Financial Management requires planning, organizing, directing, and controlling the financial activities of an organisation such as the likes of asset management and expenses. Growth-oriented business decisions are strongly based upon intelligent financial management decisions; the ones that directly contribute to improving the company’s assets and investment decisions.
Before we delve into the finer aspects and tips on how you can improve your Financial Management systems within your organisation, let’s try to understand what a few goals of a sustainable Financial Management system could be:
1. Appropriate and consistent supply of funds for the company to be self-sustainable
2. To optimise fund utilisation
3. Profitable investment decisions that are safe
4. To forecast the long-term financial health of the company
Let us try to look at a few things that any Software/IT Services company could do to help themselves;
1. Minimise your investment risk
A key benefit of financial analysis and reporting is understanding where your funds are coming in from, how they are allocated, used, and eventually whether the decisions you took helped you grow financially or not. Investments come in two forms: those for inside your business and those for outside your business (i.e. securities, shares etc.). Your past financial analysis will help you dig deeper into how much of your company’s money gets invested back into your business and how much is put aside for outside investments. Striking a balance will ensure you maximise your investments. Investment in your own business is desirable providing the return from your business is higher than the estimated return on the cost of capital. If you are planning to reinvest a larger portion back into your business, your pipeline of projects must be strong enough to encompass technology/software changes and how it will affect your project deliverables.
2. Optimise your Funds utilisation
Being a technology business, you will be actively involved in the procurement of new hardware/software for business purposes. A strong forecasting model will help you incorporate a detailed expense expectation. Tallying your available funds is critical to the growth of a company.
A few points to be considered before making any fund allocation decision:
1. Project lifecycle and project management
2. Resources allocation for all projects
3. Fixed asset expenses for all projects
Very critical since your business is most likely a technology business and there will be expenses related to software and hardware. As well as workspace. I.e. How much of your hardware is bought vs can you work with long-term leases on equipment? This is one such decision that affects your fund allocation.
4. Working capital calculations and schedules
3. Work with good accounting software
Small- and medium-sized businesses usually have a lacklustre financial department. You must evaluate the accounting software you choose to ensure it has maximum features to minimise your offline resource involvement.
4. Hiring a bookkeeper
A hawk-eyed approach to recording all transactions and the nature of expenses allow you to deeply reflect on the necessary expenses vs areas your business can benefit from. Hiring a bookkeeper frees up your time to focus on growing your business as opposed to the mundane tasks of recordkeeping.
5. Understand and measure capital versus operational costs
Every Software/Technology business strives to drive down the totals on the capital costs side of the spreadsheet and move more over to the operational side of the equation. Operating costs are easily adjusted from year to year. Outsourcing certain parts of your business might be one way to do this because this cost is calculated on the operating cost side and, thus, helps to free up cash by not tying it in capital investments (such as IT infrastructure, servers, etc.) or tasks like recruitment and company payroll management.