Make smart financial moves
In this article you will learn about:
Why financial controls are important for small businesses
The 5 buckets of financial controls and best practices for each bucket
Having financial controls in place is important for a small and growing business. Not only do financial controls keep accounting records accurate and reliable but they also act as a safety net to reduce or eliminate fraud and theft. Financial controls are particularly important when it comes to monitoring customer accounts, expense payments and petty cash. The more checks and balances you have in place, the less opportunity there is for losses of cash and inventory.
The 5 buckets of financial controls
Financial controls fall into 5 buckets: cash, accounts payable, financial, data security and human resources. Here are some best practices for each bucket:
Bucket #1: Cash controls
Keep business and personal accounts separate.
Reconcile your accounts regularly comparing your internal cash book with external bank statements.
Limit the number of people who can access online and offline bank information and point of sale.
Have 2 people double-check all cash deposits.
Limit the number of authorisers for digital payments.
Bucket #2: Accounts payable controls
Get formal cost estimates on all purchases over a certain value.
Triple match invoices with purchase orders and proof of payment.
Check business credit card statements against expense accounts.
Bucket #3: Financial controls
Compare actual results with expected results for sales, expenses, cash and debt balances, inventory movements, travel and entertainment.
Have different people responsible for different parts of the transaction life cycle
Have backup documentation for all transactions.
Consider using a professional accountant to look over your financial reports on a regular basis.
Bucket #4: Data security controls
Only provide the necessary people with login access to the business’ financial system.
Choose unique passwords and update them regularly.
Back up your systems regularly and store data offsite if possible. A cloud-based solution means that information is available from anywhere and access can be controlled more effectively.
Bucket #5: Human resources controls
Conduct background checks on new employees.
Review your payroll reports regularly to ensure all amounts and names are familiar.
Create a company culture that encourages honesty and open communication.
A final thought
Technology can be used to support financial controls. Both preventative controls (designed to keep mistakes from happening in the first place) and detective controls (that find mistakes after they have happened) can be automated in order to quickly pick up issues.
Key Takeouts
Small businesses can be vulnerable to accounting errors and fraud. Financial controls are policies and procedures designed to detect and prevent these issues.
What can you do now?
Learn about how financial measures can help your business
