SME Basic Financial Management Principles

SME Basic Financial Management Principles

Financial management means planning and directing use of financial resources. Here are a few basic principles of financial management that you as  a business owners could adopt;

  1. Get accurate and timely financial data before making long-term financial decisions.
    Smart business owners let accurate data inform their mission-critical moves. Do not make big decisions with inaccurate or grossly incomplete financial information.
  2. Review your strategic pricing decisions. 
    Do you price in relation to your costs and your competitors? The most successful companies take both of these factors into consideration, but they also price in relation to the cost of the status quo for their customers.  How much is the problem that your product or service solves already costing them? What is the real value of your product of service? What is the “frame of reference” you could give your customers that would help them immediately see your product or service as both the logically sound and emotionally satisfying solution?
  1. Consider changing how you charge. 
    Is there a way you can move from a one-time charge to an ongoing revenue stream? Perhaps you do have a one-time charge for the initial purchase, but is there a way you can provide ongoing value to service your client on an ongoing basis? The smartest business models allow companies to annuitize their business relationships.
  1. Find the optimal staffing level and manage your hiring intelligently. 
    Look for a simple heuristic that helps you know when you need to hire more production and operational staff (e.g., sales per employee, projects per operations staff, etc.) and when you are too heavy. What are the indicators that alert you to the need to staff up or staff down? What investments could you make in technology, systems, and training that would allow you to produce more with fewer people?  Note that generally “A” players produce multiples more value than B or C players, yet cost only a percentage more. Constantly be on the lookout for ways you can upgrade your team over time so that you can produce more with less.
  1. Get clear, fresh perspective before you make a major capital investment. 
    All too often, business owners find a succession of small commitment steps lead them over the edge of the cliff when making the big infrastructure and capital decisions. They let sunk costs and vested interests that they are afraid of losing push them to chase bad money with good.

 

  1. Know the difference between strategic expenses and nonstrategic expenses. 
    Strategic expenses are those things that directly help you sell more or produce better. They include marketing campaigns that work, salespeople who sell, technology upgrades that reap real returns and ongoing advantages of significant value, and intellectual property barriers that give you a sustainable advantage for which the market will pay. Nonstrategic expenses essentially include everything else. Outspend your competition for strategic expenses–in good times and bad. Relentlessly cut nonstrategic expenses. And repeat this over and over.

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