Managing finances – personal and business

Sidney Halpern, FCA, Chartered Accountant, Winnipeg, MB, CYBF Mentor, shalpern@shaw.ca

Overall strategy

The management of finances is a strategy that should be practised at an early stage in life and is only too late if not started now! The most important element to consider is maximizing cash flow, preferably through earning income rather than depending on handouts from parents, government or friends.

The skill of earning income starts at an early age and once learnt, will become part of a person’s character. In the beginning, this may involve marketing one’s skills in cutting grass, delivering papers and so on, and will eventually evolve into funding one’s education personally, developing a career, and increasing cash flow exponentially.

Once cash flow is developed, then expenses should be budgeted to equal the income; with some provision for borrowing to accelerate some lifestyle and business expansion strategies – providing that future cash flow can sustain the borrowing.

The expenditures should always include a saving component and in the case of businesses, funds set aside for rainy days. Good businesses, and individuals, should have reserves set aside to give them the courage to take risks.

RRSPs should not be the sole retirement vehicle, and savings should be a major component of retirement. Debt is not bad, if properly managed with cash flow; it’s actually part of a business financing strategy and should be part of everyone’s finance managing strategy.

Bookkeeping and accounting

Learning to maintain a proper set of records to include an income and expense statement, compared to budgeting on a monthly and annual basis, is a key element to managing finances and should be started at an early stage of life to develop the habit.

Your records should include a balance sheet of assets and liabilities, including realistic values based on market conditions, and a cash flow statement which is more important than asset values. The value of assets is dependent on cash flow generated from that asset. Assets that generate no cash flow are worthless.

Education

The best education in personal or business finance managing is to search out successful people from both a financial perspective, and more importantly, from a perspective of integrity and honesty. Listen to what created their success and happiness in life.

One of the best books I have read on the subject of managing a business, as it relates to finance, is Good to Great, by Jill Collins. Another excellent source is The Harvard Business Review, which publishes articles at reasonable prices almost daily, and can be accessed online.