Imagine the excitement when your small business gets invited to submit a proposal for a long-term contract that would significantly increase your profits. Your chances of winning the contract are terrific!
But if you win, you’ll need to make substantial investments by purchasing an expensive piece of machinery, hiring and training new employees to use the machinery, and committing to ongoing equipment maintenance.
As you contemplate if these significant investments are a wise business move, you’ll need the benefit of historical, current, and forward-looking financial data you can trust to make an informed, intelligent decision.
Are you confident you can rely on your financial statements as you weigh the pros and cons of submitting the proposal?
Your enthusiasm for the new contract will quickly turn into sleepless nights full of worry if you’re unsure that you can rely on your financial data during decision-making. On the other hand, if you’re confident your financial data is complete and accurate, you’ll make an educated decision and enjoy the excitement of growing your business!
Your ability to rely on your company’s financial statements is an integral tool in a smart decision-making process. However, only financial statements that are complete and accurate can be relied upon to make sound choices. As your business grows, your decisions will become more complex with far-reaching consequences.
To ensure your company’s financial information is reliable, you’ll need a solid foundation of financial safeguards to support your business as it grows. These safeguards are your internal controls.
Internal controls have two parts:
Internal controls are important because they are the checks and balances, a.k.a "the financial safeguards," established within your business to:
These financial safeguards also help ensure your business uses accounting best practices, minimizes mistakes, and eliminates shortcuts that lead to incomplete information.
Additionally, as your business grows, you may need to raise capital from external sources to pursue new opportunities. Commercial banks, private investors, and government lending programs, to name a few, will want to see your financial statements before they extend financing. Your company will make a positive impression with these sources of capital if you have a solid accounting function that produces accurate financial statements for their timely review. Internal controls help make this scenario a reality for your business.
With appropriate policies and procedures in place, your internal controls and accounting processes can scale up with your business as it moves forward — ensuring the decisions you make, both large and small, are based on accurate financial information.
Internal controls are critical within a growing business. As you expand your operations and client base while continually working to maximize your profits, you need to be confident your financial information is accurate. Accurate financial information is the basis for analyzing profit margins, pricing, and overhead levels – inaccurate information can lead to poor management decisions in all these areas.
While there are numerous internal controls you should have in place in your business, there are a few essential, high-level controls you should adopt immediately.
Explore the six high-level internal controls you should put in place now.
By establishing these six internal controls, you're laying a robust financial foundation for your business as it grows. The financial safeguards provided by these recommendations will help protect against shortcomings in your accounting system and reduce the possibility of errors or irregularities, thereby increasing your confidence in your company's financial information.
Often, companies establish their internal controls with a "policies and procedures" manual and consider their work on internal controls as done. While there are once-a-year tasks, such as preparing the overall annual budget, managing most internal controls is an ongoing process.
Establishing accountability is vital. Business owners should make it easy for employees to monitor and manage controls by carving time out of their employees' busy schedules to address internal controls. Hold regular meetings for employees to report their status and consider how their activities impact your business.
Once your internal controls are in place, continue to analyze all aspects of your company to determine what processes and procedures to adopt next. With dozens of available internal controls, consider partnering with an accounting expert who will assess your business and recommend the appropriate controls.
Experts have the insight and experience to identify the essential controls for your unique company and can guide you in effectively establishing, documenting and implementing these controls.
Kaiser Consulting offers a Small Business Essentials Controls Assessment to help business owners take the necessary steps to build a solid internal controls foundation for their growing business.