What is money management and why is it crucial for your business?
Money management is a strategic asset-management technique to ensure the highest interest-output value for any amount of money spent. Financial management is a vital part of business' success that yields many benefits. If your company embraces money management, you can:
- Establish expense control and save on unexpected and impulsive purchases;
- Plan for large expenses without increasing your debts;
- Analyze your business and identify financial bottlenecks that keep your company from increasing revenue;
- Find new ways to improve operational efficiency and locate untapped revenue streams.
Corporate money management requires immaculate attention to detail and systematic approach. While you can assign several employees to fulfill the financial management roles, specialized software will automate mundane tasks and generate new business opportunities.
Two sides of money management: Accounting and planning
Money management comprises two facets of equal importance:
Accountant's and expense reporting analyst's salaries are high, so few small companies can afford to hire both. Due to legal requirements and the need for tax reports, most businesses hire accountants and forego analyst salary.
How to perform business financial analysis?
Accounting for actual costs is not enough to run a successful business, planning is necessary to secure the required resources and funds. Financial plans rely on accounting data: weekly expense report, income statements, and information on vital operational assets and resources.
If you offer products, you need to identify their initial cost, delivery expenses, personnel wages, rent, utilities, and other charges. Once you know the amount of money spent and received from customers, you will clearly see the profit margin. If you offer services, identify the resources you utilize and their cost to get a clear view of your revenue.
Financial planning includes several critical stages:
P&L and cash flow analysis will let you see the big picture of your business' financial situation. After three to six months, you will be able to:
- Identify the products and services that possess the largest profit margins and bring most of the revenue;
- Get rid of the products and services that don't generate enough revenue;
- Manage your expenses to minimize them;
- Plan large purchases of new equipment, etc;
- Realize the seasonality of your business and account for it;
- Rethink your business expenses and find new ways to increase efficiency.
Even a surface financial analysis will provide you with a new perspective. However, financial planning and accounting take time and attention. If your salary expense budget doesn't allow for an in-house financial analyst, automated financial management software can make the job manageable for your accountant. Efficient integration of bookkeeping and analytical software will ensure the accounting and contract data is automatically derived and processed to generate financial plans and reports.
How to automate business expense management?
According to a survey by Turnaround Management Society, inadequate accounting practices, and faulty financial planning cause <medium>36% of business failures.<medium> Whereas the use of money management software makes accounting and planning more precise and efficient. Moreover, the Association of Chartered Certified Accountants has found that detailed cash flow information makes your business more creditworthy and investable.
If you run a small company, the only money management tool you need is Google Sheets or Microsoft Excel. But once your business grows, expense report spreadsheet will not handle the increased amount of data, and the number of mistakes will increase.
Startups and established software providers alike developed dozens of financial management applications for business owners. Quickbooks, Expensify, Xero, Square, InDinero are among the most popular expense managers for the Web in Europe and the USA.
When choosing the right timesheet and expense management software for your business, it is vital to consider multiple factors besides the cost, even if your budget is meager. Start with a demo or trial period, if it is available, and assess these parameters before purchase:
On the downside, mainstream business solutions are often complex and require deep technical skills to manage settings and training to teach personnel to handle the variety of features. As a result, these applications are not suitable for most small businesses.
If your budget allows it, creating a custom expense manager for Android, iOS or desktop is the best option, since it will meet your business requirements and solve specific problems your company faces. Developing a prototype will cost only $10,000 to $15,000, and once the app is in use, you can reap the benefits and invest more in upgrades.
Do you use software to manage business finances? Have you ever tried an expense manager iOS app? Share your experience and ideas for future articles in the comments and spread the word on social media. Check out our previous articles and subscribe to be the first to read new posts on Freshcode blog.