Financial management can be very different in a developing company and a huge corporation with tens of thousands of employees. Nevertheless, sometimes aspiring entrepreneurs trying to streamline the flow of money in a company looking for an answer in corporate financial management systems.
They are built on universal economic laws and principles; they are not suitable for all organizations. For example, many of the financial management tasks of a large company simply do not exist in a small one. The same is true the other way around: the startup company has vital aspects of financial management, which fade into the background in the corporation.
Exhaustion of Funds
The first stage of financial management is the creation of a financial and business model. By creating them, the entrepreneur evaluates the needs of the market, works out his proposal, evaluates resources and profits.
The financial model includes investment and an operating component. Investment speaks about what investments are needed to start a business, at what speed, and in what volume these investments will be returned. And the operational component shows how the invested capital will bring profit. Creating a financial model is a separate big task, which we will pay attention to in other posts.
So a business starts with some investment capital. It can be the accumulations of founders, partners-investors, “business angels.” In traditional spheres, one-time capital injection is most common; several stages of investment characterize startups.
At an early stage, having received funding, the company begins work on the launch of the project. This starts a process of business establishment, which may encompass anything from renting a place for a retail store or developing an online platform like paper writing service MasterPapers.
As the creators and ideals of the smart startup movement Steve Blank and Eric Rees, pointed out, a key aspect of this stage is cost management and account balance control. This aspect of financial management is also referred to as “running out of funds.”
The entrepreneur must predict the date when the company is expected to run out of money at any given time. Then, with this date in front of our eyes as the point of separation from the ground on the runway, the team must solve the assigned tasks with the resources allocated for this.
The entrepreneur must understand what needs to be done and when the project starts to make a profit.
Cash Flow and Liquidity
As soon as a company starts selling goods or services, it operates with positive and negative cash flows. They are directly related to the conduct of the core business. In a traditional business, this stage begins immediately after the appropriate infrastructure has been prepared with investment money.
Innovative – when a company starts generating small income at the hypothesis testing stage, but many investments will be required to finalize the product and scale the business. In both cases, from the point of view of financial management, the management of operating income and expenses appears.
Different markets have different rules for payments and settlements: prepayment or post-payment, breakdown of payments in installments, and others. In addition, the company always has expenses that are not directly related to specific receipts. As a result, any company always lives in the regime of successive receipts and write-offs from the account.
In a new-to-market company with few commitments, it is relatively easy to manage the flow of receipts and payments. However, as the number of transactions grows, another aspect of financial management emerges – liquidity management of the enterprise. Online platforms like MasterPapers, especially with high traffic, need to have liquidity under tight control.
In a large company, this is a complex process that an entire department can handle. In a small company, as a rule, everything is simpler but no less important. The essence of liquidity management boils down to the fact that an entrepreneur must always keep the company’s balance sheet positive and avoid a cash gap. It is necessary to plan income and expenses, note the expected receipts and necessary payments, calculate the balances for a future date. If there is a likelihood of a shortage of funds, agree on deferred payments, stimulate payments from customers.
Financial Result and Profit
There are many different financial indicators. But the key indicator is known to everyone – this is profit. Of course, when businesses spend too much from their income on marketing and customer bonuses, like so, GradeMiners.com Introduces Rush Order Essay-Writing Service – the profit won’t be big.
So, initial profit calculation is at the heart of building a financial model. However, the model should not remain a file that the team laid out at the start of the business and forgot. Instead, it should be checked against the fact of expenses and income for each period optimally if it is a monthly period.
If the fact differs from the plan, the profit rate is not met, the model needs to be adjusted to fit the realities. Only by constantly planning and checking the achievement of the plan can the company grow and remain financially stable at the same time. The result that you add up based on the difference between receipts and payments in a particular month or quarter is not necessarily a profit.
At first glance, a growing company faces many challenges in terms of financial management. It is necessary to spend investment funds competently, plan cash flow, avoid a cash gap, and manage profitability. Each of these aspects is important in its own way; each, depending on the stage of the company and the situation, requires special attention. However, everything is not as difficult as it seems at first glance if there is financial discipline. If you keep constant financial planning and accounting from the very beginning, then the growth and development of your business will become more transparent and manageable.
About the Author
Everyone knows that Stan Wright is the man! You’ll find no better expert across the subject matters Stan specializes in. Helping students succeed in college since 2015, Mr. Wright is someone you can trust with writing your essay 110%. “What a fantastic writer and an affable lad!” – says one of Stan’s customers, pretty much summing up his whole professional attitude and a positive, yes-can-do demeanor.
You may also like: A Guide to Financial Mis-Selling
Image source: stock.adobe.com