Financial management often plays an outsized role in business success. How you manage your company’s finances has a direct impact on the bottom line, determines how you build business value, and defines your image in the eyes of investors, partners, lenders, appraisers, and purchasers.
Anyone assessing your business will want to see sound financial systems and understand your numbers. The right tools put your resources to the best use, communicate your level of financial confidence to external players, and demonstrate the value-creating edge that will make your company stand out.
Financial management tools checklist
Five important sets of tools will help you strengthen your financial position.
Toolset #1: Reporting and analytics
Financial management starts with having the analytic tools to monitor and distill data into financial key performance indicators (KPIs).
There’s been an explosion of data spanning markets, customers, operations, and financial transactions. Financial sophistication comes from turning that data into snapshots and reports, highlighting the business implications, and communicating them broadly.
- Automated reporting and business intelligence systems assemble information from different systems into a real-time view. Often using enterprise resource planning (ERP) systems as a backbone, these systems consolidate financial accounting (general ledger, payables, receivables, budgeting), human resources (payroll, recruiting, 401K), manufacturing (inventory, workflow management, cost control), and customer relationship management (CRM) data. Business intelligence features, like dashboards that graphically display specific KPIs, can furnish data on the fly. That means less time on day-to-day reporting and more time evaluating opportunities.
- Continuous budgeting supports decisions based on real data and current market conditions. Business intelligence and ERP systems can assist in the shift from annual to monthly or quarterly forecasts
- Online banking helps with reporting and analysis of daily financial transactions. Capabilities range from simple online banking to full-featured treasury management systems.
- Break-even analysis finds the level of sales your company needs to fulfill obligations and sustain operations. More advanced, break-even analyses allow you to model different conditions (raw materials cost, labor costs, economic conditions) and business strategies.
- Audited statements provide an objective third-party assessment of financial statements for added confidence.
- Inventory management systems keep inventory levels in check, reduce carrying costs, and pinpoint obsolete items.
- External industry analysis helps you understand the future of the industry, emerging competitive issues, and benchmarks.
Toolset #2: Cash management
A strong financial team understands the forces that move cash. Visibility into cash flow, control over its movement, and predictability over its levels are minimal expectations. Useful tools include:
- Cash position banking like zero-balance accounts automatically pool funds into a single account each day, reducing idle cash, and allowing for easy transfer into overnight investment vehicles or loan paydowns. A controlled disbursement system provides early, same day reporting of all checks presented for payment to determine cash needs for that day.
- An active chief financial officer-chief risk officer partnership brings an integrated approach to risk management. A close partnership between finance and risk helps steer the business to achieve better risk-adjusted returns that align with strategic goals.
- Advanced cash planning positions your company for the best cash use. Forecasting cash needs allows you to secure the right forms of capital, take advantage of term investments, or leverage opportunistic inventory buys.
Toolset #3: Accelerated receivables
High functioning collections and receivables operations keep cash flowing. Days sales outstanding (DSO) reductions improve cash flow and lower working capital needs.
- Automated account receivables through a CRM or ERP system attaches all information to invoicing, including purchase order numbers.
- Enforced payment policies assess interest and late payment penalties consistently. Educate your sales force on supporting consistent payment policies with customers.
- Banking payment platforms like Automated Clearing House (ACH) debiting speed up collections. Merchant services expands your payment types, making it simpler for your customers to buy. Wholesale lockbox provides fast processing of mailed payments and access to funds.
- Accelerated invoicing starts the payment process earlier. Get the invoice out faster with point of service payment and invoicing, electronic email/messaged invoices, sales contract-triggered invoices, and online bill presentment.
- Outsourced billing services can reduce operating expenses and deliver higher collections rates and better cash flow.
Toolset #4: Controlled payables
Accounts payable (AP) can use the latest tools to gain control over cash outflows and trigger when invoices are paid and how.
- Payment services provide efficiency and streamline processes. ACH payments are inexpensive to process and give you control over payment timing. Integrated payment processing systems combine payments into a single payment stream and send them to vendors using the best route.
- Improve days payable outstanding (DPO) by making sure that your purchasing professionals negotiate with vendors and set payables terms. Finance and purchasing should work closely to benefit from the terms extended by your vendors.
- Automated payables lower invoice processing costs and posting cycle times. A paperless processing environment takes advantage of automation for invoice scanning; electronic invoicing, payment, and approvals; and automatic purchase order generation.
- Purchasing and virtual cards can get your vendors paid faster while extending favorable payment terms for you. As an electronic payment, purchasing cards boost accuracy while reducing costs from errors and late payments.
Toolset #5: Expense management
Expense management is as much a necessity for expanding businesses as it is those watching every penny. Efficiency boosts and lower costs come through the continuous search for cost cuts and improvements.
- Corporate card and integrated spending platforms all work together to control, amalgamate, and streamline company-wide expenses while uncovering savings opportunities.
- A spend optimization culture keeps everyone focused on cost efficiency and accountability. Elevate the procurement department to a top position in the company structure and consolidate sourcing efforts, aggregating spending across business lines for greater purchasing leverage with vendors.
- Strategic outsourcing lets your business stick to what it does best and outsource non-core functions. Advances in cloud technology and software-as-a-service (SaaS) vendor systems provide solutions to small and mid-sized companies looking to outsource HR, PR, legal, and payroll functions.
- Procurement outsourcing consolidates procurement processes by category (IT, HR, marketing, etc.), project, or vendor for scale economies in buying and lower staff costs.
- Vendor management targets negotiation of better volume-based pricing and longer payment terms with important vendors.
- Improved employee financial literacy lifts the business to a higher level of fiscal consciousness. Sharing financial information, processes, and policies across the company provides more buy-in for all staff toward meeting the company’s goals.