Fundamentals Of Financial Management

The fundamentals of financial management for business

6 min read
Sherita Rankins

As a former accountant turned entrepreneur, I recognize the financial cloud that hangs over the head of small business owners. Whether your company is thriving or on shaky ground, let's be honest — doing a bank reconciliation is most likely the last thing on your list. You’re so invested in maintaining a great product/service that it can be difficult to focus on your business finances. But don’t forget about them. It doesn’t matter if you have three employees or 300, there are some fundamentals of financial management you should always practice if you want your business to keep growing.

Disclaimer: This content should not be construed as legal or financial advice. Always consult an attorney or financial advisor regarding your specific legal or financial situation. 

Exploring the fundamentals of financial management

Processing A/P on a regular schedule, implementing approval processes, having a monthly close schedule, etc., are all important fundamentals of financial management. When approaching your company's finances, you need first to decide if you’re fully capable of handling the tasks.

Most small business owners don’t have the budget for a full-time accountant, but hiring one to set up your chart of accounts and implement some standardized financial procedures could be useful.

Your company's financial status is the most important metric in measuring its success.

Having a clear picture of your margins, operating costs and sales targets are vital. Whether you plan to tackle the finances yourself or decide to outsource this function, consider the following financial basics before taking the next step.

Cash vs. accruals

Fundamentals Of Financial Management Accruals

Deciding your accounting method is one of the first decisions to make when thinking through the fundamentals of financial management. You likely have already implemented a method, but this overview might help you determine if you selected the right one. Ultimately, your business model and the products or services you offer can help identify which basis is best for your company.


This is the simplest and most straightforward method of accounting. Instead of tracking your A/R and A/P, you record income when it is received and payments as they go out.

  • Pro: You do not pay tax on your income until the cash hits your bank account.
  • Con: It’s difficult to manage cash flow and produce accurate financial snapshots.


This financial management method involves more work. You record your company's income when the customer is invoiced and expenses when the bills are received.

  • Pro: It creates more realistic revenue and expense reporting for a given period, which is helpful for budgeting and forecasting.
  • Con: Your A/R balance doesn't reflect cash flow, so you have to monitor your cash balance carefully.

Either of these practices is acceptable for your business. However, depending on your annual sales and inventory levels, the IRS might require your company to use the accrual method.

Accounting software

There are a few options when it comes to software for managing your business finances, including GoDaddy’s Online Bookkeeping.

Editor’s note: GoDaddy makes bookkeeping easy. GoDaddy Online Bookkeeping will import and organize all your business accounts, generating reports with ease and eliminating the need for you to tirelessly enter data — and you’ll never have to download, install or update the software. Ever.

Another tried and true for me has always been Quickbooks. You can issue invoices, process and apply payments, and run reports from anywhere. Since they own TurboTax and, the software also allows you to upload your financial information when it’s tax time for a hassle-free filing. The mileage-tracking feature on their app is another perk of the software, as it comes in handy when driving for client meetings.

Expense tracking

If you own a company with at least one employee, then an employee reimbursement policy should be in place. Whether your staff submits reports from their personal or business card, monthly expense reporting is essential. I recommend For a nominal monthly fee, your team can submit reports electronically with photo-uploaded receipts for approval. Additionally, the software is compatible with Quickbooks for seamless recording.

Payables and receivables

In the world of PayPal, Square, Venmo and all other paperless transaction tools, the methods for keeping track of your incomings and outgoings have dramatically changed. Before credit cards and ePayment transactions became so ubiquitous, you would cut actual checks to pay vendors, and receive check payments from customers.

Even though times have changed, the fundamentals of financial management have not.

Just because you no longer need to write a paper check, you still need to be diligent about recording your payments and applying your customer receipts. Make it a weekly task to download batch details from your credit card merchant and record sales. If you’re using online accounting software that syncs with your business credit card, be mindful about categorizing your expenses each week so they do not pile up.

Budgeting and forecasting

Fundamentals Of Financial Management Budget

Most small companies are guilty of operating without a budget for the fiscal year. How can you measure your company’s success without one? As an accountant, I often struggled to complete the annual budget before YE (year end), so I get it. But budgeting and forecasting, among other things, allow you to plan for capital expenditures and set sales targets for growth.

At the beginning of the fourth quarter, make it a priority to create a budget for the following year.

Determine sales projections based on current year revenues, adjusted by next year's expected billings. Identify any high-expense areas, and find ways to cut unnecessary costs. Then, anticipate your company's movement for the following year so you can plan accordingly.

In conclusion

The key to budgeting successfully is to be realistic. We hope our sales will grow each year, but with the ebbs and flows of business, that’s not always the case. Be brutally honest and make sure your budget reflects an accurate forecast.

Now is the time to review the financial processes your company has in place and find ways to make improvements. And remember to stay on top of your record keeping and reconciliations. The better your understanding of the fundamentals of financial management, the easier it will be to make smart decisions that grow your business.