Every small business requires a standardized financial control system in order to keep track of the cash flow.
However, some SMEs continue to overlook the importance of financial control when starting a business.
Hence, they will have to deal with numerous data errors, internal fraud, bankruptcy, and other issues.
As you read through the article, you’ll discover a lot of helpful tips for small business owners in managing their finances.
What is the significance of financial control for SMEs?
Financial control is a part of the company’s management system which allows them to achieve liquidity.
When an effective financial control system is in place, the overall cash inflows and outflows are monitored and planned which results in efficient operations.
For instance, if your company is going to hire new employees, you must first decide on the position and the number of employees you want to hire.
However, you must return to your company’s financial capabilities so that you don’t exceed your budget. This is essential for your company to understand, so that salary distribution does not become a controversial issue in the future.
Another example is that when you open a new restaurant, you must ensure that your financial forecast is updated every time you make a purchase.
It is advantageous if you are able to acquire good financial skills, which may help in increasing the profit of your business. Most restaurants do not have a good financial management system.
Therefore, by setting clear financial goals for your company, you will be able to run it successfully in the future.
Three reasons why financial control is so important to manage expenses and grow a business
- Profit & Loss statement
A profit and loss statement, also known as an income statement, describes in detail your company’s income and expenses over a particular timeframe. It also assists small businesses in determining their next steps to increase company’s revenue.
- Balance sheet
A summary of a company’s financial statements, including what it owns (assets) and what it owes (liabilities). In other words, it monitors the company’s performance and keeps track of all outstanding debts.
- Cashflow statement
Cashflow statement determine whether a company is profitable over a specific time or not. Also, it helps manages a company’s cash flow liquidity to clarify how changes in the balance sheet accounts affect the cash flow.
What is the importance of cash flow management in scaling a small business?
Cashflow management tracks how much money is coming into and out of the business. It helps to predict how much money will be available to the business in the future.
Therefore, you’ll be able to determine how much money you’ll need to pay off debts based on your financial statements.
Is it necessary to employ an accountant in a small business?
It depends on the size of your company. An accountant assists the CEO and Board of Directors in focusing on business activities. Their role is to provide strategic advice on how to improve your company’s performance.
They eliminate administrative tasks that can divert attention away from the core business. Having an accountant means that the business can operate with greater financial clarity and confidence.
What should SMEs keep in mind prior to an audit?
SMEs should keep a proper accounting records before an audit is done. The purpose of performing an audit is to allow the auditor to express his or her opinion.
The expression could refer to whether the financial statements have been prepared in accordance with International Financial Reporting Standards.
In addition, an auditor can provide a true and fair assessment of all material matters.
Three procurement rules and guidelines that every SME should communicate to its employees
- Implement a clear procurement process
A clear procurement process can provide businesses with better references regarding the goods or services purchased for your company. This procedure usually involves detailed planning and payment processing, which can be separated into several categories depending on the existing business requirements.
- Automate the procurement process
Procurement Automation boosts business efficiency by streamlining purchasing processes and reducing time spent on them. Also, payment processes can be streamlined by automating the quote-to-supplier invoicing procedures.
- Make a purchase pre-approval request.
Before you purchase anything for your business, you must first obtain purchase approval. By that time, you should be able to request pre-approval to avoid making any purchases that are not necessary for your company.
Every SMEs is obliged to adhere to procurement compliance protocols. On top of that, you must develop an effective risk management strategy for your company in order to protect it from any unfavorable situations.
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