Finance is an important part of SME’s (small and medium-sized enterprises) which is comprised of three main functions: budgeting and forecasting, bookkeeping and recording, and reporting.
Budgeting and Forecasting
Budgeting and forecasting are estimations of revenues and expenses over a specified period of time. It is compiled and re-evaluated on a periodic basis. Every SME needs to prepare it well in advance, as it is an important internal tool used by top management to manage, monitor and evaluate the overall performance of the company. A good forecasting is usually constructed based on past performance, social trends and market predictions.
Bookkeeping and Recording
In business there are thousands of transactions occurring each month; financial recording is very useful in keeping track of all the transactions that occur and summarize it in a way that’s easy to understand. Financial recording usually takes place in a monthly basis; all the transaction that occurred are recorded and updated.
After a period of time in a company’s operation, it produces comprehensive financial reports which summarizes its performance. These main reports usually show the profit; assets and equity; debt and expenses that has occurred over a period of time. In addition, it also provides some useful ratio’s which enables the owners to understand, monitor and improve performance in future. Those main ratios are:
- Profitability Sustainability
- Operational Efficiency
- Leverage (Funding-Debt, Equity, Grants)
Finance and CSR
There are reasons that the company can’t separate between financial performance and CSR’s activities, because nowadays both companies and customers around the world are aware and pay more attention to the CSR performance.
Reasons that create a link between company’s financial performance and CSR are:
- Companies want to maximize profit and minimize the expenses in the long term by using scare resources effectively, reducing waste and reducing cost of business transactions; which all support CSR’s concept.
- Customers care about CSR activities. If a company does not place a large enough focus on CSR activities, it may lose revenues or sales turnover due to a loss of customer support.
- Country or National Regulation is required. The company needs to adapt to the concept of CSR to avoid fines that will in turn negatively impact the performance.
SME’s need finance and financial tools to manage and control business activities. Finance is the main source of providing the most useful information for a company to make budgeting and forecasting for the business, record and summary all business activities, and reporting about the business’s performing over a period of time. In addition, there’s a positive relationship between the business’s finance performance and CSR; when company pays attention on CSR’s activity it will benefit from customers in term of sale turnover and encouragement from the government. A focus on finance and CSR will help the company to grow in the long run and improve its sustainability activities.