The Importance Of Financial Management For Small Businesses

By Scott Wilkins

Financial management is crucially important to the future growth or failure of small businesses. How the finances are used and accounted for could become the ‘make it or break it’ point for a small business. In fact, eight in ten new businesses fail due to faulty financial planning. But what exactly does this important management task involve? Well, it covers just about everything related to business operation. It will impact the future growth and success of all companies and organizations.

Financial management includes a wide variety of functions, from start-up organization such as attracting funding, terms regarding funding, initial business establishment, maintenance and expenditures to balancing operative necessities such as inventory and business materials. How a business plans to use finances will impact the rate of production and the total amount of items produced, as well as the ability to market a product or service to the target audience. In addition, financial planning will affect the human resources available to be employed in the financial, production, sales and management sectors of the business, on top of those required to be recruited for other key areas of new businesses.

New start-ups face a cutthroat business industry, regardless of the innovative or important nature of the product or service. Staying at the forefront of financial management will be a large factor a business’s survival and profitability. In order to do so, there are several areas you must focus on: bookkeeping, budgeting and financial analysis.


A new business manager should hire experts for guidance in the early stages of a small business, but should quickly learn how to perform these functions on their own. Begin with finding an experienced treasurer, who can provide financial leadership, if you are running a corporation.

Hire an accountant, but beware that the selection of an independent contractor over a full-time employee may result in the increased possibility of a tax audit. An accountant will help with generating a bookkeeping system, financial statements and analysis – but as the manager of a small business, the final call on how to interpret data for future business decision-making must be yours. Thus, it is very important that you are able to understand these key financial records. You might also consider purchasing accounting software to help in these functions, and, of course, select a valuable banker to aid in the flow of all funds.

Bookkeeping basics, such as recording transactions in specific charts, can be found easily online. This is an important financial management function, as it shows where funds are being dispersed, as well as minimizing errors and helping to avoid offenses such as fraud and forgery.

The ability to read and analyze financial statements is another crucial financial planning requirement. This will allow a small business manager to see the values of a company’s income, expenditures, assets and debts. This is also where another tricky part of financial management enters the picture: debt collection. Find a lawyer to inform you of your rights, and keep them available in case you need help solving a difficult situation in the future.

Small businesses are up against great odds, but don’t let that scare you away from what could potentially be a profitable venture. Your success will depend largely upon your financial management.

About the Author: Scott Wilkins is a Canadian business and financial expert. To buy custom laser cheques or to purchase inexpensive business cheques please visit Cheque Depot.


Permanent Link: