The financial and accounting system of a company underpins health and performance. This system acts as a basic business intelligence tool, which is why accounting is considered the most fundamental business study field.
Financial management connects to many aspects of business development and operation. From tracking investments and transactions to forecasting sales and managing expenses, a robust financial system provides clarity and control.
Regardless of the size of your business, implementing and maintaining an effective financial system will help ensure financial health and operational efficiency. Let’s explore how a sound financial system can impact business functions and promote sustainable growth.
Impact of Financial Systems
The system you have in place for financial control and accounting can affect many areas:
- Investments
- Transactions (incoming and outgoing)
- Tracking and tracing of money
- Sales forecasts
- Sales figures
- Operational process development
Using the right financial system will ensure you know exactly where your money is every step of the way. For example, if a customer or client pays you $5,000, you need to know exactly where that sum is and what it’s going to be used for.
Managing Out-goings and Expenses
Understanding your out-goings and other expenses is necessary. You must also keep track of how much more money you have coming in at all times.
The $5,000 payment might be put towards buying new office equipment or paying employees’ wages for the next few months, depending on the size of your business. Alternatively, it may be saved for other bills.
Knowing where your money is helps you understand how much you have and what you’re likely to use it for.
Role of Controls
Controls within financial systems maintain order and accuracy in a company’s financial operations. They include procedures and mechanisms to safeguard assets, ensure the integrity of financial records, and promote operational efficiency.
Several types of financial controls can be implemented to achieve these goals.
- Preventive controls, such as segregation of duties and access restrictions, deter errors and fraud before they occur.
- Detective controls, like regular reconciliations and audits, identify and correct errors or irregularities.
- Corrective controls are implemented to address identified issues, such as updating procedures or retraining staff.
Implementing robust financial controls offers numerous benefits. These include improved accuracy in financial reporting, prevention of fraud, compliance with regulations, and enhanced operational efficiency.
Benefits of the Right Financial System
The right financial system can help you be aware of any upcoming bills and any stock you need to buy to keep your customers happy and the business running smoothly. Even if you run a small business, record and measure business activities.
It can be as simple as placing transactions into a spreadsheet and doing some basic analysis. Online Microsoft Excel courses are available, so there is no excuse for not quantifying business transactions.
Importance of Quantitative Measures
Quantitative measures like sales results and forecasts are used daily in business. The right system will support measurement.
Knowing your financial position at all times helps identify problems early and facilitates good decision-making generally. Financial management tools and systems provide the insights needed to make strategic decisions and ensure business growth.
For example, sales results and forecasts are useful in planning. Running any size business without being on top of the numbers is difficult. Sales results let you know how well certain products are performing. Sales forecasts predict how things are likely to be in the near future.
Related: Business Intelligence Software