You know that running and building a business isn’t easy. There’s much that goes into the work of each day, details to take care of, and all the important strategic work, like planning for growth, improving your product or service, and achieving a competitive position in your market.
The Value of Financial Management Systems
But taking time for essential strategic work when you have deal with the day-to-day details of your business can be a challenge. You can have that time, however, once you have effective financial management processes into place.
Financial management processes are “behind the scenes” tools that you use to move money into, out of, and around your business, and in the right place at the right time. You probably have some financial management processes such as a system for bank deposits, for ordering office supplies, and a payroll system, for example. And if they’re working properly, you probably don’t think about them.
This is where the value of financial management processes comes the forefront. Because these processes help your business run smoothly, they free you and your managers to concentrate on more strategic work. In addition, they create the link between your business activities and your accounting system.
Processes are Processes, Right?
What’s the difference between a financial management process and any other process in your business?
Most business processes, or systems, are focused on a result that your business needs in the key areas such as marketing, production, or fulfillment. These show up as advertising processes or your delivery systems, for example.
Financial management processes, on the other hand, involve the moving and controlling of money that all your other systems need in order to function. You can’t produce your product without money to buy materials and supplies. You can’t run your operation without money to pay the rent on your office space. You can’t advertise without money to place your ads. You can’t recruit new employees without money to search for qualified candidates.
Financial management processes support your other business systems by ensuring the right amount of money goes where it’s needed, when it’s needed. Consequently, it’s important to invest the time and effort needed to implement and maintain your financial management processes. With these systems in place, you’ll have a stable financial management foundation to support your future growth.
Managing Your Financial Processes
Keep in mind that, ideally, setting up financial management processes is not the job of the business owner or CEO. The truth is that, many business owners who set up their own cash handling, purchasing, payroll, and other systems find it challenging, at best. It can be somewhat like preparing your own legal documents, instead of hiring a lawyer.
If at all possible, your CFO should be responsible setting up your financial management processes, and your controller should then manage them. However, if you don’t have a CFO or even a controller, it’s wise to hire an outside expert such as a CPA, bookkeeper, or other financial consultant who has experience setting up these systems. It’s an investment that will easily pay for itself in the long run.
However, as the owner or CEO, you still have responsibilities for your financial management processes. It’s your job to give direction to your CFO about the type of financial management processes you want and to make sure that the systems that are in place are effective, well documented, and are helping you move the company closer to your vision for the business.
Delegation is not the same thing as abdication. In other words, while it is not your job to create and set up your processes, it is your job to determine the results you want and work with your team to make it happen.
As the business leader, it’s your job to set the expectations for how the financial management processes should run and to provide oversight of those systems.
Financial Processes Basics
No two financial management processes are exactly alike, but these fundamental practices will help ensure security and accuracy throughout your business. Here are some general guidelines you should be aware of when setting them up:
1) Make sure your source documents are accurate. Since your source documents are the “input data” for your accounting system, they must be complete and accurate. Otherwise, the errors or omissions will end up in your financial reports, creating false perceptions of your business health and progress – and you won’t be aware of it. You should automate the creation of source documents and store the information digitally. If they are not already, have your CFO and controller digitize your source documents when they set up your financial management processes.
2) Always have at least two people involved with financial processes. Two sets of eyes improves accuracy and reduces the likelihood of omissions and mistakes. Separate the approval for spending money from the actual money-spending activity, and the recording of sales from the deposit of money. If you don’t have a CFO or controller to act as a second pair of eyes, hire a third-party provider to help.
3) Use a business checking account to pay all company expenses. Never use cash or personal funds. Your company’s checking account is an effective financial control system that provides you with an automatic record of what happened to your money. While it’s common for business owners to mingle their personal expenses in with the business expenses, don’t do it!
Personal items paid for out of business funds impact the performance of your company. Many poorly performing companies are that way because the business owner is draining company funds for their personal needs.
4) Ensure that all data is forwarded to the accounting system. Your financial management processes become far less effective if the forms or other documentation generated are lost or misdirected. Digital document management systems, or ERP software, can automatically route information to the appropriate places, reducing time delays and the opportunity for human error. If you do use some paper documents, be sure everyone knows the routing process and timeframes for getting information to your accounting system.
5) Document your financial management processes in writing. The written documentation of your systems is what holds your entire operation together. Or it should be. If you’re dependent on “word of mouth” to make sure that people are following your systems, it will never be optimally efficient. Verbal directions are unreliable. And subject to forgetfulness, lack of clarity, misunderstanding, and misinterpretation.
Good documentation prevents your business from becoming overly dependent on a single employee. For example, if you would find it impossible to replace your CFO, controller, or bookkeeper because no one else has any idea what they do, you have a serious problem. Documenting processes and procedures in writing will ensure the success and health of your company.
Financial Management & Your Future
Once your processes are in place and working effectively, they should run almost seamlessly, behind the scenes. You won’t need to think about them on a daily basis. Instead, the reporting and monitoring systems that have been set in place will keep you apprised of your financial health. Ideally, you’ll be able to rely on your processes to allow you and your managers to focus on other vital aspects of your business.
With your financial management processes in place, working with your accounting system, you will be able to have accurate information when you need it, and put your time and attention towards more important matters like growing your business.
And that is where your time is the most valuable!