking to learn about techniques and tools to improve decision-making is fundamental.
Financial decisions made based on instinct no longer work as they used to, as today’s market is much more competitive. Financial management tools are essential to avoid waste and help companies achieve better results.
The internet is a great facilitator for finding this knowledge. You can search on business pages and free courses on the subject.
2. Develop a strategic financial plan
In order for a company to get where it wants to go, it is necessary to know which place it is. In other words, it is necessary to identify and clarify the company’s mission and the strategic objectives of the business.
The tool used for this is strategic planning, which also encompasses Corporate Finance Services in Dubai. The plan must design global investment, expenditure, and revenue goals at the strategic level; cost optimization and revenue generation targets by sectors and areas in the tactical spectrum; in addition to reducing waste and increasing efficiency in specific tasks in the operational context.
It is highly recommended to turn a plan composed of words into numbers and deadlines in order to create actionable goals.
3. Employ a company’s financial management system
A company’s financial information can comprise a large amount of data. This makes it very difficult to carry out manual work, especially in relation to personnel costs.
So, adopting computerized systems to manage corporate finances is a smarter solution. Current systems offer integrated tools for financial management in various aspects, such as managing accounts payable and receivable, preparing budgets, organizing inventory and purchasing, invoicing sales, etc.
In addition, cloud computing allows access to the system from anywhere and from any authorized device, even outside the company’s physical environment. Other facilities of this technology for financial management are the lower cost of storage, information security and protection against loss through backups distributed across several servers.
Now that you know the most important tips, check out some preventive practices that will help you control your company’s finances!
Practices for financial control
Avoid overspending on payroll
Companies with good control over spending tend to make certain rules so as not to compromise the budget. One of them is to keep personnel expenses within a limit of up to 40% of sales.
Therefore, in order to optimize the expenses and the results obtained, an evaluation of the staff must be carried out. Evaluate the expenses with professionals in each sector, as well as their productivity and relevance to the company’s activities.
In many cases, there are overworked employees and others who could earn more. It is up to managers to identify these problems and, thus, reorganize activities to increase performance. Outsourcing some sectors can be a great way to improve a company’s financial management and should be considered.
We also remember that payroll expenses are not limited to the payment of salaries. To maintain financial control, vacations, layoffs and other eventualities.
Separating personal finances from company finances
In small businesses and family businesses, it is common for managers to “borrow” money from the company’s cash register. However, this is a serious mistake that makes it difficult to keep control of cash flow and, at times, it leads less prepared companies to go bankrupt.
To avoid this type of problem, the company must always determine a fixed salary for the managers and directors and never use the company’s cash as a bank for loans.
Keep in mind that cash control is critical to the management organization. Therefore, the less interference from factors that are out of control and from the business issues themselves, the better for the company. Some simple practices, such as classifying and recording inflows and outflows, help to control and evaluate expenses and organize cash flow.
Conduct periodic assessments
Following the logic of strategic planning, carrying out periodic assessments is essential so that any errors in financial management are corrected before causing damage to the company. In addition, assessments help to control costs and monitor results.
For this, it is necessary to constantly study the market, informing yourself about trends and patterns and evaluating how your company assimilates them. Monitoring the practices and activities of competitors in the same industry can also help your company to benchmark these assessments and helps exercise innovation and predict market movements.
The evaluation itself must be based on the analysis of the situation, performance and results of the company and its sectors, aiming to identify possible problems in the processes and points that can be improved. The regularity of these assessments is essential to avoid bad surprises and so that corrections can be made in a timely manner, they can be carried out monthly and semi-annually.
Search for partnerships
One of the ways to get around the crisis is to seek partnerships that can benefit your business. For example, taking advantage of your suppliers to lower inventory costs can be a great way to improve the company’s financial management.
Another efficient way to improve financial management through partnerships is to find companies that provide complementary services to your business. Imagine a gym that finds a sports equipment company that is willing to pay rent or pass on a commission to sell its products within the gym space, would it be a good deal or not?
Whether it’s lowering costs or generating commissions, some partnerships and a good network of relationships are good financial management practices and a guarantee of stability even in difficult economic times.
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Each of the tips and practices mentioned can progressively organize the company’s financial sector and make the necessary contribution to increase profitability.
Finally, don’t forget that, currently, the company’s financial management is a concern that makes many managers sleepless, and being informed is essential to find solutions to these problems.
Did you like our article? If you want to know more ways to ensure the financial health of your company, check out 4 excellent practices for inventory control !