Strategies to Monitor and Control Your Financial Position

The financial position of your business is determined by the level of funds supplied to the business, and how these funds are used by the business.

Monitoring and controlling the supply and use of funds is about getting the best from both. A simple way of conceptualizing the monitoring and controlling of funds and their use is to first think of each reference for positions:

Actual present financial position
Ideal present financial position
Ideal financial position at nominated future date
Proposed financial position at the same future date

It would be necessary to take the following basic actions in order to achieve the attainment of the proposed future financial position:

1. Establishing a present actual financial position (what funds are available?)

2. Evaluating the present financial position by reference to past performance (how well does this meet our needs?)

3. Determining the ideal present financial position (ideally, what level of funds would we like to have available to us?)

4. Comparing the actual present financial position with the ideal present financial position (what shortfalls exist? what are the implications? how can we get around this?)

5. Determining the ideal future financial position (ideally, where would our business like to be, financially, at some future specified date?)

6. Deciding on future actions/objectives (setting future financial objectives for the business and broad strategy)

7. Planning (writing an action plan as to how the financial objectives are to be achieved and strategy implemented)

8. Taking action to ensure the plan is followed and/or reviewed (monitoring performance against plan, reviewing and adjusting plan if necessary)

All of these actions can help to achieve control, the purpose of which is to move the business along from where it is now to desirable and achievable future position. Control is about planning to ensure you make the best use of your funds and that you have funds available when you need them, and then monitoring planned to actual.

Budgeting is one of the major mechanisms used to achieve this control. Budgeting is about writing a plan to achieve your financial objectives.

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