Management of Money 26/10/2016, by Jose Zachariah, FCA

Management of Money 26/10/2016, by Jose Zachariah, FCA

Management of Money

Money is one of the major ingredients for success in life and therefore it is always beneficial to have a fair understanding on the various aspects of money management.   Many nations, many corporate bodies, many leading banks with a history of long successful years behind them have become broke all of a sudden on account of   mismanagement of funds by men  at the top  even for short periods.

The speed with which money shifts its loyalty from one individual to another, from one corporate body to another, and from one nation to another is really astonishing. The more you try to chase it, the more it tries to avoid you and evade you. Unless you understand the peculiar behavior of money and the swiftness of its movement it is difficult to have any control and management over it.

One’s priorities, behavior, outlook, character, motives, desires, aspirations and upbringing play an important role in money management. If the means and ways you adopt to earn  wealth and money are unethical it may lead you to  severe consequences  including jail terms, loss of life, wreckage of families,  lunacy, suicide etc.

We have all heard about the subprime crisis in the US, the financial crisis faced by Greece, Sathyam Scam, Kingfisher episode, so on and so forth. There are so many such unheard stories at smaller levels which occasionally come to our notice when they are reported in the newspapers. We have also heard about how Marvadis thrive wherever they are and whatever be the adversities they are faced with.

Following are some of the Do’s and Dont’s in Money Management.

The Do’s

  • When you go for any new ventures ensure that you have a sound and reliable partner to support you financially.
  • Whenever you borrow, ensure that you have more than one source for repayment. Before you go for a big loan, critically analyze and assess your repaying capacity.
  • Have a good track record with bankers and always bargain with the bank for better terms. Never allow your account to go NPA (Non-Performing Asset).
  •  Be careful with Cash Credit / Overdraft facility and other similar Working Capital facilities extended by banks. Put on hold the human tendency to divert funds meant for financing Current Assets for any other form of investments. Always remember that it is the intelligent circulation of current assets that brings money.
  • In case you get into a debt trap work out a strategy to get out of it in a time bound manner using all your available resources and connections.
  • Whether the business is big or small, insist on a proper MIS (Management Information System). Have monthly budgets, compare the same with the actuals and study the variances. Budget is nothing but financials prepared with targeted and estimated figures for future periods.
  • Though you may bargain for the best terms in business be a good paymaster and meet your financial commitments on time. The goodwill it generates is beyond limits.
  • Pay off all your statutory dues on time and comply with all statutory requirements. The regulators can make your life really hell with unreasonable interest, penalty and even prosecution.
  • It is sometimes advisable to dispose of the existing loss making business before it swallows you.
  • Always watch your debtors. Insist on a bill to bill payment and always ensure that the balance in any individual debtor does not go up periodically and disproportionate to the business done   through him. If possible, try to obtain a cheque as security for the amount due from him.
  • Keep accounts current and up to date
  • Feel proud to be in the company of less than 4% of India’s population who file Income Tax returns. The more the income you declare, the more is your borrowing power.
  • Provide a small percentage of your income for friends, relatives and charity to enjoy the ecstasy of life


The Dont’s

  •  Avoid over trading. Limit your business within the available resources of manpower, machinery and funds.
  •  Never succumb to the unreasonable demands from your kith and kin who may not be fully aware of your correct financial position.
  • Never invest in expensive cars, posh residential houses and such other luxuries with borrowed funds. These assets are indeed a liability.
  • Never sign a contract unless you go through and understand every term, condition and delivery schedule in it.
  • Never make payments against Works contract without getting it measured and assessed by a technical expert.
  • Do not mix up business with friendship and other relationships. Look at the business purely on its merits and demerits.
  • Never borrow money from a money lender.
  • Always avoid speculative and quick money business however attractive it may appear to be.
  • Never give false financial statements to banks. You cannot hide facts for long.


State of mind and Ethics in Business

  • Avoid business which is harmful to humanity.
  • Money alone cannot make you happy; more important is your heath, spirit and mind.
  •  You are only just a custodian of everything that you think you own to the exclusion of others. So never try to posses wealth or get attached to it; just manage it well.  Be ready to part with it if the situations so warrants.
  • Never ever regret for the follies you made in the past. Always look ahead with a positive mind. Every thought is a living being by itself and its main propose of existence is to give physical shape to the mental picture.
  • Believe in the universe and yourself and there is a solution to every problem that we face.


Role of Chartered Accountants in Money Management

A Chartered Accountant well versed in Financial Management can be of immense help in managing your money. Following are some of the areas a professional Accountant could be of help.

  •  Preparation of Budgets and implementation of budgetary controls.
  • Preparation of monthly financials (MIS),
  • Implementation of Internal Control Systems and Risk Management
  •  Advise on investment opportunities for better returns.
  • Negotiations with bank for better terms on borrowings, rescheduling, enhancement of credit limits, on offering of collateral security and personal guarantee.
  • Identifying potential investors in business.
  • Implementation of best practices and procedures at various levels.
  • Advise on Management of Current Assets.

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