The Importance of Financial Management

Effective financial management is a fundamental component of every successful project, particularly in HR.

In HR, resources are often more limited (given this wrong notion that HR is a “cost center”, when in reality it is a profit center) and the demand for cost efficiency is ever-increasing. Therefore, the ability to carefully and systematically plan, allocate, and manage budgets effectively can make the difference between the success and failure of an HR initiative, and, in fact, the success of HR in the long run.

It is essential for HR to not only manage costs but to also demonstrate the tangible and intangible value their projects bring to the organization. This is especially true at a time when organizations and leaders seem to be increasing their understanding about how critical it is to align their people strategies with overarching business goals for long term success.

Now, budgeting in HR projects involves more than just crunching numbers; it requires considering every facet of the project, from resource allocation to risk management. This ensures that the project is financially viable and that it can deliver on its promises without exceeding its financial boundaries. Moreover, with the growing emphasis on accountability and transparency, HR leaders are increasingly expected to justify every dollar spent, making cost management and ROI demonstration integral components of the project lifecycle.

Financial management should become part of the key processes within your business and be included in your ongoing planning.

You might feel that your finances are complicated and confusing but the following ten top tips should help you to gain control of them.

1. Have a clear business plan

A business plan will establish where you are and where you want to get to over the next few years.

2. Monitor your financial position

You should regularly monitor the progress of your business. On a daily basis, you should know how much money you have in the bank, how many sales you're making and your stock levels. You should also review your position against the targets set in your business plan on a monthly basis.

3. Ensure customers pay you on time

Businesses can run into major problems because of late customer payments. To reduce the risk of late or non-payment, you should make your credit terms and conditions obvious from the outset. You should also quickly issue invoices that are clear and accurate. Using a computerised credit management system will help you to keep track of customers' accounts.

4. Know your day-to-day costs

Even the most profitable of companies can face difficulties if there isn't enough cash to cover day-to-day costs such as rent and wages. You should be aware of the minimum your business needs to survive and ensure you do not go below this.

5. Keep up-to-date accounting records

If your accounts are not kept up-to-date, you could risk losing money by failing to keep up with late customer payments or not realising when you have to pay your suppliers. Using a good record keeping system will help you to track expenses, debts and creditors, apply for additional funding and save time and accountancy costs.

6. Meet tax deadlines

Failing to meet deadlines for filing tax returns and payments can incur fines and interest. These are unnecessary costs that can be avoided with some forward-planning. Keeping accurate records saves your business time and money and you can be confident that you're only paying the tax you owe. Therefore, it's important that you meet your obligations.

7. Become more efficient and control overheads

Is your business operating at its most efficient? Saving energy and therefore money can happen by implementing changes in behaviour and using existing equipment more efficiently. It's one of the easiest ways to cut costs. Areas to look at in an average office include heating, lighting, office equipment and air conditioning effociently.?You should also consider how much you’re spending on premises as they are often the biggest overhead for a business. You could also think about travelling less and working remotely.

8. Control stock

Efficient stock control ensures you have the right amount of stock available at the right time so that your capital is not tied up unnecessarily. You should put systems in place to keep track of stock levels - taking control of this will allow you to free up cash, while also having the right amount of stock available.

9. Get the right funding

It is essential that you choose the right type of finance for your business - each type of finance is designed to meet different needs. Smaller businesses usually rely more on business overdrafts and personal funding but this might not be the best kind of funding for your company.

10. Tackle problems when they arise

It is always very stressful facing financial problems as a business, but there is help and advice available to help you tackle them before it gets too much to handle so seek professional advice as soon as possible. There are also some initial steps you can take to minimise the impact such as tackling priority debts first and assessing how you can improve your cashflow management.