Financial Planning and Discipline in Small Businesses

financial-planning-and-discipline-in-small-businesses

As we know, we will be moving into the last quarter of the current financial year 2014-15. March end/April beginning is always quite a busy time for the business people. In fact, it is a stressful time-and more if they leave everything for the March every year. Financial planning & discipline is the single most important aspect of any business. Financial planning can be delineated as profit planning intended at generating higher returns on assets, growth in market share and at solving foreseeable problems. It is a process that frames financial policies in relation to investment, procurement and administration of an enterprise’s funds.

Many micro/small business owners see the end of a financial year as just once-a-year hindrance. As soon as the regulatory requirements are met, they breathe a sigh of relief and hardly bother about financial planning till the next year-end. This is a wrong approach.

Ask any qualified financial advisor and he would emphasize that, good financial practice should not just happen at the end of a financial year. but throughout the year. It is crucial to keep your fingertips on the numbers your business is producing, evaluate them on a regular basis, and take appropriate decisions accordingly. Recommended here is a simple but effective tip- prepare a checklist of the key financial tasks that you think should be kept track off, and categorize them into groups like weekly, monthly and quarterly items.

Let us explain it further- your regular weekly reviewable items may include receivables and payments, bank balance and cash-flow updates, billing, etc. Similarly, the monthly items may include broader issues such as response rate to a marketing campaign, product modification requirements, profit-margin-loss etc. Finally, in the list of quarterly reviewable items, one may put things like banking relations, outsourcing needs, new funding opportunities, effects of tax on the business etc.

To add here, every small business should schedule a routine check-up of some key performance indicators. Measures like debtor days(that tells how quickly cash is being collected from the debtors), liquidity ratio (that measures ability to turn short-term assets into cash to cover debts), inventory days (that tells how many days the goods purchased stay in the warehouse) can tell a lot about the health of a business.

Also, I believe that, sticking to a financial routine can help avoid a lot of stress at the end of a financial year. To prepare financial statements, it is required to undertake a number of tasks, and when monthly accounting- which basically involves bookkeeping, payroll and tax-is undertaken, instead of waiting until the end of the financial year, you will not succumb to last-hour pressure, no matter whether later at the year-end you will do the financial accounting yourself or outsource it to an accountant.

Even if one has a full time accountant, one, as a micro/small business owner should at least have that much accountancy knowledge that is required to understand what the accounting numbers and ratios tell. An accountant can help navigate arcane accounting and tax rules, but the owner is the person who can use certain numbers as tools to better manage where the business is headed tomorrow.

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