Five Steps to Committing to Financial Management Fundamentals
We seem to take one step forward and two steps back lately – with the pandemic, the economy, and life in general. In many instances, things are so close to “normal,” we’re ready to embrace it all again wholeheartedly. We need the familiar, especially during the tradition-filled holidays. We long for some normalcy and comfort. Yet, we’re hesitant in many respects, especially in business. And while this hesitancy is understandable after all that we’ve been through, we can’t run a business this way, especially as it pertains to financial management. In fact, our financials never needed more attention. As 2021 comes to a close and 2022 begins, it’s the perfect time to make a resolution to get back to financial management fundamentals.
Five Steps of Financial Management Fundamentals
- Read Monthly Financial Statements
While this may sound entirely too elementary, we’re starting with the basics because there are those who tend to ignore them. By reading (and understanding) financial statements, you will quickly see what looks good and what doesn’t, if there are any red flags, and any trends. Monitor inventory levels against projected sales, receivables, and cash and identify other critical financial indicators and ratios from the balance sheet. If something doesn’t make sense to you, chances are there may be a problem that needs to be solved.
- Review Bank Statements
Similar to your review of the financial statements, how will you know if something is off, if you don’t review the company’s bank statements monthly?
- What’s coming in?
- What’s going out?
- Do the amounts look reasonable?
- Do the canceled checks (reviewed online) look appropriate?
With this review, you shouldn’t be in the details of every single transaction (or you’ll never get any work done). Rather, your goal should be to get a good sense of the company’s overall activities. In this way, you can track monthly sales-to-expense ratios to better understand when to adjust spending and to identify the top impediments to profitability, so you can deal with them quickly.
- Review Payroll Reports
Payroll reports should be reviewed quarterly when Form 941s are filed. During this review, you want to look at year-to-date wages paid for employees and ensure everything looks reasonable. If it doesn’t, find out why immediately.
- Assess Expense Reports and Spending
Review credit card usage, expense reports, and overall spending, including meals and travel expenses. Take note of any entries that appear off, whether they are too high, too low, or too frequent. Once again, you don’t need to have all the details, but rather perform a high-level view – often, all that is needed to identify an issue sooner rather than later.
- Listen to Feedback
No one has all the answers. The best leaders understand the intrinsic value of listening. In this case, that feedback should be from far more than the accounting department. It should also include feedback from operations and any other impacted department, as well.
- What’s working?
- What isn’t?
- What are the concerns?
- Does anything need to be investigated?
These five steps will help ensure you are practicing financial management fundamentals, increasing oversight, and increasing overall engagement. Remember, the most successful CEOs are those who delegate, but also who stay close to the heart of the company’s financial picture. The consistent financial monitoring required of businesses takes attention and it takes work, but without a true long-term plan and careful monitoring, you cannot forecast or grow to the next level. So, in 2022, make a resolution to stay committed to financial management fundamentals. Barker Associates has extensive experience in financial management. If you need assistance, or have any other questions, please click here to schedule a 30-minute consultation at a rate of $100.