Management Information Systems
If your financial control is to be effective you need to regularly analyse your actual performance figures and compare them against the financial plan and, perhaps, performance of the business historically.
An easy way of comparing actuals and budgets is variance analysis. Usually, only a few figures need to be watched regularly to achieve effective control. Using a computer-based spreadsheet will assist you with all your analysis requirements.
Having a suitable management information system (MIS) is a prerequisite for effective monitoring. Although it might sound daunting, an MIS can be extremely simple. An MIS is simply a set of procedures set up by you and your staff to ensure that data about the business is collected, recorded, reported and evaluated quickly and efficiently. That information is then used to check the progress of the business and to control it effectively. For most small businesses, there are likely only to be a few key elements.
- Marketing monitoring - Are you achieving your sales targets, in terms of level of sales and market share? How full is your order book? Are customers paying the right price?
- Production - How does the level of output compare with the level of sales? What is the percentage of rejects? How does the actual cost compare with the standard cost?
- Staff monitoring - Are they being effective? Are they satisfied and motivated?
- Financial control - Are you meeting your financial targets?
You will need proper systems in place to ensure that:
- You keep careful track of everything bought by the business, especially if the person ordering is not the person who pays the bills;
- You record everything sold by the business and that everything is properly invoiced, especially if the person doing the selling is not the person who raises the invoices or chases customers for payment;
- There is an effective stock control system which records incoming raw materials and compares them against purchase orders, monitors progress through the production stages (if appropriate) and records the dispatch of finished goods; and,
- All payments and receipts are recorded to ensure that bank balances and overdraft limits are kept within agreed levels.
Computerised accounting packages and spreadsheets make it relatively straightforward to record data and present it in an easily understood format. It still requires discipline to ensure that the data is collected, but making an effort will be rewarded through improved understanding of your business.
The key to an effective MIS is to ensure that you only monitor a small number of figures and that those figures relate back to the strategic objectives and the operational objectives that you have set for your business. If other people need to see the figures, ensure that they get them speedily. If your system of financial control is to be successful, figures must be quickly available after month end.