Tips for managing your company’s finances
What is good financial management in small and medium-sized enterprises and why should you know about it? This topic was explored on 15.2.2022 at the Better Financial Management panel with five entrepreneurs and experts in knowledge management and financial administration. In addition to representatives from Visma Fivaldi, Aarnio Accounting, TT Coaching and Idention, the panel discussion also included our entrepreneur CEO Toni Kemppinen. There was a lively discussion on the importance of using financial information as part of overall business decision-making and management – and as a cornerstone of entrepreneurial peace of mind.
What did you get out of it? We summarise the main points and explore them further with practical examples.
What is economic management anyway? It can be seen as business management and decision making that uses financial data. The debate emphasises that it is first and foremost a question of managing the whole and maintaining a balance. Business planning and monitoring must not be too financially driven, with spreadsheets. That’s what I dreaded about managing with Excel. Of course, it is good to set numerical targets to guide the planning and evaluation of activities. However, financial figures are not values in themselves, but their interpretation helps to better understand the business.
The numbers tell us what we do in the day-to-day running of the business and what it entails. They tell the story of decisions and action. It is therefore important to understand the cause-and-effect relationships behind the figures. How is the e-commerce reform reflected in your results? Have sales meetings in the new target segment led to above-average deals? How is improved customer service through increased customer satisfaction reflected at the checkout?
→ Figures are not an end in themselves. The entrepreneur needs to find the cause-and-effect relationships between the day-to-day activities and the numerical results.
With more and more real-time information, the importance of financial management as part of business management has increased significantly. Economic data is no longer just historical data that we compile into reports for the taxman. When the information from the systems can be used in the moment, it provides a basis for informed decision-making for the future. Alongside the use of up-to-date data, panellists highlight the importance of regularity and frequency of monitoring. For example, it must be possible to react quickly to an increase in the number of customer terminations, rather than on a quarterly basis.
The usefulness of historical information should not be underestimated either. When you have long-term data on your business and industry, you can make informed predictions and decisions. When budgeting, do you use information from previous years on how much money you spend on marketing? Or what has been the monthly number of customers and their average purchase amount in previous years? Do some of your customers repeatedly pay late? Have you made an investment whose impact you will monitor for years?
→ Decisions are made for the future, not for history. Therefore, the information to be used must be relevant in the moment.
Again, this debate repeats: you get what you measure. When you set goals and follow them, you are also likely to achieve positive results in the desired direction. You focus on doing things towards your goal. That’s why it’s important that in planning – which is much more than budgeting – you choose wisely which metrics to track. Which objectives do you prioritise and over what timeframe? What indicators show that your activities are leading to the results you want? By regularly monitoring and analysing concrete target indicators, you can identify any changes that need to be made.
→ You get what you measure. So you need to set your goals smartly.
Monitoring, planning and forecasting cash flow is one of the lifeblood of a business, according to the panellists. With a cash register, you can make a big difference to the daily life and quality of life of an entrepreneur. A cash crisis is the only real crisis for a company, says one of them. Indeed, it is easier for an entrepreneur to solve all other problems when the company’s finances are in order. When there is money in the till. So keep a regular check on whether your payments have arrived and who you are owed money from. Once you understand your cash flows, you can plan for them. Does the cash flow result allow you to invest in the development of your business?
Long-term cash flow forecasting offers a solution for planning the future of your business and preparing for different scenarios. What if the investment is not profitable? Can your business withstand a sudden, instantaneous change in cash flow? Financiers also want to see repayment capacity for years to come. So it’s worth using software that allows you to make reliable cash flow projections based on trends and budgets. Set different target limits to control whether you are sailing clear or whether you need to raise the alert level or take immediate corrective action.
→ A cash crisis is the only real crisis a company can face, so it is worth planning and forecasting the amount of money you will spend, even in the long term.
The importance of these should not be underestimated: the time savings and peace of mind that a competent accountancy firm and easy-to-use software can give you. A modern accountancy firm not only keeps the statutory accounts, but also helps with financial planning and interpretation of figures. A financial expert can help you understand and forecast your company’s finances as part of the overall business picture.
Good software gives you the information and tools you need to plan and monitor your business. It saves you the hassle of collecting and aggregating data. Helps you make better use of information. Even small businesses now have software to make use of business information – including financial information. Software is no longer an expensive project that only large companies can afford. They also do not require a dedicated IT staff for deployment, operation and maintenance. When choosing software, you should pay attention to what information it can bring together and what tools it offers to make use of this information. Does it support day-to-day financial management? Provides comprehensive information from sales to marketing costs and from cash flow to budget execution? To help you focus your attention on what you are happy with and what needs to change?
→ Value your time and avoid extra headaches. Recognise when it’s time to rely on expert services and avoid unnecessary hassle.choose the software that makes your life easier.
One thing is clear: it is the entrepreneur’s responsibility to use and interpret information. Good software provides the information you need and helps you to use it, but you have to be interested in it. Indeed, monitoring and interpreting economic figures requires work. It’s worth it, though, because the increased understanding will make your finances less of a headache in the future. What better way to bring joy and peace of mind to your business than to know that your cash flow is in order, your investments in sales and marketing are generating euros and you can continue to pay your wages without any problems?
You don’t have to struggle with plans, reports, analyses and forecasts on your own. But financial consultants can’t do things for you either. Your involvement and active dialogue within your company is essential. This is because you need an insight into your customer base, sales, cost structure and future investments. Long-term forecasts are also made with information that is not available in the systems and is rarely held by one person in a company.
→ Even the best software and services will only help if you are interested in understanding the economy.