HomeBusiness DigestSound financial management for business growth

Sound financial management for business growth

THE typical day of a growing business in Zimbabwe is likely to be characterized by uncertainty, anxiety and at times outright panic. The business owners have to grapple with puzzles of entering new markets, in an environment of shortage of cash and seeming

ly unfriendly bankers. Yet with sound financial management, this need not be the case.

Financial management is the management function, which deals with finance. Finance is money and manifests itself in many forms. Simply put, more profits means more money, more sales means more money, no money means no purchase of stocks for production, no money means no expenses and of course no money means the business will not be able to buy the equipment to meet production targets and expansion.

In other words, finance is to the business organization what blood is to the body. Without it the body cannot survive. There will always be a number of contesting organs for the limited finance available. It the responsibility of financial management to ensure that finance is made available to the deserving organs such that the business fulfills its objectives effectively and efficiently.

The mandate of financial management in a typical business organization will invariably involve financial forecasting and budgeting, cash management (treasury management) capital investment appraisal and working capital management incorporating credit management among others.

The job of a financial manager is rather specialized requiring someone with appropriate qualifications. However as argued above finance is the blood of the business so it is imperative for the business owner, no matter his background, to have a fair idea of what financial management is and what the financial manager is supposed to be doing.

Financial Management feeds from data derived from the Financial Accounting System. There is a disturbing tendency within growing businesses to underrate the role of financial accounting. In some cases, books of accounts are prepared solely for the purpose of satisfying the tax authorities or the bank manager. The entrepreneur does not take time to understand the meaning of these Financial Statements

But how does Financial Management help growing businesses? By paying attention to the following, the business owner can ensure that his business not only survives but can actually grow on a well-planned and sustainable basis:

Sound Financial Accounting Systems: – A sound accounting system is the bedrock of an effective financial management regime. For best results it is appropriate that the accounting systems be computerised and be manned by skilled and motivated personnel.

The entrepreneur should be able to understand and interpret the Financial Statements from the Accounting System.

Using information from the Accounting System and the environment the enterpruneur should set financial objectives for the business.

The entrepreneur should be able to use ratio analysis to obtain insight into the performance of the business and the state of affairs of the business.

The entrepreneur should be conscious of tried and tested ways of evaluating capital investments rather than relying on thumb sucking.

The entrepreneur should be able to engage in sound working capital management such that growth prospects and plans are not frustrated by unpredictable shortages of cash and inventory.

The entrpruneur should be able to adopt structured and effective ways of raising Finance.

An entrepreneur who pays attention to the above is likely to achieve business growth because he is able to evaluate new business opportunities using financial tools; he is capable of objectively evaluating his performance and is also capable of utilizing financial information to make sound business decisions.

In my next installment I will deal with how an entrepreneur can be empowered to have these skills.

Charm Ndaba Mukuwane is the Chief Consultant at Creative Solutions (Pvt) Ltd. The company is involved in design, training and set up of computerised accounting systems. Mr. Mukuwane is also a Financial Management Trainer for the ILO EYB programme. He can be contacted on telephone 748592, 780857 or email creativesolutions@comone.co.zw.

oThe EYB locally is coordinated by the Zimbabwe Institute of Management. They can be reached on Tel 705291/2, Fax 731477 and e-mail info@zim.ac.zw.

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