Why Financial Controls Matter
Small businesses often operate with limited resources, making effective financial controls crucial for survival and growth. Proper controls help prevent fraud, ensure accuracy, and provide the insights needed for strategic decision-making.
Core Financial Controls
Every small business should implement these fundamental financial controls:
1. Segregation of Duties
Even in small organizations, it's important to separate key financial functions:
- Different people should handle cash receipts and record keeping
- Bank reconciliations should be performed by someone other than the bookkeeper
- Purchase approvals should require multiple signatures for significant amounts
2. Regular Bank Reconciliations
Monthly bank reconciliations are essential for:
- Identifying discrepancies early
- Detecting unauthorized transactions
- Ensuring accurate cash flow reporting
3. Accounts Receivable Management
Effective AR management includes:
- Regular aging reports
- Consistent follow-up procedures
- Clear credit policies
- Prompt invoicing processes
4. Expense Authorization
Implement clear expense approval processes:
- Set spending limits for different roles
- Require documentation for all expenses
- Regular review of expense reports
- Clear policies for business vs. personal expenses
Cash Flow Management
Effective cash flow management is critical for small business success:
Cash Flow Forecasting
Develop 13-week rolling cash flow forecasts to:
- Anticipate cash shortfalls
- Plan for seasonal variations
- Make informed investment decisions
Working Capital Optimization
Optimize working capital by:
- Negotiating favorable payment terms with suppliers
- Offering early payment discounts to customers
- Managing inventory levels efficiently
Technology Solutions
Modern accounting software can automate many financial controls:
- Automated Bank Feeds: Reduce manual data entry and errors
- Approval Workflows: Ensure proper authorization for expenses
- Real-time Reporting: Access up-to-date financial information
- Integration: Connect with banking and payment systems
Regular Financial Reviews
Schedule regular financial reviews to:
- Analyze key performance indicators
- Compare actual vs. budgeted performance
- Identify trends and opportunities
- Make necessary adjustments to strategies
Getting Professional Help
While many controls can be implemented internally, consider professional assistance for:
- Setting up initial control systems
- Regular financial health checks
- Complex compliance requirements
- Strategic financial planning
Need help implementing financial controls in your business? BBD & Co can provide customized solutions to strengthen your financial management.