During the early phases of any business, it faces certain challenges, which need to be handled head-on. Keeping control over your business is fundamental to its success as it will allow you to maneuver the business in your desired direction.
Financial insufficiencies found in small businesses can cause the loss or damage of assets, resources, and a drop in revenue. These deficiencies, however, can be fixed by slightly changing or altering existing processes and introducing basic control procedures. Here are four key areas where a business might struggle with financial control and gain it back.
Inadequate Documentation
Your receipts, invoices, and other documents are evidence of all the transactions that your business undergoes. These documents are then further used for bookkeeping and to maintain accurate records of every deal your business goes through. All your financial documents should be assigned numbers ID’s so that they can be identified.
Also, if something is missing in the series, you’ll know that the serial numbers would not be in order and that there is no document duplication. The financial control for your documents should be developed to easily review it in any aftersales, customer, or vendor queries.
Proper sequencing of your records will ensure that all the queries are answered satisfactorily, which means that you develop good terms with all your partners and customers. This sequencing will also help you when filing your tax returns.
Undefined Business Processes
Many small businesses often overlook the need for defining key business processes. As much as there is a need for written policies and defined standard operating procedures that should be followed, they often lack implementing even basic procedure flowcharts.
This might be one of the most underused financial tools to add the most value to your business without much effort. Every business has its own unique needs, and based on them, certain cycles during the year may be important to them. However, sales and accounts receivables, accounts payable, banking procedures, and cash management are key areas that every business has to deal with effectively.
Businesses involved in selling products would have to develop inventory control procedures more rigorously than any other. Documenting key controls in each business cycle will offer transparency, steadiness, and specific roles and responsibilities that can easily be assigned to particular individuals.
No Authorization of Transactions
Before you commit to any resources, authorization of purchases must be completed. Based on the scale and kind of business, a level of authority can be introduced to effectively carry forward with the business transactions and reduce the risk of inappropriate spending. For example, you could set a certain amount under which your managers or other designated person can approve all the transactions. Anything above must go through proper channels before getting approved.
Also, when you authorize the transactions before the actual order has been made, it serves you with an opportunity to evaluate your decisions better and align them with your business objectives. Therefore, financial control in business transactions is one of the key areas that businesses must focus on as they often miss it amidst many other tasks.
No Oversight and Review
Small businesses often get themselves so much involved in the day-to-day work that they overlook certain basic requirements of running a business, such as review procedures. It is your job as a business owner to review your financial records after a defined period.
You can save yourself from fraud and unfavorable circumstances by implementing a procedure that forces you to review your financial information regularly. Not much time is needed to assess monthly revenues, expenditure reports, inventory reports, budget vs. actual amounts, and variance reports, and the benefits are immense.
It is also a part of the financial control to take review procedures seriously and take a more hands-on approach. More often than not, this will prove to be the most vital exercise. You will be able to highlight the problem areas in your business and be well acquainted with the financial information to make better decisions regarding your business’s future.
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