Financial controls are very important but are often neglected. This set of policy is one of the basic problems I usually meet whenever I try to solve a client’s financial problem or tax issue with the IRS. More often than not, there are no financial controls in place that can help give an overview of the current financial standing, prior financial condition and a forecast of financial expenditures.
Financial controls are very important because this is a set of procedures that serve as a tool that will help in determining financial activity and performance. This way, one can always make adjustments to prevent a financial disaster. There should always be a record of the amount of money the business generates in relation to its spending activity. When financial controls are not in place then there is a potential disaster in the works.
Review of Basic Business Financial Controls
In every business, there are a few basic financial controls that are very helpful in determining financial information. These are also necessary in abating or preventing a possible financial crisis.
Basic Accounting and Bookkeeping
There are a few kinds of accounting software—like Quick Books—that can track all income and expenses
Record the time you are actually working on your business
This helps identify the actual labor cost for either a service or a product
Aging of receivables
Generally, this identifies the people or companies that have not paid on time
Invoice all work or service/product that you do or produce
Take note of all debt, credit cards, loans and all bills that are related to operating the business
Keep invoices, receipts and all records
There should be a separate record for every vendor, creditor and monthly bill—all receipts should be kept
Keep an auto-pay log
Set up a payment log in an auto payment system and regularly check it—monthly checking will do
Retain copies of all checks and all statements
Request for your bank to retain copies of checks and electronic copies of bank statements
Do the same to credit card companies—they should retain copies of monthly statements as well
Establish a filing system
Organizing can go a long way. You can do it by invoices, vendors, suppliers, creditors, customers
*A backup should be in order: Scan all records and back up on external hard drive
Monthly reports that are important and should be kept in a management binder
- Monthly income statement, summary and detail
- Monthly balance sheet, summary and detail
- Monthly aging report
- Monthly collections report
- Monthly payables report
- Monthly labor report
- Monthly bank statements
- Monthly credit card statements
- Monthly debt report
Having all these reports sounds really complicated. But the truth is, these actually make things easier for the business. You only need to adjust to the tasks but, once you get the hang of it, it will transform your life and your business. As a result, the financial life becomes positive. If you don’t have the manpower to take care of all reports—as most businesses don’t—you may outsource the job. There are a number of firms that specialize in this area. For under $600 a month, a firm can do all these reports, including bookkeeping. This way, you won’t even need to hire a bookkeeper. But if you do have one, he or she can use the reports as the outline to look at all your financial controls and systems. This way, you can assess the improvements needed to allow you to see the financial data related to the business.