Finance management refers to everything to do with a company's finances. This ranges from analysing your company's financial results to choosing the right financial KPIs and obtaining financing or investment.
It is crucial that finances are managed by the right manager. That way, profit maximisation, future-proof financial decision-making and maintaining good cash flow are guaranteed. All this is necessary to ensure that all operations and expenses can be paid for.
What financial risk your business faces depends very much on the type of business. To mention all the risks here would be too complex, but we list some key risks:
Almost every growth plan requires an investment. Maybe you need to buy new machinery or software. Maybe you need extra staff or bigger premises. Maybe you need to advertise and have a new website created. The question is whether you have your own money to do that or whether you need financing. Perhaps there is still room in your working capital? But be careful not to run out of cash. That would put pressure on your existing business.
Even if you are profitable, you can become insolvent if your cash flow is disrupted, for instance when customers don't pay your bills on time. It is important for the overall health of your business, but also for your external financiers, that your cash flow is in order. If this is not the case in several periods, you need to work on the causes of the negative cash flow. This can be done, for instance, by increasing your prices or getting your debtors to pay faster and better. Timely intervention is the general message, as cash flow is and will remain the lubricant of any business.
One of the most important tools is maintaining a relationship of trust with your bank. For this, you need to clearly explain the nature of your financing and how you generate profits and protect your margins. Being able to demonstrate sound financial management can be advantageous when negotiating with your bank. You might also consider taking out credit insurance. Many banks see this as additional security.
