The lack of financial control and planning is the main reason why many companies close their doors before even reaching the first few years of operation.
Data from DOW shows that 6 out of 10 businesses close their doors before completing 5 years, and the reason, according to many experts, is linked to finances.
The lack of or even insufficiency of a financial plan makes it impossible for many organizations to direct, control and coordinate actions to achieve their objectives.
It is important to highlight that short-term financial plans fund long-term financial plans , helping to guide the best growth alternatives, prioritize objectives and provide a more assertive direction for the company.
Managers who use long-term financial planning as a guide in repairing operational plans can carry out cash flow planning , profit planning or even sales forecasting for a period of 2 to 10 years, which means predicting the market and establishing strategies that can overcome obstacles that impede growth .
Among the decisive elements for the functioning of small and medium-sized companies , financial control and planning stand out , both of which are essential tools for organizing , controlling and running a business. But how important is it to have them in the company’s routine ? Keep reading our post and find out. Let’s go!
What is financial control, after all?
Financial control is basically a set of actions used to verify whether what was established in the planning is being executed and what measures are necessary to correct possible failures and errors.
In general, companies seek to implement simple financial control processes before they even have good planning and budgeting structures , basically functioning as a “test” period.
Managers who use financial reports generated from asset information and cash flow status can assess the company’s real financial condition and know exactly when to make investments to eliminate cash deficiencies , working capital and other problems that may compromise operational activities.
Among the main Financial Control methods , the following stand out:
- Cash flow ;
- Budget management;
- Break-Even and Profitability Analysis ;
- Income Statement;
- Balance Sheet;
- Costs management .
Planning means predicting the actions to be carried out, in addition to estimating resources and defining strategies so that objectives are achieved.
The biggest mistake many managers make is not keeping track of all their financial transactions , whether it be payment capacity , financial commitments , purchase and sales projections , expenses and costs in executing operations , working capital , available resources and so much other information. Without this control, it is impossible to reduce costs without losing efficiency , thus making it impossible to increase profits .
How important is it to combine financial control with planning?
It is through financial control that a company remains active and operates in the market in a sustainable manner; after all, it is difficult to carry out any type of operation with zero cash or even without good working capital .
Financial control and planning are inseparable tools, that is, it is necessary to plan finances and control each step of their execution, so that one can have full control of the capital employed and, thus, be able to analyze the real financial health of the business. Here the rule applies: it is not enough to just record each financial movement of the company , it is necessary to monitor and follow up on each entry — and this is one of the functions of financial control .
We are therefore talking about a cyclical process . After all, to carry out good planning , we always need to rely on concrete data, which will be used to define goals , objectives and action plans . All of this data is collected during the analysis of performance indicators , which occurs during the business control phase .
What are the benefits of financial control?
First and foremost, it’s critical to highlight the advantages of financial control. Thus, in addition to appreciating the benefits of doing this kind of operation, we also examine all of its specifics, such as how it relates to the crucial planning stage. Shall we examine a few of these advantages?
Integration with business data
Financial control is the first step towards effectively integrating company data and preventing chaos from occurring between management and different departments. To do this, in addition to organizing all the information on cash flows and the income statement ( DRE ), we must also rely on technology, since it can help us make the entire process faster.
Speeds up decision-making
Another great advantage of having effective control over your finances is that, with organized data, we can quickly consult it to make decisions at the right time. This avoids reactive management , which only puts out fires, and gives way to proactive management .
Provides accurate feedback
Finally, the manager’s ability to give managers and other staff members appropriate feedback is still another fantastic advantage of the control activity. After all, he will have the information he needs in real time, and can correct the course whenever he deems necessary. This way, employees stay informed and management is more active.
What are the benefits of planning?
Planning can also bring a series of advantages to the management of the organization . In fact, many experts point to the lack of planning as one of the main causes of early closure of national companies — after all, without data, many end up conducting the business based only on intuition. Let’s check out its benefits?
Setting a course for management
It is much easier to move forward when we know exactly where we want to go. With the information gathered in previous exercises in the control activity , we can know exactly what to expect for the next periods and follow a safer path.
Assess the internal and external environment
As we have seen, control activities can provide us with a range of information about the internal environment , which is excellent for decision-making. However, it is during planning that we also assess the external environment. Economic indices, research from renowned institutions, in short, all information is welcome to help us draw up our internal plans.
Develop control methods
Finally, remember that we mentioned that the relationship between planning and monitoring occurs in a cyclical manner? Yes, after all, it is in planning that we will define the control methods that will be used to later acquire information for new planning. In addition to the performance indicators, we must also define which tools will be used for monitoring.