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What is FMS PDF Print E-mail
Written by Orapan Boonsukij, Thailand   
Saturday, 01 October 2011 19:07

 

Definition

 

Financial management is the process of managing an organisation’s financial resources. It includes financial reporting and budgeting/forecasting.

Guidance

Financial management should be central to all the decision making process of all organisations. It is a core part of successful management and ensuring the sustainability of an organisation.

Developing an asset is often a large financial undertaking. Given the potential risks involved it is vital that effective financial management systems are put in place.

It is critical when setting up a financial management system that you involve an accountant in the process. This is necessary to ensure you are equipped with the expert advice needed to make informed decisions.  A system should be implemented, as early as is practical, that meets all the needs of the organisation in terms of reporting and planning. It will be more cost effective to have this finalised from the outset and less of a concern for the management.

Financial Management Systems 

It is vital to have a computerised system in place to help understand and grow the organisation.  For small and medium sized businesses there are financial management systems available to purchase out of a box at a relatively low cost. Examples include Sage Line 50, Quickbooks and Iris. For larger businesses a be-spoke system may be required.  In order to determine which package is most appropriate for your organisation you should talk to similar organisations to find out what they use and their thoughts on the system.  Internet research is also an option but potential providers should provide case studies to demonstrate their ability to deliver.   

The financial management system can be set up so that management accounts can be seen at a few clicks of a button. Both profit and loss reports and balance sheets can be run and you can easily see at any one time what your current cash balance is, providing the system is kept up to date. Specific reports can also be set up to meet the reporting needs of different organisations. This allows you to be responsive to the needs of the management team.   

It is important that those with the responsibility for operating the financial management systems have a good working knowledge of the program they are using to ensure that they are getting the best out of the package.  All the package providers run courses.  These are best on a one-to-one basis so that they can be tailored to your specific needs. You should expect to pay around £400 for a full-day session.  You can find out more about courses by visiting the website of the programme providers. 

The financial management system is also a good way of managing credit control. Each system can produce detailed debtors and creditor’s report that will highlight overdue invoices. This should be run off at the very least monthly so that any potential problems can be identified at an early stage.  

The new version of Sage takes this one step further as it has a dashboard that lets you see the exact credit position of the organization.  You are able to see where your money is, how old your customer and supplier list is as well as what is due, overdue and disputed. This then ensures you pay suppliers on time, ensuring good relations are maintained with partners.  

Cash is critical to the business and Sage highlights which customers you should be spending time chasing. Regular analysis of the data means you can keep track of the financial reliability of customers and suppliers. This can be used to highlight emerging problems at an early stage. This can protect the company from potential losses and conflicts. It means the management team is aware of risks in real-time when making deals and agreeing contracts.  You are also able to set up standard letters for chasing debts so that you do not need to keep re-inventing the wheel each time.

The construction stage of the development process presents the biggest financial risk to the project. Make sure you keep track of any changes to the design and their cost implications. Once construction has been completed you should reconcile invoices with the original contract. Contractors may attempt to add provisions to the contact, you need to check that these are valid to ensure overpayments are not made. You must set aside money at the end of the construction phase for subsequent payments to contractors over the next twelve months. This retention money is paid once the building has been in operation for a set period and any defects have been resolved. Do not allow this to be swallowed up by general expenditure.

Construction projects require detailed understanding of VAT liabilities. This is a complex area of taxation law and it is advisable to seek professional advice. This will incur a cost but it negates the risk of being hit by a large and unexpected tax bil

 

Last Updated on Thursday, 03 November 2011 17:14
 
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