Getting Acquainted with Financial Management [By Raisa Ng]

Only three months into the calendar year, most companies have already began to ask themselves what they have accomplished in the first quarter. With the announcements of Budget 2015, many SMEs are optimistic about support from the government and are keen to explore growth opportunities. However, most of these companies have not any clue where to start as the notion of grant applications and working with consultants can be rather intimidating.

One way SPRING Singapore has helped to overcome this inertia is through the Innovation and Capabilities Voucher (ICV). ICV serves as a taster session before a company takes the plunge into a full-scale consultancy project. It exposes company owners to working with a critical yet tactful advisor.

The ICV covers four main categories – financial management, human resources, innovation and productivity. Of these, this article will focus on the financial management modules and what companies can expect to achieve.

Planning and budgeting:

Most operational companies quickly realised the need to budget their expenses in order to have visibility on the company’s strategic direction. A good budget will help business owners control the company’s finances and ensure funding to existing and future commitments. With a clear plan and realistic budget, companies will be enabled to make confident financial decisions and hence reduce operational and financial risks.

Cash-flow and working capital management:

Cash is king and the act of collecting payment faster than the rate in which the company pays their creditors is generally considered as good cash flow management. However, when analysing a company’s ability to meet its financial obligation, the two critical measures are cash flow and working capital. Working capital management involves the use of ratio analysis to help monitor the specific components of working capital. The aim is to map out financial drivers and gaps so that companies can practice effective cash flow management and develop the capacity to take advantage of opportunities when they arise.

Internal controls for SMEs:

At the organisation level, internal control objectives relate to the reliability of financial reporting, effectiveness and efficiency of operations, and compliance with regulatory requirements. By scrutinising a company under the COSO Internal controls – integrated framework[1], one can identify areas of improvement in accountability of management and reliability of financial statements. All of which will contribute to building stronger financial resilience.

Financial assessment and planning for growth:

A key question that most business owners ask is “What’s next?” Be it organic growth or an aggressive expansion, companies should first conduct a review to understand their historical financial performance. Having understood the company’s financial resources and capabilities, a financial model is then required to validate the growth plans. Numbers aside, other essential elements will include a detailed implementation roadmap and a set of holistic key performance indicators that serves as a guide to execute and monitor the growth plan.

For more information on the ICV scheme, please refer to http://www.spring.gov.sg/Growing-Business/Voucher/Pages/innovation-capability-voucher.aspx

By Raisa Ng

[1] http://www.coso.org/documents/internal%20control-integrated%20framework.pdf

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