Being fiscally responsible for a business is similar to managing your paystub. As an individual, managing your paycheck describes your fiscal management.
In the same way, a business needs to manage every aspect of its financial responsibility.
Let us discuss what are the fiscal responsibilities of a business and how to manage them effectively.
What is Fiscal Responsibility?
The fiscal responsibility of a business is to manage the financials efficiently and effectively.
A business must take care of its financial needs and generate wealth for its shareholders as its primary responsibility.
A business can achieve financial goals with thoughtful planning and efficient execution of all plans.
Every business wants to generate more revenues and offer value to its shareholders and customers. However, fiscal responsibilities mean managing financials in a way that efficiently utilizes the available resources.
Although the concept of fiscal responsibility is often associated with government planning and public institutions; it can be applied to all businesses.
Five Ways to be More Fiscally Responsible With your Business
A business needs to manage several aspects of financials. From generating revenues to creating budgets, and from managing debts to paying taxes, a business has manifold financial responsibilities.
Hence, the term fiscal responsibility of a business covers every aspect of its financials. Unlike the common notion, fiscal management is not restricted to debt management only.
Here are our top five ways for you to make your business fiscally responsible.
Every business starts with some objectives. Every business owner has its goals to achieve from the business.
Therefore, the foremost and important aspect of fiscal responsibility is to do strategic planning.
Strategic planning of a business does not only cover finance, it also includes other business aspects such as marketing, HR, compliance, and governance.
Financial strategic planning would involve setting your financial objectives in the long term. For instance, you want to generate a certain amount of annual revenue (say $5 million) in five years from now.
Your business policies, procedures, and governance would follow your strategic vision. Therefore, it’s essential to set business goals that are achievable and realistic.
It is common for a business to change its financial plans several times. Financial plans fail all the time. However, your business objectives do not change.
Therefore, your strategic vision is unlikely to change. So, the first step for making your business fiscally responsible is to set clear objectives and do strategic planning.
The next big step is to create effective financial plans for your business. Set the financial tone of your business that achieves success and remains in line with the strategic vision of your business.
Here are a few key decisions regarding financial planning.
Financial reporting sets the basis of any business. It keeps your financial records up to date and supports key financial decisions. Therefore, set your financial reporting according to the accounting standards and compliance requirements.
Once you have effective financial reporting, you can utilize the available data for financial analysis.
For instance, perform trend analysis of particular products/services in a specific geographical area.
Budgets are your business tools to gain financial control. Creating realistic budgets is the first step in achieving financial control.
Forecasts help businesses plan ahead of difficult times. Forecasts are important for resource management and keeping finances under control.
No business is fiscally responsible if it cannot manage its debt. Unfortunately, debts are an inevitable part of businesses.
The only thing businesses can do about debts is to manage them effectively. Debts are essential for business growth and achieving financial goals.
As a business owner, if you want to chase your dreams, you must keep business and personal debts under control.
There are several approaches to managing debts. The most effective one is to manage the high-interest debt first. It means to pay off the high-interest debt as early as possible.
As a precaution, you should avoid using toxic debt such as payday loans, high-interest credit cards, and unsecured loans. Default on these loans not only gives a bad reputation to your business but also hampers your credit score.
If you have long-term debt, paying interest payments on time and managing sufficient cash from business resources can help you keep the debt under control.
Manage Your Compliance Responsibilities
An important financial and fiscal responsibility of a business is to stay abreast of its compliance requirements.
Compliance requirements include internal and external responsibilities of a business.
Internal compliance means complying with the business policies and procedures. If your business adheres to the business internal controls, it is said to be compliant.
Similarly, there are statutory requirements for a business. These include paying taxes on time and honestly. Also, these requirements include employee salaries, their well-being, and mandatory insurance covers.
Other compliance requirements of a business may include adhering to the financial reporting standards such as GAAP or IFRS.
Cash flow Management
As a business owner, you already know the importance of cash flow management. Even successful and profitable businesses can fail due to cash flow problems.
Cash flow is essential in maintaining the short-term and long-term liquidity of a business.
Short-term liquidity means managing cash flow for the working capital requirements of a business.
The long-term liquidity challenges include managing cash for debt payments, project expansions, investments, operational expenses, and so on.
One of the key aspects of cash flow management is to create emergency funds for businesses. Many businesses suffer from cash flow issues when they turn to high-interest debts. In turn, they end up paying high-interest costs forever.
The fiscal responsibilities of a business cover all the broader financial aspects of a business. All of these roles are linked and the success or failure of one could lead to the same fate for another aspect.