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Financial Management Corner for small utilities

What is financial management …?

By Karen Johnson, RCAC environmental financial management specialist

Why is financial management important to your water system? The importance is clear – money makes the world go round, or in your case, it keeps the water pumping! 

A strong, effective financial management system enables the utility to provide safe, clean drinking water to its customers. After all, having adequate financial resources at its disposal allows the utility to attract dependable, certified operators and professional office staff; keeps the infrastructure well-maintained; ensures solid credit worthiness; and allows the board of directors to focus on policy, planning and oversight rather than reactive management.

So how does a water system demonstrate good financial management? Some basic elements are:

• Ability to track and report on the system’s financial activity
• Ability to report on each business segment, if more than just water
• Adequate internal controls are followed to ensure financial information accuracy
• Preparation and use of an asset management plan
• Development of a realistic annual operating budget that also incorporates debt repayment and funding reserves prior to setting rates
• Implementation of a rate structure that supports the budget
• Development, implementation and regular monitoring of cost-effective customer policies
• Regular financial statement review and action to ensure the continued financial health of the water system

RCAC's Network News will run a series of articles that focus on each of these areas. (The information can also be used for wastewater systems.) Steps and resources will be provided to assist utility personnel with implementing these methods to strengthen their financial management systems.

The next article will discuss tracking financial activity, that is Bookkeeping!!!!

Until next time…