Basic Guide to Financial Management in For-Profits

New business leaders and managers have to develop at least basic skills in financial management. Expecting others in the organization to manage finances is clearly asking for trouble. Basic skills in financial management start in the critical areas of cash management and bookkeeping, which should be done according to certain financial controls to ensure integrity in the bookkeeping process. New leaders and managers should soon go on to learn how to generate financial statements (from bookkeeping journals) and analyze those statements to really understand the financial condition of the business. Financial analysis shows the "reality" of the situation of a business -- seen as such, financial management is one of the most important practices in management. This topic will help you understand basic practices in financial management, and build the basic systems and practices needed in a healthy business.

Sections in This Topic Include:

BASICS AND GETTING STARTED

Basics of Financial Management

Your Most Useful Resource: A Board Treasurer (if Your's is a Corporation)

If your small business is a corporation, you would do well to find someone experienced in financial management and encourage them to be your board treasurer (your board chair has this responsibility to find someone suitable, as well). Therefore, it's important to understand the role of the board treasurer.
Role of Treasurer (for club, board, etc.)

Getting an Accountant or Bookkeeper, If Needed

If you are inexperienced in financial management, then you should get an accountant initially to help you set up your bookkeeping system, generate financial statements and do some basic financial analysis. But don't count on an accountant to completely take over your responsibility for financial management! The accountant can help you set up a bookkeeping system, generate financial statements and analyze them, but you have to understand financial data to the extent that you can understand the effects of your management decisions, the current condition of your business and how decisions will effect the financial condition of your business in the future.
Getting and Using Accounting Services

You should carefully consider whether you should hire an outside accountant, or hire your own employee. The IRS pays increasing attention to the hiring of independent contractors.
Potential Issues in Hiring Consultants (general information and IRS-related issues)

The following link might help you when you establish a contract with an accountant.
Business Contracts (this will be useful if you sign any contracts with the accountant)

Buy a Software Package to Automate Your Financial Management?

Strongly consider getting a software package to manage your books! There are a number of very useful software packages that will help you automate bookkeeping, generation of financial statement and their analysis. Note that an accounting software package can greatly reduce the time to enter and manage accounting transactions, and generate financial statements. However, you still should have at least a basic understanding of the accounting process for your organization, including what journals are used and what general accounts exist. You must have good understanding of financial statements and how to analyze them -- an accounting package cannot do this for you!
Accounting Software (this link is to "Software for Small Computer Systems")

Getting a Bank and Banker

You'll need to start a business account at a bank. Probably the best way to find a good bank is to ask for advice and references from other small businesses, especially those that are of the size and nature of yours. If you're just starting out, you probably don't have much money. You may be able to get buy with a non-interest-bearing checking out that has no, or minimal, fees. The following links may be useful
Getting and Using a Banker

No Matter Who Does Your Finances, YOU Should Know Basic Principles of Accounting and Finances

To get an overall sense for the recurring financial activities in the typical, read the following articles. (You'll soon get more basic information below in the section titled "Bookkeeping Basics".)
Basics of Financial Management in U.S. Small For-Profit Businesses
Financial Management Training Center
Basic Accounting Lesson Plans and Worksheets

Other sites that you might benefit from are:
Barton's Bookkeeping Tutorial
All Bookkeeping resources
Online Learning Center's tutorial
Financial Accounting for Owners, Managers, and Administrators

ACTIVITIES IN YEARLY ACCOUNTING CYCLE: Bookkeeping and Controls

Bookkeeping Basics

Basics financial managements starts with good record keeping. Be sure that you've read the above-mentioned article Basics of Financial Management in U.S. Small For-Profit Businesses7 before you continue reading the links listed below.

If You Want to Learn All About Bookkeeping and Accounting, Start Here

These sites provide an online tutorial about the basics of bookkeeping and accounting. Don't worry about thoroughly understanding very term and process. But do think about what you're reading in order to get a strong "feel" about the process of accounting.
Understanding Financial Statements (basic tutorial about accounting and finances)
Bookkeeping and Accounting: From Start to Finish
Bookkeeping and Accounting Basics
Introduction to Bookkeeping

Classification of Accounts (for Chart of Accounts)

In accounting, different types of financial transactions (eg, paying telephone bills, copier bills, getting money from sales, getting money from interest income, etc.) are assigned specific numbers (account numbers) which help to record and track those types of transactions. Businesses might create their own list (or chart) of accounts or adopt a chart used by other organizations. In any case, you should have some basic impression of a chart of accounts. The following links will help you.
Setting Up a Chart of Accounts
What Should a Chart of Accounts Include?
Chart of Accounts Definitions

Financial Controls

Financial controls exist to help ensure that financial transactions are recorded and maintained accurately, and that personnel don't unintentionally (or intentionally) corrupt the financial management system. Controls range from very basic (eg, using a checkbook and cash register tapes to more complex, eg, yearly financial audits).
Internal Financial Controls for a Small Business
another set of controls
Financial Control (Cashflow, Taxation, Classic Pitfalls)

The following link is to a variety of links about controls to prevent intentional subversion of the financial management system.
Protecting Against Theft, Fraud, Forgery, etc.

CRITICAL OPERATING ACTIVITIES IN YEARLY ACCOUNTING CYCLE:

Now that you have a basic sense of the overall accounting and financial management process, we'll look at the key parts at the beginning of the overall process, including budgeting, managing cash and credit.

Budget Management

A budget depicts what you expect to spend (expenses) and earn (revenue) over a time period. Amounts are categorized according to the type of business activities, or accounts (for example, telephone costs, sales of catalogs, etc.). Budgets are useful for planning your finances and then tracking if you're operating according to plan. They are also useful for projecting how much money you'll need for a major initiative, for example, buying a facility, hiring a new employee, etc. There are yearly (operating) budgets, project budgets, cash budgets, etc. The overall format of a budget is a record of planned income and planned expenses for a fixed period of time.
Budgeting in a Small Business
Budget Management and Monitoring
What Type of Capital Does Your Business Need?

Managing Cash Flow

As a new business, your biggest challenge is likely to be managing your cash flow -- probably the most important financial statement for a new business is the cash flow statement. The overall purpose of managing your cash flow is to make sure that you have enough cash to pay current bills. Businesses can manage cash flow by examining a cash flow statement and cash flow projection. Basically, the cash flow statement includes total cash received minus total cash spent. Cash management looks primarily at actual cash transactions.
(Thanks to the Women's Business Center for a very useful set of links!)

Basic Guide to Financial Management in For-Profits

Sections in This Topic Include:

Basics and Getting Started

Activities in the Yearly Accounting Cycle

Special Topics

General Resources