Financial Management:

Essential Ideas for Business Success...

Financial Management:

Essential Ideas for Business Success...

"There are no secrets to success. It is the result of preparation, hard work, learning from failure." ~ Colin Powell

We have extremely tight financial controls, and a financial planning system that tracks every single important aspect of our financial health. THINK: Yes or No?

Related Ideas:

Accounting... Cash Management... Financial Analysis... Financial Reporting... Loans/Financing... Tax Planning...

Executive Summary...

Financial Management is about keeping track of MONEY... debit and credits to your checking accounts, credit cards, payroll, etc. It is about creating systems to keep an honest set of books and ultimately to:

  • Create WEALTH for the business...
  • Guarantee CASH for on-going business operations and...
  • Provide an adequate return on investment (ROI) bearing in mind the risks that the business is taking and the resources invested.

Basically, there are just two reasons for financial management:

    1) The IRS requires you to keep records of your assets, liabilities, income, expenses and ultimately, taxable profits (How much you owe THEM for all your hard work!);

    2) Your ability to make informed financial decisions regarding the best way to deploy capital... producing the highest Return On Investment (ROI)... the highest Economic Value Added (EVA)... and your ability to raise money either privately or publicly... leading to ENTREPRENEURIAL GREATNESS.. I.E. REAL WEALTH!

According to the American Management Association (AMA,) "Financial Management is the process of managing the financial resources, including bookkeeping, accounting and financial reporting, budgeting, collecting accounts receivable, risk management, planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise."


The financial management function is generally concerned with budget procurement, allocation and control of financial resources. Key objectives are...

Click Here For Lots More On This Function...

  • To ensure regular and adequate supply of funds to your business.
  • Estimation of capital requirements of the company.
  • Management of cash: Cash is required for many purposes like payment of wages and salaries, payment of electricity and water bills, payment to creditors, meeting current liabilities, maintenance of enough stock, purchase of raw materials, etc.
  • To ensure adequate returns to the shareholders which will depend upon the earning capacity, market price of the share, expectations of the shareholders.
  • To ensure optimum funds utilization. Once the funds are procured, they should be utilized in maximum possible way at least cost.
  • To ensure safety of investments, i.e, funds should be invested so that an adequate rate of return can be achieved with minimal risks.
  • To plan a sound capital structure: There should be sound and fair composition of capital so that a balance is maintained between debt and equity capital.
  • Plan financially to achieve company and personal goals, including non-financial company goals such as having the best place to work or offering the best quality products, and owner goals such as security, retirement, or leisure activities.
  • Prepare financially for unknown developments such as new technology, new or improved competition, changes in customer needs, shifts in the economy, or changes in legislation. This also includes planning for the continued life of the company.
  • Determination of capital composition: Once the estimation has been made, the capital structure will need to be decided. This involves short-term and long-term debt equity analysis.
  • Choice of sources of funds: For additional funds to be procured, a company has many choices like-Issue of shares and debentures; Loans to be taken from banks and financial institutions; Public deposits to be drawn like in form of bonds.
  • Investment of funds: The finance manager has to allocate funds into profitable ventures so that there is safety on investment and regular returns.
  • Disposal of surplus: The net profits decision have to be made by the finance manager.
  • Dividend declaration: It includes identifying the rate of dividends and other benefits like bonus.
  • Retained profits: The volume has to be decided which will depend upon expansional, innovational, diversification plans of the company.
  • Financial controls: This can be done through many techniques like ratio analysis, financial forecasting, cost and profit control, etc.
  • Perform analyses to find profitable directions and eliminate unprofitable ones.
  • Handle company finances to maximize profits and maintain liquidity and financial stability, with or without increased sales.
  • Obtain the financial statements you need to measure company success, meet government requirements, and gather information to use in making management decisions.

Just for clarification...

Remember that everything you do in business has a direct or indirect financial implication. Setting up an accounting system, collecting bills, paying employees, suppliers, and taxes correctly and on time are all part of running a small business.

Excellence At This Function Means You Can Say...

  • My business has outstanding cash controls.
  • My business has outstanding tax controls.
  • My business has a fully integrated accounting system including payroll, accounts receivable, accounts payable, inventory control, etc.
  • My business can produce a full Balance Sheet, Profit and Loss Statement, and Source and Use of Cash Report... in 24 hours or less.
  • We never step over dollars to pick up dimes because we have a financial system that informs our every decision.

Improve This Function Now...

This Golden Function is composed of the following sub-functions and actions — things which must be done to guarantee your success.

See a weak spot or area of interest? Click on the action link to dive in and learn more. There's wealth of information behind each click!


1.  FIATAM  Study alternative accounting methods and choose one best suited to industry and stage of business.
2.  FIATBS  Systematize the creation of a company-wide balance sheet and a policy for reviewing it at least once a month.
3.  FIATDP  Maximize depreciation on all company assets.
4.  FIATFS  Systematize the creation of a cash flow statement and a policy for reviewing it at least once a month.
5.  FIATHC  Hire a company to perform all CFO responsibilities.
6.  FIATPL  Systematize the creation of a company-wide profit and loss statement and a policy for reviewing it at least once a month.
7.  FIATWA  Hire an accounting company to review the business once per quarter.

Cash Management

1.  FICGCC  Measure current cash conversion cycle and implement ways to reduce the time period of the cycle.
2.  FICGCF  Identify all factors that affect current cash flow. Find ways to decrease or slow payments out and increase or speed up payments in.

Financial Analysis

1.  FIFABA  Identify, collect and analyze useful business data unique to our company that will assist in making current and future financial decisions.
2.  FIFACA  Perform a formal cost-benefit analysis on the top three new business proposals currently being considered.
3.  FIFACO  Reduce working capital and improve cash flow, control and optimize costs, and manage risks.
4.  FIFADI  Identify, quantify and prioritize discretionary income to create guidelines for the best use of funds.
5.  FIFAEA  Perform a break-even analysis on a new proposed area of growth.
6.  FIFAFE  Hire a coach, mentor, expert, consultant or company to help perform this function.
7.  FIFAFP  Create a financial plan for the next 1-3 years.
8.  FIFAFR  Identify critical financial ratios that define growth or decline of business operations and/or company income and expenses.
9.  FIFAOC  Analyze current use of funds. Find least productive return on investment. Reduce or eliminate this use to free up funds for a more productive use.
10.  FIFARA  Calculate the current cash return on all major assets.
11.  FIFARI  Calculate the current return on cash invested.
12.  FIFAVA  Determine the Economic Value Added to the company over the last 3 years and project current years EVA.

Financial Reporting

1.  FIFRAE  Prepare company books to facilitate an external audit.
2.  FIFRAI  Perform an internal audit to monitor and improve operating results, evaluate internal controls, verify financial records and detect fraud.
3.  FIFRAR  Standardize the process for accumulating data and organizing the format for an annual report.
4.  FIFRBB  Create budgets for every category of costs. Reduce budget line items down to the smallest reasonable category.
5.  FIFRDS  Integrate all financial operations into a single software program.
6.  FIFRFP  Perform a thorough financial projection for how a currently reviewed opportunity or difficulty will impact the rest of my company's finances.
7.  FIFRFS  Master the procedures for creating pro-forma statements to improve the company's ability to anticipate and take advantage of new possibilities.
8.  FIFRIS  Standardize and systemize the accrual of data and the presentation of financial statements that improve the ability to manage.
9.  FIFRMM  Develop and update Financial Management Manual for all financial management responsibilities, activities and processes.
10.  FIFRPR  Establish dedicated dates for periodic financial reporting and review.
11.  FIFRRR  Update investors to current company status and immediate future business predictions.


1.  FILFAI  Present the growth plan to angel investors for new funding.
2.  FILFBL  Get a bank loan.
3.  FILFEL  Perform lease vs. buy analysis of next major capital investment.
4.  FILFFA  Investigate the benefit of factoring company accounts receivable to acquire new funds now.
5.  FILFFF  Secure financing from family and friends.
6.  FILFFI  Make a list of all possible expansion financing and perform a thorough review of each potential source.
7.  FILFGP  Hire person/company to write a grant proposal.
8.  FILFIO  Sell stock in the company through an initial public offering.
9.  FILFLP  Explore the opportunity of leasing company products and services to customers vs. sale.
10.  FILFMF  Search out sources for mezzanine financing.
11.  FILFNT  Collect ideas from everyone in regard to nontraditional financing to explore every possibility of acquiring new funds.
12.  FILFRE  Refinance existing debt.
13.  FILFRF  Sell ownership interests in future income streams.
14.  FILFSF  Secure financing from suppliers including improved terms for repayment.
15.  FILFSL  Get a SBA loan.
16.  FILFSM  Get seed money to achieve the first stage concept of proof of the product or service.
17.  FILFSY  Investigate the possibility of acquiring needed funds through a syndicated loan.

Tax Planning

1.  FITXTP  Hire an accountant to advise on tax planning. Schedule to review the status twice a year prior to the end of tax year.