It is the New Year and time for resolutions and a fresh start. Let us look at a few simple financial management resolutions your RI business can keep. It is critical for business owners to establish a strong financial management structure. Good small business financial procedures and systems allow you to monitor the profitability of the business, evaluate the impact of management decisions and reduce the risk of fraud.
Building a Financial Management Structure
The four major components to establish a financial management structure are: creating a budget, establishing a bookkeeping system, projecting cash flow, and reviewing financial statements. Analyzing the basic financial statements (income statement, balance sheet, and cash flow) monthly and comparing actual results against budgeted amounts allows business owners to understand the financial health of the business.
1. Create a Budget
Creating a budget is the place to start. The budget is a list of your expected monthly or yearly revenues and expenses, organized by categories and helps a business owner plan for the future.
2. Establish a Bookkeeping System
Bookkeeping is a structured method for tracking and recording all the financial transactions for the business, both cash inflows, and outflows. Software can be purchased to assist with this process.
3. Forecasting Cash Flow
A cash flow forecast helps the business owner determine if future cash receipts will be sufficient to cover expected cash outlays. Additionally, understanding the cash position of a seasonal business is critical.
4. Review Financial Statements
It is important for the business owner to thoroughly review the financial statements monthly. Analysis of actual results against budget is critical, it provides feedback on how well you are managing your business and also provides information that will help you make better decisions earlier. Additionally, a review of the financial statements can play a significant role in helping to protect your business resources and minimize fraud. Several areas to consider implementing controls are segregation of duties, check-writing authority, access to credit cards and ATM cards, and system access. Consider hiring an outside accountant/bookkeeper to assist with and review financial transactions.
These four tips can be used by small businesses to help protect their business assets, provide complete and accurate financial reporting, and provide a sound basis for developing future business plans. These core areas, and their related internal controls, can be enhanced and strengthened as the size and complexity of the business grows.
Not only should your business incorporate smart financial practices, but employers with one or more employees are required to secure workers’ compensation insurance coverage in Rhode Island.
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* This article was recently featured in the Providence Journal.