The Tempo of Financial Management: Who, What and When

Effective financial management is the backbone of any successful business. It involves understanding who is responsible, what tasks need to be done, and when they should be performed to maintain financial health and ensure business longevity. 

This article explores the essential components and timing of financial management, helping you stay on top of your financial responsibilities as a business owner and introducing you to the experts who can help.

As the owner of Financial Fanatics, I’ve shared some of my past experience in the finance industry and my tips to help you out. 

What is Financial Management?

Financial management involves tracking and controlling the inflows and outflows of business funds to ensure that debts are paid on time and profits are sufficient for sustainable growth. It encompasses initial funding, pricing, capital purchases, hiring, wage setting, leasing premises, and managing expenditures. Essentially, it is about maintaining a balance between income and expenses to keep the business solvent.

One thing to note, at the end of the day, if your business isn’t managed correctly, it will be you as the Owner/Director who is responsible. If you’re trying to do your own bookkeeping and accounting, keep this in mind!

Insolvency and its lessons

During the "Banana Republic" recession, as a young accountant, I transitioned from auditing to insolvency. My role was to investigate what went wrong in failing businesses and prepare reports for courts and regulatory bodies. 

One common issue was that many businesses lacked proper financial records, leading to their downfall. It was very eye-opening to see the situations they had found themselves in but it taught me some lessons to carry through to the future. 

The Tempo of Financial Management

Tempo, a term borrowed from music, refers to the timing and pace of financial tasks in a business. Just as a song follows a specific rhythm, financial management should adhere to a structured schedule to ensure everything is done on time and nothing is overlooked. Establishing a set tempo for financial tasks helps prevent cash flow problems and allows for smoother business operations.

Who is Involved?

A well-rounded financial management team is crucial. Key players include:

  1. Bookkeepers: Record all financial transactions in the accounting system. It’s their job to keep track of what’s coming in and going out, and to let you know if there is a problem.
  2. Tax Agents: Handle government lodgements and tax-related matters, including filing your BAS and tax return. They can also provide advice to help you minimise the tax you have to pay.
  3. Bankers/Brokers: Assist with funding needs like loans or lines of credit
  4. Financial Controllers/CFOs: Oversee financial decisions, compliance and strategic financial planning.

If your business lacks these roles, you, as the owner, must take on these responsibilities. When you’re busy with other things, it can be easy to put things off but you need to be vigilant if you want to hold onto your business and your right to operate one. 

Core Tasks in Financial Management

These are the jobs you have to take care of: 

  1. Keeping Records Up to Date: Accounting records must accurately reflect all financial transactions. Doing this will help you track payments, manage payroll, and make informed decisions. The Australian Treasurer Peter Costello once emphasised the importance of keeping records up to date, particularly with the introduction of GST, to significantly impact business performance and success. Depending on your business complexity, records should be updated daily, weekly, or monthly.
  1. Reporting: Regularly review financial reports such as profit and loss statements and balance sheets. This provides insights into the business’s financial health and helps in strategic planning. Good financial management requires at least a quick review of accounting reports regularly, ensuring you are aware of the business's current position and can act accordingly. Ignoring these reports can lead to disastrous consequences, even for the largest companies. 

When you work with a good bookkeeper, you should have access to the reports you need, and be notified if any red flags are emerging such as badly overdue accounts or rising costs. 

  1. Compliance: You are responsible for meeting tax obligations, paying workers' compensation insurance, wages, sick pay and superannuation to avoid penalties and legal issues. Good financial management means you will keep up with government or agency regulations to prevent large fines or even liquidation due to unpaid taxes.
  1. Price Monitoring: Regularly review and adjust your prices to maintain profitability amidst changing market conditions. Responsible financial management includes a formal review of prices at least annually, if not more frequently in volatile markets. This ensures you can maintain your margins without unfairly increasing costs for customers.
  1. Cost Monitoring: Track and manage all expenses to protect profit margins and ensure financial stability. Employee wages, supplier costs and other expenses continuously rise, requiring ongoing monitoring to defend profit margins. If price increases are not feasible due to competitive pressures, cost reduction becomes necessary.
  1. Cash Flow Management: Monitor cash flow to ensure the business can meet its financial obligations and pay bills on time. This is the heart of financial management; failing to manage cash flow can result in an inability to pay taxes, suppliers, or employees. Systems like Profit First can simplify this process, helping you keep on top of cash balances and build reserves for unexpected expenses. You may also be able to access invoice finance or a line of credit but do so with confidence about repaying your debts. 
  1. Exit Planning: Prepare for the eventual sale or closure of the business to maximize returns and ensure a smooth transition. All businesses will eventually conclude, either through sale, closure or other means. Good, steady financial management (this includes keeping records) can enhance business value and facilitate a smoother exit when the time comes.

When to Perform Financial Management Tasks

Now let’s talk about timing. Financial management is an ongoing process, with specific tasks performed at different intervals. You might find that your activities differ, but this will give you a framework to start with: 

  1. Daily: Reconcile bank transactions to ensure accurate financial records. This ensures that your financial system reflects the true state of your accounts, allowing for reliable decision-making and efficient cash management.

Don’t have time? A Financial Fanatics bookkeeper can take over this job for you, starting from just a few hundred dollars per month. 

  1. Weekly: Review sales, production and collection reports to stay on top of business operations. This regular monitoring helps identify trends and issues early, allowing for timely adjustments and maintaining business momentum.
  1. Monthly: Generate comprehensive management reports, including profit and loss statements and balance sheets. These reports provide a detailed overview of the business’s financial health, enabling strategic planning and informed decision-making.
  1. Quarterly: Assess business performance and compliance with regulatory requirements such as BAS and superannuation payments. Quarterly reviews offer a good time frame to evaluate the effectiveness of strategies and make necessary adjustments.
  1. Annually: Conduct price and cost reviews, file tax returns, and complete various reconciliations and audits. Annual reviews are critical for long-term planning, regulatory compliance, and ensuring the business remains competitive and profitable.

Yes, it’s a lot!

Building a successful business all comes down to one thing; having more money coming in than going out. However, achieving this requires constant effort and attention, plus help from the right people. 

Put together the right team to support you, including the people who can help you stay on top of your finances every single day, and you’ll be closer to creating a financially consistent operation. 

Start by hiring a bookkeeper. Contact Financial Fanatics for more information today. 

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