Points of Attention in the Financial Management of Small

Service providers, as they do not sell products, have different dynamics to other businesses and require special care with Financial Management.

To avoid the risk of breaking even and actually making a profit, you must first be able to answer the following questions:

  • What is your company’s average monthly revenue?
  • What is the cost of providing your service?
  • What are the fixed costs and variable expenses for the month?
  • What periods of the year are there increases or decreases in revenue?

Answering these questions is the first step toward dealing effectively with the finances of your company. Below, you will find the key points for attention and the tips on handling service company finances.

The importance of financial management for service companies

Good financial management includes planning, analysis and control of activities related to investment, expenses, profits, financing, loans and the equity value of the business.

Since the focus is not on sales, but on solving the client’s problems, the service provider company needs to have its financial management adapted, without losing the objectives common to all types of businesses:

  • help the business grow;
  • identify bottlenecks and future challenges;
  • analyze financial performance;
  • assess deviations from financial indicators, comparing what was predicted with what was actually achieved;
  • implement corrective measures;
  • control the payment and receipt of bills.

Points of attention for efficient financial management

Check out our tips on good practices to adopt in the financial management of your service company:

Check the costs

The first step is to know all of your company’s costs, including fixed, variable and service costs:

•  Fixed costs : these are related to the company’s operations, such as rent, internet, salaries, among others;

•  Variable costs : these are values ​​that can increase or decrease according to the services provided, such as maintenance of your equipment, payment to suppliers, commissions, taxes, or any cost that starts to exist from the moment there is work;

•  Service costs : these are specific to carrying out the work, such as transportation for employees, materials used by them and hours worked.

Reduce costs

It is recommended to map out costs in order to identify what can be cut, reduced and optimized. Regarding fixed costs, it is possible to adopt conscious consumption to avoid wasting water and electricity, for example. Regarding variable costs, you can negotiate with suppliers and review commissions. In addition, it is necessary to carry out good tax planning in order to pay less taxes in accordance with tax avoidance practices.

After all, the best strategies are those that increase your profit margin.

Apply prices appropriately

Knowing how to set prices is often more complex for companies that provide services. It is necessary to analyze the total value of the services, which includes fixed, variable and service costs. It is also essential to know the average value applied in the market so as not to price your service inappropriately, above or below this value.

Control cash flow

For good financial management, it is essential to control income and expenses, as well as to project future earnings and expenses. Both credit and cash sales, loan installments, investment redemptions and payments made to suppliers must be taken into account. Therefore, cash flow must be updated daily to avoid inconsistencies.

Control working capital

Working capital is what keeps the company operating. Thus, in order to compute it, the following values must be known:

  • Current assets : include accounts receivable, advances, redemptions and other amounts;
  • Current liabilities : include payroll, accounts payable and taxes.

Now, calculate current assets minus current liabilities. The longer your payment term to customers, the higher your working capital should be.

Define performance indicators (KPIs)

The best way to analyze your financial management is by defining KPIs, key performance indicators, according to the reality of your company. The most commonly used indicators for service providers are those that demonstrate current liquidity, profitability and return.

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