Financial Management System


Financial Management System

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Does your business have a financial management system? Your accounting software by itself is not a financial management system. An accounting software package is necessary for producing accurate, timely financial statements – but is just a piece of the total financial management system, albeit an important piece.

A financial management system is a set of components; one component by itself is not a financial management system. A system is effective because it is a repeatable set of processes that consistently deliver an expected result. Small and medium sized businesses often avoid using any kind of a system because of the time necessary to set up and learn. The time invested initially, however, is more than offset by the time saved by more effective decision making in the future. Your system’s ability to produce quality, timely and valid information depends on its design and structure. (1)

Accurate, timely financial statements do not make up a financial management system. By themselves, financial statements do not provide much understanding. Financial statements typically have the following limitations:

  • An analysis of many elements is required to convert the data to useful knowledge
  • They provide lagging data (they’re always prepared after period end)
  • They are too infrequent

A good financial management system will incorporate the financial statements generated by your accounting software package along with appropriate cash flow forecasting, important performance metrics (trends, ratios, comparisons, break-even, etc.), and updated financial projections to provide you and your executive team timely information so that the decision-makers may react quickly to the current reality.

Having a solid, effective financial management system is essential for business prosperity. If you would like to learn more about developing a financial management system or discussing how the CommonSense System of financial management can improve your decision making and prosperity, email me at or call Kirk at 402-658-7340.

(1) “Be diligent to know the state of your flocks, And attend to your herds; For riches are not forever.” Proverbs 27:23-24a (NKJV)

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Internal Reports

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Historical financial statement
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As your business grows, it will inherently become more complex. It will eventually outgrow your capacity to be involved in every single detail of the business. There are just too many customers, employees, products, projects, vendors, and suppliers to be involved with.

As you become more removed from the details, you may feel a loss of control and may likely struggle to know how your business’ cash flow and profitability are really performing. You have to rely on reports with lots of numbers and data to understand how your company has done and make the best decisions possible for future success. (1)

The transition from a startup to a booming company is often difficult for founders and entrepreneurs. You have to re-train your intuition to process reports and data rather than talking to your employees and customers and reviewing the bills from your vendors and suppliers. While you should still engage in getting information from these qualitative sources, quantitative data will become more and more important to you as your company grows. Generally, quantitative data measurements should cover both the past and future on a daily, weekly, monthly, quarterly, and annual basis.

Daily Reports

Find one to three measurable pieces of information that can be reported daily. The items included on the daily report need to adequately allow your management team to answer this simple question: “Did we win or lose today?” Examples include gross profit per day, daily units sold, billable hours worked, backlog, among others. In addition to reporting actual performance on a couple of critical ratios, thriving companies need to know what tomorrow will look like. Measuring performance is not the reason to be in business, but it is critical to running your business effectively.

Weekly Reports

Develop a weekly report that highlights between 12 to 20 data points, with at least one or two coming from each of the critical areas of your business: marketing, sales, operations, finance, etc. These might include number of leads, leads converted to sales, revenue, revenue per employee, number of employees, percentage of receivables past due, working capital, current ratio, and more.

Besides knowing how the business did last week, this report should also project the company’s performance on these key numbers for the week to come. Also look at an updated cash flow projection (at least 6 weeks into the future) each week so your company can adequately plan for and adjust to cash flow shortages and excesses.

Monthly and Quarterly Reports

It is also important to have monthly and quarterly financial and operational reports, which include monthly financial statements. The monthly financial statements should include comparisons to prior years and months in the business as well as to industry averages and benchmarks (if available). It’s also important to review key trends over the past 13 months. Performance relative to your company’s plans and budgets, as well as projections for the next month and year, should also be included and analyzed. It is prudent to pay particular attention to validating and invalidating assumptions, and then improving them from month to month. Similar reports need to be reviewed on a quarterly basis, but are typically more summarized and should include lots of charts and graphs for quick review and presentations.

Annual Reports

You should revisit your five-year financial model and plan on a yearly basis. This includes a careful assessment of all of the assumptions that went into the model and updating those assumptions based on the actual performance of your company. Many business owners/managers fight this activity because they feel it is too hard to project five years into the future. While it is certainly difficult (and I have yet to see anyone that has projected their business performance perfectly for five future years) the exercise always yields helpful information to build a more competitive and sustainable business.

Developing appropriate and timely periodic reports and procedures is essential for business prosperity. If you want know more about establishing processes for all of these critical past and future reports, or if you want to learn how a part-time, virtual CFO can help transform your business using the Bible as our guide, email me at or call Kirk at 402-658-7340.

(1) Be diligent to know the state of your flocks, And attend to your herds. Proverbs 27:23 (NKJV)

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