Do you have set goals of financial management for your company?
One of the most critical aspects of running a business is its financial management.
Business owners need to make several key financial decisions every day that amount to steering the ship, correcting its course, and keeping it afloat in distressed financial weather.
Business owners have to be able to manage cash flow, debt and risk in order to build a strong balance sheet in order to grow their business.
It’s no different for individuals or families who need to be able to achieve their most essential financial goals.
We all make financial decisions in our lives each day when we pay our bills, when we give our kids an allowance, when put money in savings, and when we make a purchase with a credit card.
The issue is whether our financial decisions are made haphazardly, or made deliberately based on sound financial management principles and a long term plan like a business.
The problem for families and businesses, is that, when financial decisions are made without regard to a plan or strategy they can lead to a ship wreck.
Why You Need to Manage Your Finances
Improve Cash Flow: The key to any long term plan is positive cash flow. The better it is managed the more of it is generated.
Cash flow decisions must lead to stricter control of expenditures and better use of revenue. In business, if it is not essential, the money isn’t spent which is a sound principle for personal finances as well.
Reduce Debt: Debt, especially unsecured debt, is very costly.
Businesses only take on debt when it is absolutely necessary, usually when cash flow isn’t sufficient to acquire essential materials.
For a business to be considered healthy, it can’t carry any debt on its books. Debt restricts growth and impeded any progress towards long term goals.
Control Risk: All it takes to scuttle a business is a major loss caused by unexpected events such as the loss of a key employee, a big economic slump, a regulatory fine, or a lawsuit.
Personal financial plans can be derailed and personal finances upended with any number of unexpected events that could disrupt your income or result in a catastrophic loss.
Sound financial management includes managing and controlling risk. Having adequate insurance coverage and an emergency fund are fundamental to healthy personal finances.
Balance Sheet: All of these financial management measures are important to building a strong balance sheet in which assets grow and debt balances shrink.
The two added together are your net worth which is, essentially, your report card of your personal financial management.
A personal financial plan is essential if you are serious about achieving your financial goals, however, absent the disciplines of financial management, your ship may never come in.
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