During the first stages of any business, it faces specific challenges that need attention. Keeping control over your business is fundamental to its success as it will allow you to maneuver the business in your desired direction. Financial control inefficiencies found in small businesses can cause the loss or damage of assets, resources, and a drop in revenue. These deficiencies can be fixed by slightly changing existing processes and introducing basic control procedures. Below are some key areas where a business might struggle for control.
Inadequate documentation and records
Your receipts, invoices, and other documents are evidence of all the transactions that your business does. These documents are then further used for bookkeeping and the maintenance of business records. All your financial documents should be assigned numbers so that they can be identified. Also, if something is missing in the series, you’ll know as the serial numbers would not be in order, and this further ensures documents are not duplicated.
The financial control for your documents should be developed to help with the review sales, customer, or vendor queries. Proper sequencing of your records will ensure that all the questions are answered satisfactorily, which means that you develop good relationships with all your partners and customers. This will also help you at the time of filing tax returns.
Undefined key business cycles
Small businesses often overlook the need to define key business processes. Written policies should be followed, but small businesses often overlook implementing basic flowcharts of the procedure. This might be one of the most underused financial control tools that can add the most value to your business without much effort.
Every business has unique needs, and based on those needs, certain cycles during the year may be important to them. Sales, accounts receivable, accounts payable, banking procedures, and cash management are some key areas that every business has to deal with effectively. Businesses that are involved in selling products should develop clear inventory control procedures. Documenting key controls in each of the business cycles will offer specific roles and responsibilities that can be assigned to individuals.
Lack of financial control with authorization of transactions
Before you commit for 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 incongruous spending. For example, you could set a certain amount under which your managers or other designated person can approve all the transactions, and anything above that must go through proper channels before getting approved. Also, when you allow the transactions before the actual order has been processed, it serves you with an opportunity to evaluate your decisions better and align it with your business objectives. Financial control in business transactions is one of the key areas that businesses must focus on as they often miss it amidst other tasks.
Lack of oversight and review
Small businesses often get themselves so involved in the day to day work that they overlook specific basic requirements of running a business such as review procedures. As a business owner, you must review your financial records after a defined period. You can save yourself from fraud as well as unfavorable circumstances by implementing a procedure that forces you to review your financial information regularly. Not much time is needed to assess revenues, expenditures, inventory reports, budget vs. actual amounts, and variance reports. It is also a part of the financial control that you take review procedures 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 as well as will be well acquainted with the financial information to make better decisions regarding your business’s future.
Small business owners often fail to understand the criticality of having control procedures in the business. It is, therefore, advised for all the business owners to implement strict financial controls and ensure that they are followed throughout.
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