Financial Management – A Case Study in Financial (Mis-)Management

A macro issue Recently we witnessed the victory of the university student body over the Government regarding the issue of university fees. Regardless of where your loyalties or opinions lie, the outcome raises the burning question, “How are we to finance university costs in the future?” There is no doubt that the costs of running universities are outpacing the inflation rate, but if we are to protect the standard of tertiary education in this country, the costs have to be met. Otherwise we will end up with yet another casualty of the modern South African economic environment. It has been said that university education has been under-funded for twenty years, which makes one wonder, “What is the university equivalent of load-shedding?” One shudders to think how this will impact the future of our country’s intellectual capital. I have read many ideas put forward by learned individuals to address the funding issue. These include raiding the national skills fund, linking university funding to BEE scorecards, or basing the repayment of student loans on after-graduation earnings and deducting the repayments at the source. How does this relate to Financial Management? Financial Management is as critical in hard times as it is in lucrative times, conceivably even more so. Competent Financial Management would have avoided the long term under-funding debacle. Now it is up to expert Financial Management to address the funding questions, answer them, and effectively implement them. Financial Management is not a backward view, as some may think. It is rather a forward view, with the occasional glance in the rear-view mirror. Many companies face funding or profitability crises during...

Financial Management – Let’s keep it safe

Prevention is better than cure You take out the necessary insurances and protection schemes for your business, because you know and understand the value in keeping it safe and protected. However, when it comes to finances, many companies fail because they make the wrong business decisions and do not effectively safeguard themselves by having effective Financial Management. There are certain essentials for the protection of your business: Sound financial structures – Your company needs to be sufficiently capitalised to operate effectively and safely. The required mix of fixed assets, current assets and current liabilities differs from company to company depending on its line of business, but they all have an impact on your cash flow management and the risk Strong internal controls – Internal controls safeguard the security of the company’s assets and the integrity of the reporting systems. In simple terms it is a system of checks and balances which minimise the overall risk of unforeseen loss or business failure Good governance – The increasingly complex business environment has emphasised the importance of setting out and adhering to the best practices in order to ensure compliance and to safeguard your company’s finances and viability. Protect to grow Financial Management is more than the production of management accounts and annual financial statements. Installing and utilising the correct financial planning, control and reporting is an elemental part of effective Financial Management. A thoughtful and planned strategy towards business expansion and acquiring of assets are part of the greater need of a Financial Manager. Financial Management is therefore essential to safeguard and grow your investment. Affordability Many say that they cannot...

Financial Management for Growing Your Business

Nurture and flourish Growing your business, or your client base, in today’s economic climate, is becoming more and more of a challenge. It is commonplace for potential clients, or any other stakeholders, to insist on reviewing company documents like annual financial statements, tax clearance certificates, and certificates of compliance from other statutory bodies such as the Department of Labour, with respect to UIF and the Compensation for Occupational Injuries and Diseases Fund. All tenders, whether for public or private entities, request such documents. Ensuring compliance, in terms of taxation and other statutory returns and payments, does not only involve keeping track of the various deadlines. It also requires accurate reporting to the statutory bodies. Similarly, when an entity asks for the annual financial statements they often want to see more than just the balance sheet and income statement. They might also want to see a cash-flow statement, a statement of changes in equity, as well as schedules and notes to the financial statements. Who does this It is therefore critical that the business has access to a competent Financial Manager. A qualified Financial Manager is aware of all the statutory reporting requirements, how these returns should be compiled and when they should be submitted, thereby ensuring compliance. He is also able to facilitate obtaining certificates of compliance. Knowledge of accounting practices, reporting standards and the applicability of International Financial Reporting Standards (IFRS) is also critical, if annual financial statements are to have any credibility. Affordability Access to a financial manager is a necessity, not a luxury. At Leaders Business Solutions we offer an Outsourced Financial Management service that can...

Accounting Software – The hard side of software

But I have a helpdesk These days, accounting software packages are so user-friendly that a business-owner is often mistakenly led to believe that he or she can take care of the accounting function himself.  Well written and supported software packages have flooded the market and with tutorials, helpdesks, as well as online and personal support as an after-sale service. It is understandable that one might feel that they can effectively manage their own company finances.  These packages have all the correct management and reporting functions which lulls you into a sense of security with regards to Financial Management. Did you know This can be a mistake that can lead to misstatement of profit or loss due to incorrect accounting treatment, a distorted balance sheet, and cash flow management problems.  Being a business owner you are sure to understand the effectiveness of well-prepared financial statements, preparation and execution of business plans, cash flow forecasts and daily governance, in order to increase profits and assets.  However to achieve all of the afore-mentioned, a Financial Manager, who is proficient in all the requirements, is critical. It’s not just numbers You, as the business owner, will more than likely be unaware that there are many regulations and periodic statutory and taxation obligations with which you are required to comply. One error or omission can lead to non-compliance, a situation which in turn can lead to interest on unpaid amounts and harsh penalties, not to mention that the withholding of that all-important Letter of Good Standing, which many outside stakeholders and, particularly clients, require. It is imperative that you involve a suitably qualified Financial...

Why is effective Financial Management so important?

Financial Management – What is really important Why is effective Financial Management so important? Well, firstly there are many statutory and tax-related requirements with which you need to be compliant.  The requirements are not something you necessary feel you can, or want to take on yourself, and it is far too important to let just any employee handle the finer details of what needs to be done. There are various types of tax that are levied on a company’s income and activities such as income tax, employee tax (PAYE, UIF and SDL), and VAT (value-added-tax).  There are also other statutory levies such as Compensation for Occupational Injuries and Diseases and the Annual Return with CIPC. The size of your business may well have an impact on your statutory responsibilities, for example, registration for VAT. A competent Financial Manager will manage your statutory compliance. Who else will need my financial information Secondly, there will be many outside stakeholders, like shareholders, potential investors, suppliers, prospective clients, regulators and SARS who will ask to see a properly prepared set of financial statements, therefore you have to ensure that your company complies with current financial reporting requirements. For example, IFRS may be applicable. A competent Financial Manager will ensure that your financial statements are properly prepared and presented. Is that all It’s great to know that your financial statements  need to be in place for investors and the like, but more importantly, you require a financial perspective in order to make important business decisions.  Without knowing and understanding your company’s financial state of health, it can be detrimental to your company’s sustainability and...

Outsourced Financial Management

The making of a dream I remember the exact moment, as a young man, that I decided to become a Chartered Accountant.  Being naïve, and with too many options, I took my time applying to university.  It was during this time in my life when a door opened for me, one which forced me to walk through and take the first step towards my future. One very unassuming day, I was sitting down with a slightly older man, who was completing his studies as a Chartered Accountant, this gentleman took the time to explain what a CA does, and how I could become one.  Within a few minutes I knew I was sold.  However, when the third person in our party spoke up with a very simple, yet true statement – “Every businessman needs someone to do his books” I knew my decision was being validated. In modern times This was some time ago, and today I find myself not only qualified as a CA, but also Managing Director of two successful companies, and that old adage still rings true.  Nonetheless, I am, amazed to note that through the years, a trend has crept in where businesses and other entities underestimate the importance of keeping proper financial records, remaining compliant in an increasingly complex business environment and ensuring that they obtain appropriate financial advice. Affordability Many say that they cannot afford a Financial Manager. I say that they cannot afford not to have one.  To this note businesses and other entities are seemingly unaware that a Financial Manager does not have to be a full time employee. At Leaders...