April 15, 2019 Corporate News

4 Steps to Financial Management

Overview of Financial Management for Small & Medium-sized Businesses

Businesses with fewer than 100 employees experienced the highest percentage (29%) of incidents of fraud and suffered the largest median loss ($200,000), according to The 2018 Report to the Nations by the Association of Certified Fraud Examiners.  Although smaller organizations have limited resources, it is critical for business owners to establish a strong financial management structure.  Good financial procedures and systems allows you to monitor the profitability of the business, evaluate the impact of management decisions on the financial condition of the company, and reduce the risk of fraud.

Building a Financial Management Structure

The four major components to establish a financial management structure are:  create a budget, establish a bookkeeping system, develop a monthly close process and review financial statements.  Analyzing the basic financial statements (income statement, balance sheet and cash flow) on a monthly basis 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.

2. Establish a Bookkeeping System

Bookkeeping is a structured method for tracking and recording all of the financial transactions for the business, both cash inflows and outflows.  Software can be purchased to assist with this process.

3. Develop a Monthly Close Process

After the monthly closing date has been established, it is important to follow the same standard procedures to close the books every month.  Creating a list of standard journal entries will help ensure consistent and accurate financial reporting.

4. Review Financial Statements

Financial controls play an important role in helping to protect the business resources and minimize fraud.  A number of areas to consider implementing controls are:  segregation of duties, check writing authority, access to credit cards and ATM cards, and system access.  Small and medium size businesses should start with a clear segregation of duties between accounts receivable and accounts payable, check writing and check signing.  Two or more employees, or you as the business owner, should be involved in the authorization, documentation, execution and recording of transactions.  Consider hiring an outside accountant/bookkeeper to assist with and review financial transactions.

Once all journal entries have been recorded, generate a trial balance.  A trial balance is a listing of all general ledger accounts and their period end balances.  Balances should be reviewed to confirm all entries have been posted correctly and all balances are accurate.  Account reconciliations should be performed to ensure all account balances agree to supporting documents (bank account statements, credit card statements, escrow balance statements, etc).  Adjusting entries should be recorded if necessary as a result of the reconciliations.  The final trial balance is then generated.

The final trial balance can then be used to create monthly financial statements.  It is important for the business owner to thoroughly review these financial statements monthly.  Analysis of actual results against the budget is critical to assist in operating your business more efficiently and making better decisions earlier.


These four areas 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.

For more helpful resources for small businesses, visit the U.S. Small Business Association.

Cynthia Lawlor
Written by

Cynthia Lawlor

Chief Financial Officer

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