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Financial discipline is about earning more and spending less, controlling your spending, spending based on budget. Also, it is about earning more than planned, spending less than necessary, saving as much as possible and investing wisely.
SIGNS THAT A COMPANY LACKS FINANCIAL DISCIPLINE
1 Constantly giving excuses for low profit in business.
2 Frequently falling short of forecasts
3 Operating outdated systems.
4 Lacking basic accounting software.
5 Lack of proper business records.
HOW TO ADDRESS FINANCIAL INDISCIPLINE
To attain financial discipline in business, the management must be good. Financial discipline is about the strength of the business, not actually the strength of the finance team.
1 MANAGE THE PREDICTABILITY TRADE-OFF OPTIMALLY
Ensure that there is a perfect balance long term contracts and high risk success based contracts. While long term contracts is associated low margin, high risk success based contracts associates with huge margin trade-off.
2 ENSURE STRONG FUNDAMENTALS
To succeed, get the basic rights. Produce quality and time tested products. Give your business the account it should accept; that is, your sales should be based on favourable terms and ensure to set up a monitor.
3 WATCH THE BIG COSTS, NOT THE SMALL ONES
Follow through to ensure that big costs are carefully monitored and question when necessary. The big expenses can drain the company without proper monitoring and analysis.
4 DON’T BUY TURNOVER BY USING YOUR BALANCE SHEET ESPECIALLY IF YOU ARE MUCH SMALLER THAN YOUR CUSTOMER
Do not compromise the payment terms for your business. This is disastrous and can cause your company to mellow the quality of goods produced. Don't bother about not selling, just to give out goods on credit to untruthful customers.
5 MEASURE PERFORMANCE CONSTANTLY AND OBJECTIVELY
Ensure that the performance of your employees and closely measured. Low performance cannot guarantee huge returns. Let every department give in their best to ensure that there is productivity and their reward is based on how productive they are.
AVOID WITHDRAWING FROM YOUR COMPANY'S ACCOUNT FOR PERSONAL USE.
Let every withdrawal be for business reasons. Put yourself on a salary and be satisfied with it until you your business grows.
REFERENCE
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