MONITOR AND REVIEW

Effective financial management is important for any company or individual. Tracking financial flows and keeping a close eye on them helps ensure that the resources are fully leveraged, the threats are pre-empted on time and future financial objectives remain attainable. No matter how carefully planned financial strategies can even fall apart without routine monitoring. This guide will guide you through a straightforward process for tracking and analyzing your money transfers so that you remain in control, make better choices and obtain a sounder financial position.

1- Understanding Financial Flows

Financial flows are money within a financial enterprise or individual’s money systems. This encompasses revenue, spending, investments, savings, and debt. By understanding these flows, we can get a clear picture of where the money is coming from, where it’s going and how it’s being handled.

There are two general classes of financial flow:

• Inflow: Money that enters the business or individual’s accounts, including revenues, sales proceeds, investments or other sources of income.
• Outflow: The money flowing from the accounts, such as expenses, salaries, loan repayments and investments.

The better you can track all those incoming revenues and outgoing expenses, the better you can track finances.

2- Significance of Tracking Money Movements

Regular checking of financial flows is necessary for several reasons:

• Cash Flow Management: Close monitoring of inflow and outflow of cash helps businesses and individuals stay away from cash crunch and ensures they have enough liquidity to fulfill their obligations.
• Compliance with budget: Monitoring allows to track if you are spending within budget, preventing over expenditure and financial burden.
• Fraud Prevention: Through regular monitoring, suspicious account activities e.g., unauthorized transactions can be detected and immediately addressed.
• Compliance: By tracing financial transactions, income and expenses are less likely to be underreported, making tax filing and auditing easier.
• Planning for the Long-Run: Following your finances over a longer period allows you to plan for future purchases, investments, or expansion or savings opportunities.

3- Key Elements to Monitor

Certain important aspects of the flow of funds need to be focused on when managing:

       a) Cash Flow

With a positive cash flow, you have more money coming in than going out, and with a negative cash flow, you have a money management issue.

• Operating Cash Flow: Cash generated from the company's normal business activities (sales revenue).
• Investing Cash Flow: Any money used in purchase of investments, property or equipment.
• Financing Cash Flow: Money associated with borrowing, loans being repaid or capital being raised.

       b) Income Statements

Commonly called the profit and loss statement, the income statement shows how much a business has earned through sales and other sources while also reporting the various costs and expenditures that resulted from generating these revenues. It points out the fact that the business or organization is profitable or unprofitable.

• Income: The sum of money from all income sources.
• Expenses: The total expenditures which go to earn revenue like salaries, rent, power, and other operation costs.
• Net Profit: The profit after expenses have been subtracted from revenue.

       c) Balance Sheets

A balance sheet is like a snapshot of a business’s financial position at a point in time. It describes assets, liabilities and equity.

• Assets: Everything the business owns, like cash, equipment and accounts receivable.
• Liabilities: All the business’s debts, from loans to accounts payable.
• Equity: The part of the business that belongs to the owners, after liabilities are subtracted from assets.

      d) Budget vs. Actuals

Part of the budgeting process is monitoring how real financial performance compares to what it should be. A “variance analysis” to see where spending was higher or lower than planned.

• Revenue Variance: The variation between budgeted and realized revenues.
• Expense Variance: Variations in costs of planned and actual expenses.

       e) Performance Indicators (KPIs)

These financial measurements are known as key performance indicators (KPIs) and are essential in tracking the financial health of an organization. Common KPIs include:

• Gross Profit t Margin: A company’s gross profit t margin is determined by the proportion of revenue that remains after the cost of goods sold has been deducted.
• Current Ratio: The ratio of the company’s current assets to its current liabilities that measures its liquidity.
• Return on Investment (ROI): Profitability as a ratio to investment.
• Debt-Equity Ratio: Debt used to finance operations versus equity, reflecting the financial leverage.

4- A Compendium of Financial Tracking Tools

Using the right tools and technologies also play a crucial role in ensuring that financial monitoring is efficient and accurate. Here are some instruments that can be used to track financial flows:

      a) Accounting Software

Accounting software such as QuickBooks, Xero or FreshBooks makes it easy to keep track of income, expenses and cash flow. These facilities update your ledger and generate appropriate reports and reduce the chances of missing out on any transaction.

     b) Cash Flow Management Tools

Certain tools, such as Pulse or Float, enable businesses to forecast their future cash flows, based on historical data, which can be leveraged to predict when and where they'll be short or overflow in cash.

     c) Financial Dashboards

Financial Dashboards give you a snapshot of your finances in visual charts and graphs in real-time. These dashboards are configurable to highlight critical financial information and trends.

     d) Spreadsheets

Smaller businesses or individual users can also use spreadsheets like Microsoft Excel or Google Sheets to monitor financial flows efficiently. But they are manually maintained and can get out of control as the company is vast.

     e) Financial Planning Tools

Software such as Mint or YNAB (You Need A Budget) helps manage personal finances, tracking spending, saving goals, and your progress in real time.

5- Applying to Financial Analysis

Tracking the flows is not enough; there should be a follow-up review to take courses of action as necessary. Here are some things to keep in mind to have a great financial review:

     a) Schedule Regular Reviews

Create a routine to look through financials- set a regular time- weekly, monthly, or quarterly. Robust follows up lets you see and make course corrections.

• Weekly Review: Closely monitor cash flow, outstanding invoices plus immediate expenses.
• Monthly Review: of Income Statement, Balance Sheet and Budget Performance.
• Quarterly Review: Review of long-term financials, KPIs, and investment performance.

     b) Analyze Variances

Compare actual results to budgeted numbers. Substantial discrepancies may indicate issues or opportunities:

• Positive Variances: There is a method to use unexpected revenue increase or cost savings.
• Adverse Variances: Cost overruns or shortfalls in revenues should be immediately investigated.

     c) Set Financial Goals

By evaluating finances on a regular basis, you can establish financial goals and track their progress. For example:

• Growth From the Top Line: When revenue has consistently met or exceeding plan, you can be bit more aggressive in building your top line.
• Cost Control: If costs are rising, consider where you can shave some off, or re-negotiate your deals with suppliers.

     d) Involve Key Stakeholders

Financial reviews for businesses, for example, may include department heads, the company accountant or senior management. This joint organizational effort is intended to keep financial decisions in step with overall business priorities.

     e) Use Benchmarking

Benchmarking is comparing your performance to industry or peered benchmarks. It's a process that can illuminate both your strengths, and if relevant, your relative weaknesses compared to others in your field.

6- Common Pitfalls to Avoid

Common pitfalls With funds tracking and reviewing:

     a) Failure to Monitor Regularly

Without regular monitoring of financial flows cash flow problems, overspending or opportunity costs may go unnoticed.

     b) Overlooking Small Expenses

They just aren’t. Research shows that relatively small recurring expenses have a way of ballooning over time. Failing to account for these “hidden” costs can lead to big financial losses for individuals and businesses.

    c) Short-Term Performance Only Consideration

While short-term financial vigilance is essential, you also need to pay attention to long-term financial well-being. This includes comparing investments, debts and general financial stability, and not just looking at cash flow or profit.

    d) Inadequate Record Keeping

Good record keeping, well maintained, is at the heart of efficient financial monitoring. Failure TO UPDATE BOOKS AND RECORDS Will You Down Whether you are a business or an individual, failure to keep up with having an up-to-date Set of Books and Records will cause you grief and possibly audit and tax problems.

7- Advantages of a Clear Monitor and Review Procedure

Good financial monitoring and review have many advantages:

• Better Decision Making: When data is current, the right financial information is available at your fingertips to make better and quicker decisions.
• Risk Management: Periodic assessments enable you to spot financial risks before they get out of hand, so you can adjust in time.
• Better Financial Position: Having check on the money inflow and outflow; monitors that the money is used efficiently, and the financial target is being achieved.
• Improved Profit: Cost containment and revenue expansion derived from financial oversight will ultimately generate improved profits for a business.
• Improved Tax Planning: The ability to trail the flow of finances properly guarantees that the taxes are filed on time, and one does not have to pay any penalty when audited.

Tracking and analyzing financial movements are a fundamental activity for anyone, or any company interested in keeping control of their finances and progress in the long run. With the right tools, a systematic review routine and an awareness of potential pitfalls, you can keep your finances in good shape and on the right track. Whether you run a small business, a large enterprise, or work on a personal budget, practicing proactive financial monitoring will help your bottom line, and build better business success.