Every entity requires certain broad guidelines defining its areas of operation with full and accurate control over all deliverables. Most of the entrepreneurs want to control their profitability figures with a disciplined approach so as to get their vision documented and converted into annual profitability reports verified and thus staying aligned to their visions and also reviewing the same month after month so as to avoid any year end surprises.
Besides cash flow, other critical issues before an entrepreneur include lack of intelligent and smart reporting and good quality budgeting. Many companies have a good accountant, who is good at bookkeeping, but from a
financing perspective, planning and strategizing and proper forecasting are the areas where they really need help.
In this pretext, one needs to clearly understand the difference between a budget report (showing variances with actual financial reports) and a financial report and their implications on annual profitability statements.
The goal of a budget report is to determine how much each area is given in funds and how well the departments use the given funds to reach the budgeted goals of the business. A budget report is an internal report which also shows the
company’s incoming and outgoing cash flow and expenses, so the report not only reveals how well the company is doing but also how efficiently it spends its available money. In addition, this report includes an analysis of the figures and
predictions of how the company will do in upcoming years based on internal financial planning.
However, a financial report is a statutory report prepared on the basis of fixed format as prescribed by Income tax act and companies act,.This type of report includes a breakdown of assets and liabilities to reveal the company’s net worth.
The annual financial report and the budget report show accurate numbers of the company’s immediate financial situation and overall worth. So, it becomes all the more important to pay attention to these reports in order to
achieve the desired goal and turn vision into reality.
In any type of business, when it comes to financial management it is often said that “cash is king”.. Managing cash flow accurately in the business is very essential, whether your business is growing or struggling in the small sector
business or MSME segment.
Most of the entrepreneurs face the logistic problem of matching the cash inflows with outflow needs. The reasons could be numerous, namely delay in receiving money from the customers, inaccurate and inappropriate management of funds,
mounting interests due to delay in loan repayments, unplanned/unnecessary spending/expenses.
However, it is essential to clarify that the cash flow is not similar or equal to profits. Businesses can have positive cash flows and still be loss-making. Cash flow management can be considered as an intervening tool between payment to
vendors or banks/lenders as well as a receipt from customers. It coordinates the payments and receipts in a manner that the payment to vendors is feasible according to the terms of the credit and also after considering the payment cycle
of the customers
The basic goal of professional cash flow management (through full time CFO or utilizing service of Virtual CFO, is to ensure that the business does not face cash shortages anytime and thus the growth is not hampered due to the funds
No business should overdue payment to its creditors. Similarly, it must also not have any long-standing debtors on its books. The occurrence of such cases is an indication that the cash flow management is not upto the mark and requires
immediate action for maintenance of smooth cash flow in the enterprise wherein the professional interface is required.