Good Financial Management

Good financial management is essential to the survival and success of every business. Unfortunately, many small business owners have relatively limited exposure to financial management and are unaware of how strategically important it is to their business’s performance.

In general, financial management deals with the procurement of funds for a business and the effective use of those funds in the operations of the business. It also involves using accounting numbers to measure the financial health of a business, to understand the reasons for the current financial position, and to make strategic decisions that will improve the general performance of the business.

The best way to demonstrate the importance of good financial management is to describe some of the tasks that it involves:

o Taking care not to over-invest in fixed assets

o Ensuring that there is a sufficient level of short-term working capital to sustain and manage accounts receivables and inventory

o Setting sales revenue targets that will deliver growth

o Increasing gross profit by setting the correct pricing for products or services, reducing the costs of raw materials, negotiating supplier prices, and managing other factors that influence the costs of production or service provision

o Controlling the level of general and administrative expenses by finding more cost-efficient ways of running the day-to-day business operations

o Tax planning that will minimise the taxes a business has to pay

o Managing employee benefits

o Performing financial analysis using numbers generated from financial statements.

Good financial management begins with a solid book-keeping system that will allow for the production of accurate financial statements. It requires knowledge of how to use the figures in the financial statements to the business’s advantage. For example, a good financial manager should know that a positive net profit and an increase in sales does not automatically translate into financial success. If the business’s borrowed capital has increased at a rate higher than the increase in profits or sales, it means the company is financially worse-off than it previously was. Are you and your management team aware of this?

There are many other strategic mistakes that managers who are unfamiliar or untrained in financial management make. Over time these mistakes can become detrimental to a business’s success and survival so it is crucial that you learn as much as possible about how to financially manage your small business. If you have trouble with this, you may want to consider soliciting the services of a professional who knows the ins and outs of the process.

For more information on financial management, have a look at my article “Impress your bank manager! How to read your profit and loss account report”.

Property and Financial Management

Property and financial management are both important aspects when you own commercial or residential real estate. There are many things to consider when trying running an organization or association, and many little things that need to be taken care of behind the scenes. This is why most associations will hire a management company to take care of things both little and small, so they can focus on dealing with homeowners and board members, instead of worrying about landscaping, security, and other maintenance issues that can become a nightmare. Placing the right personnel to run something smoothly will be the key to keep an association happy, and to keep members of a neighborhood or board of investors happy.

Some functions of the financial aspect of a management company are to collect paperwork and document everything accordingly. It is also their job to collect all fees and dues that are due each month from homeowners. If a homeowner is behind on paying their association fee, they will have to be properly warned and notified before fees can be issued. The financial management company will take care of all the paperwork during this process, and will be in charge of fines being sent to that specific homeowner. This part of management will also take care of paying out any services that have been hired by the management company, such as maintenance and repair work.

Property management works hand in hand with the financial aspects of the association. They take care of contracting on people to take care of the property. They will make contracts for yearly maintenance, monthly maintenance, and emergency maintenance. They will also take care of complaints from people who pay the association fee, such as streetlights that no longer work, or other problems. They will also be the ones who take in the bids of contractors looking to perform necessary work for the association. Everything that they do, they will send their bills and paperwork for the financial management team to take care of.

Property and financial management is very important to keep everything running smoothly for an association. This is also a big concern of homeowners. People who are living within a neighborhood want to be reassured that their association fees are being put to good use by hiring these types of companies to take care of their concerns, their requests, their association fees, and to make sure that the neighborhood is safe and worth living in.

The Importance Of A Good Management Team When Investing In A Company

I am regularly asked by clients and investors of the importance of company management. When deciding to invest in a company, out of all the attributes and qualities that we review, we first focus on how important are the people in charge. Secondly how do we measure this?

Some of the attributes and qualities that we look at when reviewing a share investment include: are debt levels under control? And, what is the growth potential? However, these review factors quickly become meaningless if there is not a strong and trustworthy leadership in place.

People in managerial positions have a tremendous impact on the success, or failure, of a business. Their vision, leadership and abilities all combine to determine the future of the business.

One such person, who is often singled out as a strong leader in New Zealand, is Don Braid from Mainfreight. The company’s success is based around the unique culture among staff, which is demonstrated from the top, by management. Having a strong company vision and a focused strategy are both critical to business success.

So the answer is a resounding ‘yes’. Quality management is crucial and is top of the list when deciding which companies belong in our clients’ portfolios.

In answer to the second most popular question: how we measure this, is a lot harder to answer. Quantitative and financial review factors are easier to see and therefore measure – these can be put into spreadsheets with forecasts applied. Measuring intangible quality factors associated with management however, is much more difficult, yet arguably somewhat more important.

So what are some of the quality factors we look at in company leaders? These include:

– someone who is very focused on delivering shareholder returns
– someone who knows their businesses intimately
– someone who has a track record of success
– someone who can provide transparent and open communications with shareholders
– a disciplined, sensible approach to business growth

Many companies do not succeed because they take an overly aggressive approach to expanding, or by buying good assets but paying too much and getting the business into too much debt in the process. Large transformation decisions, such as strategic acquisitions are not bad, they just require some added scrutiny.

A lot of successful companies have management teams that have remained stable for a long period of time. While a new approach can often refresh a business, continuity is also critical. We look for managers who have been part of a company’s team in charge for a reasonable length of time. Having an equally competent team is another important factor and a good manager will surround themselves with such a team. This is also a factor we look for. The alarm bells start to ring when there have been a lot of different executives.

We also look for management that has a history of doing what they say they will do, supported by financial forecasts with. It is additionally a good sign when a CEO and managerial team have invested their own money into the business. This not only demonstrates that their interests are aligned with their shareholders, but ensures that management shares the successes and failures with shareholders.

Investing in a company equals investing in the team in charge of running it. It doesn’t matter how good the assets or prospects of a company are, it can fail to deliver if managed poorly.