The financial system within a business is likened to the circulatory system in the human body. This system helps businesses manage cash flow and supports profit-generating activities. Therefore, financial management is always considered paramount in all aspects of a business's operations.
For those who don't know, finance includes money, supplies, raw materials, and assets (assets generated during capital formation or arising during operations, such as accounts receivable and accounts payable) of a business.
The question here is:How to manage a financial system to make it profitable?The answers all boil down to one thing. simple financial problem.
Financial problem: Income - Expenses > 0
All financial problems boil down to these forms: revenue – expenses, income – investment capital, profit = revenue – expenses, net income = actual revenue – actual expenses…
Expenditures are allocated to the following areas:
(1) Human resources, technology, organization, process;
(2) Customers (and partners), finance.
Meanwhile, revenue is coming solely from customers and the financial sector.
When restructuring a company's finances, we must not overlook any expenditure or revenue items, and prioritize addressing them to maximize revenue and minimize expenses, thereby maximizing business profits.
Vietnamese businesses often face four problems when solving financial challenges. These are:
- Problem 1: Revenue and expenditure management is based on estimates and predictions, lacking analysis, thus failing to fully assess revenue sources and reduce costs.
- Problem 2: Infrequent and lax debt control, coupled with a lack of effective debt resolution policies, easily leads to cash shortages.
- Problem 3: Poor control over materials and goods, inventory, and goods in transit leads to wasted capital.
- Problem 4: Lack of a financial plan, or even control over cash flow and debt repayment plans.
Therefore, most businesses use accounting tools in combination with accounting principles and internal audits to address these issues.
Principles of revenue and expenditure
The principles of revenue and expenditure must ensure the following:
- Have a plan (especially a cash flow plan).
- Balance income and expenses
- Investment expenditure and ROI (return on investment)
"Increase revenue, reduce expenses" sounds simple, but how can there be revenue without expenses (investment)? It's necessary to separate investment (revenue and expenses of investment projects) from expenses for the company's regular production and business operations to assess the effectiveness of investment and the company's profitability. Often, blindly cutting all investment for development, focusing only on activities that generate immediate revenue under the pretext of reducing expenses to cut losses without carefully evaluating the investment results, will lead to the company losing its innovative products or having no new, competitive products.
Another firmly entrenched principle:Income precedes expenses – you have to manage your resources wisely."While the primary reason is financial security, the desire for growth also leads to the same investment balancing challenge as described above."
Financial management tools
There are currently several levels of financial management:
- Basic levelThe purpose is to generate financial invoices or tax reports.
- Basic levelProvide all financial and management reports as required by audits or as part of the company's basic management needs related to cash and goods.
- Advanced levelGenerates comprehensive financial analysis reports and models across multiple branches, accessible anytime, anywhere on mobile devices (cloud/mobile). Capable of rapidly processing large volumes of data and providing near-perfect data security.
Using Excel can flexibly meet basic and rudimentary needs, but it will take more time and effort than using accounting software or a specialized data analysis tool.
Currently, there are many modern, powerful, and flexible accounting software programs that can be integrated into ERP systems and operate smoothly on the Internet, such as those from Microsoft, Lac Viet, Workday, etc. Ideally, businesses should choose a system where each relevant role can process financial data in real time on mobile devices from anywhere with an internet connection.
Financial planning
Financial planning involves using assumptions such as revenue and expense forecasts, and financial statements (cash flow, balance sheet, income statement, etc.) from the previous few years to create future financial reports that align with the company's goals and priorities. However, the real-world situation changes rapidly, so to be more adaptable, we can create financial models.
A financial model is a model that shows the actual financial condition of a business. It includes past, present, and projected figures for several consecutive years for financial statements (cash flow, balance sheet, income statement, etc.). The process of creating a financial model is as follows:
- Past financial reports of the company (start-ups do not have these).
- The assumptions include the investor's intentions, market information, competitive situation, industry reports, competitive advantages, and business model, from which all assumptions about revenue and expenses (cost of goods sold, selling price, etc.) are made.
- Prepare a forecast report on “business performance, balance sheet, and cash flow statement”.
- Valuing a business using the discounted cash flow method.
- Business valuation using the comparative method (selecting listed companies operating in the same industry to compare with the company being valued, collecting and adjusting financial data and indicators before applying the multiplier valuation method).
- Combine and link the two valuation methods to arrive at the final value of the business, represented by a valuation graph.
Source: thesaigontimes.vn
