Keeping control of finances is critical to the success of any small business, otherwise any sudden dip in cashflow will leave them unable to pay bills or purchase new stock. This would have disastrous consequences for unprepared businesses.
Good financial management involves a lot of careful budgeting. A budget should be based on projected sales figures to achieve the most accurate results. Budgets allow you to take back control of your spending. Budgeting correctly helps you to deal with regular commitments like paying salaries and then you will know how much money is left at the end of the month to either invest back into the business or remove.
Another critical element of financial management is monitoring. You need to be able to make sense of the financial data that you are generating and be able to identify potential anomalies. This helps you learn how to intervene when problems are beginning to develop, rather than waiting until things spiral out of control.