The lack of financial control and planning is the main reason that many companies close their doors before they reach the first years of operation. The inexistence or even the insufficiency of a financial plan makes it impossible for many organizations to direct, control and coordinate actions for the execution of their objectives. Importantly, financial statement plans short-term defray the financial plans of long-term, helping to guide the best growth alternatives, prioritize financial goals to and give a direction more assertive for the company. Managers who use long-term financial statement planning as a guide in repairing operational excellence plans can carry out cash, profit or even sales forecast planning for a period of 2 to 10 years, which means forecasting the market and establishing strategies that can stop obstacles that hinder growth.
Among the decisive elements for the finance function of small and medium-sized companies, financial statement control and planning stand out, both indispensable tools for organizing, controlling and conducting business. But what is the importance of having them in the company’s routine? Keep following our post and find out. Come on!
What is financial control, after all?
The financial control is essentially a set of actions used to verify that what was established in the plan is being implemented and what measures are needed to correct possible failures and accounting errors. In general, companies seek to implement simple financial control business process before they even have good planning and budgeting structures, basically finance function as a “test” period. Managers who use financial reporting generated from equity financial information and the cash flow situation can assess the company’s real financial condition and know, exactly, when to make investments or not eliminate cash, working capital and other deficiencies problems that may compromise operational excellence activities.
Among the main methods of Financial Control, the following stand out:
Cash flow ;
Budget financial management;
Analysis of the point of Balance and Profitability ;
Income statement for the Year;
Cost financial management.
Planning means forecasting the actions to be carried out, in addition to estimating resources and defining strategies for the objectives to be accomplished. The great accounting errors of many managers is not to keep track of all their financial transaction, be it the payment capacity, financial commitments, projections of purchases and sales, expenses and costs in the execution of operations, working capital, available resources. and so much other financial information. Without this control, it is impossible to reduce costs without losing efficiency, thus making it impossible to increase profit.
How important is it to combine financial control with planning?
It is through financial control that a company remains active and operating in the market in a sustainable manner; after all, it is difficult to execute any type of operation with zero cash or even without good working capital . The financial control and planning are inseparable tools, ie, we need to plan your finances and control every step of its implementation, so that we can have a full control of the capital employed and thus able to analyze the financial health of the real business . Here is the rule: it is not enough to just register each financial processes transaction of the company , it is necessary to monitor and track each entry – and this is one of the finance function of financial control . We are therefore talking about a cyclical business process . After all, to carry out a good planning , we always need to rely on concrete financial data, which will be used to define goals , objectives and action plans . All of this financial data is collected during the analysis of performance indicators , which occurs during the business control phase.
What are the benefits of financial processes control?
First, it is important to point out the benefits of financial processes control. Thus, in addition to realizing the advantages of carrying out this type of operation, we also check each of its details – such as its relationship with the important planning phase. Are we going to know some of these benefits?
Integration with business data
The financial control is the first step to make efficiency integration of company financial data and prevent the chaos initiate between the financial management and the different accounting department. For this, in addition to organizing all the financial information on cash flows and the income statement for the year ( DRE ), we must also count on the support of technology, after all, with it, we can do the whole business process faster.
Streamlines decision making
Another great advantage of having effective control of finances is that, with the data organized, we can quickly consult them to make decisions at the right time. This avoids reactive management, which only puts out fires, giving way to proactive management.
Performs accurate feedbacks
Finally, another great benefit of the control activity is the fact that the manager can provide accurate feedbacks with the managers and other employees. After all, he will have the information he needs in real-time and will be able to correct the course whenever he deems it necessary. Thus, employees remain informed and management is more active.
What are the benefits of planning?
The planning can also bring a number of advantages for the management of the organization. By the way, many experts point to the lack of planning as one of the main causes of early closure of national companies – after all, without data, many end up conducting the business based only on intuition. Let’s check out its benefits?
Draw a direction for management
It is much easier to move towards progress when we know exactly where we are going. With the information gathered in previous exercises in the control activity, we can know exactly what to expect for the next periods and follow a safer path.
Assess the internal control and external environment
As we have seen, the control activity can provide us with a lot of information about the internal environment, which is excellent for decision making. However, it is in planning that we also make an assessment of the external environment. Economic indexes, surveys of renowned financial institutions, in short, all information is welcome to outline our internal control plans.
Develop control methods
Finally, remember that we mentioned that the relationship between planning and monitoring occurs in a cyclical manner? Yes, after all, it is in the planning that we will define the control methods that will be used to, later, acquire information for new planning. In addition to performance indicators, we must also define which tools will be used for monitoring.
How to get started with financial control
If someone asks, “What are the most important initial financial controls for a company? ”What would your answer be? Here, we will analyze the minimum monitoring processes that must be taken into account in order to protect and preserve a company’s asset. What the entrepreneur must establish, in addition to planning and monitoring, is to define meticulously what the financial limits will be, which, if exceeded, could cause damage to the company. These limits will be like your “watchdog”. One of them, for example, may be the control of the cash flow budget, income statement and expenses. Planning and monitoring these basic finance points can be crucial to protect the company or alert about the daily needs of the business. Being an entrepreneur means being exposed to numbers, expenses, earnings and decisions daily. If the company has concrete and confident data, it is possible to gather enough information to make future decisions. Much of this information is obtained with financial control, that is, the purpose of financial control is to be as accurate and realistic as possible. The early years for any new business are extremely important for long-term success, with many challenges to overcome and lessons to be learned.
Liquidity problems and poorly managed finances are the main causes of business failure in the early years. Some companies fail to plan properly, some forget to be realistic, do not keep track of costs, others fail to collect pending payments. Therefore, it is necessary to keep in mind that it is no use for the company to have a series of data if they are not organized. Mainly have these answers very clear, whether in a spreadsheet or a financial control application:
What is the total amount receivable from customers?
How much do I have to receive in the following months?
Do you have an overdue amount? What is the overdue amount over 30 days?
Who are the customers who are not paying on time?With this, it is possible to maximize the chances of business success by being aware of the pitfalls. You can manage your company’s finances carefully and keep a close eye on your cash flow. Taking sensible and practical measures will help to control expenses and ensure that your business does not take excessive financial risk. Here are some useful tips for getting started :
Make financial planning and forecasting
Develop a clear financial plan or structure to keep track of the finances that enter and leave your company. For example, a spending model for your business can be done as follows:
50% of revenues used for expenses (such as payroll or materials – direct costs);
30% of revenue in building the business (such as expansion, new equipment or recruitment costs);
20% of revenue for the future, for the development of new products and services;
Different methods or plans can be used, depending on how your company works best. You need to discuss this with your accountant or partner. Regarding forecasts, don’t be fooled or brainwashed into making a forecast for more than 3 years. A decision can change all the circumstances of your business, and when it does, remember to change your financial planning as well. Try to make some simple predictions of your business. Be realistic and estimate how much you will sell and how much you will spend. It is possible to rely on research on business in the same area as you, for example data from your competitor. Connect these numbers to your financial plan and see if the results are positive. If not, you may need to change your plans, such as looking for an investor or taking out a loan.
Be ambitious but realistic
Ambition and enthusiasm are important characteristics for entrepreneurs and managers. But it is necessary to stay focused to make rational financial decisions based on facts. When you open a new business, the feeling of financial control can be great. But with that comes responsibility. Some decisions may be good, others less so. Like any other area of life, learning to run a company comes through experimentation, successes and occasional mistakes. However, successful entrepreneurs have two things in common – they learn from their mistakes, and make mistakes small enough that they are able to recover financially. So always have a plan B up your sleeve.
Plotted cash flow
Good management software can create graphs with the input data (sales of goods or services) and outputs (accounts payable) for your business. If you look at this information over a period of weeks and months, you will have an idea of the cash flow rates that come in and out of your business. Obviously you need the inputs to be greater than the outputs to make a profit. If you have a long period of high expenses or if your product is seasonal, you need to make adjustments to avoid liquidity problems – restructure to avoid falls.
Some measures to be taken to balance your cash flow can be:
Consider negotiating different payment dates to your suppliers to better align inputs and outputs;
Don’t leave late customer payments open;
Understand the negative impact of having inventory in the office or warehouse – it costs space and money;
Establish a good line of business credit so that you can access extra cash in the short term if necessary.
Manage your company’s debt
Assess your debts regularly. Look at repayment costs, see if your circumstances have changed, and decide whether you need to reduce – or increase – debt financing.
It is important to keep an eye on expenses, with financial reporting of:
Profit and loss;
Balance sheet financial reporting;
Statement of cash flow;
Accounts payable and accounts receivable;
Remember to keep your personal and professional finances separate: use a credit card and separate bank account for business-related expenses. This makes controlling the company’s costs much less complicated.
Managing your finances and cash flow should never be put aside. It must be a fundamental part of your business strategy. To be a successful entrepreneur you must fully understand the numbers that drive your business. This will give you the knowledge you need to keep your business running, and help it grow when the time is right.
Where do you start the strategic planning with standardizing financial processes?
The strategic planning finance processes is like the physical destination, like another city, or a goal in life, like getting a master’s degree. We plan, organize our time and life, gather resources, and draw a map. For a company, the stages of the strategic planning finance processes are not so different. A direction is developed, decisions are made and the necessary resources are allocated to achieve the final objective. The first thing to do is to start with an end in mind. This is very important since if we do not know where we are going, we will surely get lost. Determine who is going, the destination, and what you need to get there.
The steps in the strategic planning finance processes must also include a situational analysis. Before starting with standardisation the strategic planning process, Study the current situation before moving on to the next. Analyze where the company is, why it is there, what are the problems and possible points for process improvement. Only after that can you start thinking about solutions and ways to go.
- Determine goals
- Analyze the internal control factors
- Generate strategic options that address these issues, prioritizing them
- Make a final decision
- Monitor the results of the strategic planning process steps
when applying strategic planning, you start from a Basic planning strategy. This planning is the most basic and in this strategic planning process we
- Identify the purpose
- Identify specific approaches and strategies
- Identify action plans to achieve the strategy
- Monitor and update the plan
What it means to standardizing financial processes in a company?
First, we need to define what it means to standardizing financial processes and why this is such an important move in business strategy going forward.
With the increasingly sovereign inclusion of technology in companies, the market’s focus has changed a lot in recent years: from growth by volume to growth by optimization.
In the case of retail, for example, this new strategy is quite clear. While in the past the plan was to always expand stores and expand the chain, today many companies focus on increasing profit based on quality services and more competitive prices, possibly only by reducing operating costs and cutting processes that undermine productivity.
But this is a strategy that involves all accounting department together if the owner intends to include significant optimization in his business. Standardisation operational excellence processes means creating a logical line and without interruptions from the beginning to the end of the production chain, starting with planning, going through execution until the analysis of results.
How can you work more effectively from home?
The home office is a term that basically refers to the possibility of working at home or anywhere other than the company desk. Most companies have provided their workers with this model that has the following advantages: saving time and money, the possibility of having flexible hours, avoiding traffic, and if you know how to apply it correctly, greater productivity.
you can work more effectively from home if you adopt the following habits.
Establish a work area and equip yourself with everything you need
- Dress for work
- Set yourself a schedule
- Rest, break time as in any office
- Interact with a person and arrange meetings with your colleagues and clients.
- Set yourself daily and long-term goals
- Reward yourself
- Go out and do sports
- Enjoy your flexibility
So you can analyze your productivity level to determine which habits work for you and which don’t. and apply it in your home office task for more effective work.
Why choose to study Acca?
If you feel that numbers and finance are your things, you may want to study Accounting as a professional career. All companies and organizations need a professional with solid knowledge who is capable of organizing finance and resources. If you are looking for a professional career for your future but you still have not decided, and you are also you are interested in finance and want to hold ACCA degree we share some of the reasons why you should study in Accounting department the profession offers great autonomy in the organization of your tasks and time management.
it is a highly valued profession at the business level, the wages paid in the industry are higher than the average.
the professional demand for accountants is always high and professionals in the sector are less likely to suffer unemployment.
this profession has a managerial profile, allowing to become excellent finance team finance leaders through the execution and organization of different tasks.
the profession of an accountant will allow you to collaborate with the economic development of the region, contributing through your knowledge to process improvement the management and administration of asset.
Why do we standardize processes?
The standardized processes serves to understand the behavior of the business and how the finance team is working. Having a standardisation process is a tool that gives competitive advantages to entrepreneurs and companies of all sizes. It not only allows us to know the business in-depth but also to establish indicators that will guide all its activities. we do standardized processes because it acts as an action guide that will facilitate the management of the company’s activities in the following matters:
- Savings in both economic resources and working time.
- Raise the competition potential of the company.
- Minimize project response times, as well as any problems that may arise.
- Increase the individual efficiency of the collaborators and therefore of the organization itself.
- Limit the lines of action for employees regardless of where they are located, either in the centralized office of the company or even in a subsidiary in another country. Everyone will know how to act according to the message the company wants to communicate.
- Prevent human accounting errors due to a lack of information or knowledge about processes.
- Break the language or academic preparation barriers of each employee and outline the same methodology.
- Generate a good business image by all acting under the same standards.
- Strengthen the ties between the same collaborators and the company.
What are the three elements of standard work?
All Lean Manufacturing and Six Sigma practitioners should practice standardized processes Work, which is made up of 3 elements:
- Takt Time
- Work Sequence
- Standard Work in Process (SWIP)
Takt Time is the rate at which a customer buys our product or service. It is also known as the heartbeat or rhythm of the production system, since this time is the speed at which the processes should work, or if it is possible a little lower, in order to satisfy customer demand.
The Takt Time must be calculated with the following formulas:
Takt Time = Net Available Time per Day / Daily Customer Demand
The Work Sequence is simply the order in which an operator performs manual operations (including walking and waiting). This will help ensure that processes are consistent and stable. Whenever possible, we have to eliminate waste of movement, such as trying to reach things, walking more, or any other activity without added value.
Standard Work in Process (SWIP)
And the third element is the Standard Work in Process (SWIP). This time is calculated with the following formula:
SWIP = (Manual Time + Automation of Time) / Takt Time
These 3 basic elements of Standardization process Work are much more important material to share such as graphics, templates, Standardization process Job Combination Sheets, etc.
Give some examples of standardization?
Standardization process is the adjusting or adapting characteristics in a product, service, or procedure; with the aim of making them resemble a common type, model, or standard. Here are some examples of standardization.
Headphones: Headphones have two ways to connect; wired and wirelessly. These two alternatives are standardized to be universal.
Traffic lights: There are different types of traffic lights, but they always have the colors that we all know and that are used anywhere in the world to give us the same indications.
Bank cards: They are made with a plastic material with universal measures and characteristics, so they can be used at any ATM or terminal of stores and restaurants in any country in the world.
USB ports: It is the name of the connection found in various electronic devices manufactured anywhere in the world, allowing easy information sharing.
How to standardize data?
Complete the following steps to standardize columns of data.
- Input column (s), enter one or more columns to be standardized.
- In-Store results in, enter a column number (for example, C1) or a column name for each input column. If the name contains spaces, enclose the name in single quotes.
Select the method to standardize the data:
- Subtract mean and divide by standard deviation: Center the data and change the business unit to standard deviations. For regression analysis, select this method to standardize predictors in order to reduce multicollinearity and to compare the size of the coefficients on a comparable scale.
- Subtract average: Center the data. For regression analysis, select this method to standardize predictors to reduce multicollinearity. This method is useful when your model contains highly correlated predictors, higher-order terms, and interaction terms.
- Divide by standard deviation: Standardize the scale for each variable you specify, so you can compare it on a similar scale. For regression analysis, select this method to standardize forecast variables to determine which predictors have the greatest effect, while controlling for differences in the scale.
- Subtract the first value, then divide by the second: Enter your own values (as known values for the mean and standard deviation) from which to subtract and divide.
- Amplitude creation from start to finish: Transform the data linearly, so that the resulting data has the first value you specify as a minimum, and the second value you specify as a maximum.
Explain the advantages and disadvantages of accounting standardization
Advantages of Standardization
Among the positive aspects of accounting processes standardization we can mention:
- Cost reduction in international investments;
- Ease in international communication with a more homogeneous accounting processes language;
- Capital cost reduction;
- The symmetry of accounting processes information;
- Much more objective accounting information;
- Elimination of uncertainties when analyzing the accounting aspects of an organization.
Disadvantages of Accounting Standardization
Now let’s go to the other side of the coin with the negative points of accounting standardization:
- The imposition of norms and accounting standards without taking into account country particularities;
- The operational difficulty, precisely because it does not take into account the particularities;
- Creating accounting obligations can make it difficult for smaller companies to work.