No matter the size of the business, whether it is small or big, financial management practice of business and financial disciplines of owners and management play a major role in business success. A business is no longer to be said as a successful business if it incurs continuous losses and liquidity problems. Many businesses in the world irrespective of the country-specific matters, face business survival issues if they do not apply proper financial management practices.
Financial management practices start with having up to date accounting data. Accounting is the language of your business. Many empirical types of research state that small and medium enterprises do not maintain proper accounting records. It is therefore understood that not having reliable accounting data spell for not having good financial management practices.
Owners and business leaders hold the responsibility of bringing good governance to the business where good financial management practices are established. A set of good financial management practices in the heart of an organization. Among the good financial management practices for SMEs, demarcating the personal life of business owners from the business is crucial. If business decisions are taken without facts and figures, it means that decisions are being taken not in a scientific manner. If so, that business may lead to costly mistakes. There is no argument to the fact that sales/income is more prioritized than any other things, however, having more and more income does not give a positive outcome in the bottom line with having continued liquidity problems, it requires looking back and sees what went wrong. It is most probably the mismanagement of finance of the business that causes the problems.
A successful and growing business takes proactive actions to mitigate the business damaged by improper financial management practices. In this exercise business planning, budgeting, regular review of the business performance through accounting data, and regular financial/operational restructuring are some of the examples. Having up to date knowledge on the cash position of the business, managing customers and suppliers firmly and regularly, monthly cashflow planning, analyzing and comparing against comparative data are some of the essential elements of business management. It is advisable not to apply bad practices such as issuing postdated cheques, spending cash collection for day-to-day business operations, drawing money from the business for personal use, and spending personal money for business use through improper proper manner, and they are some evidential mistakes in SME businesses.
