For management and operational efficiency you need to implement effective financial controls.
In essence, financial controls must include the policies, procedures and ways to monitor, control and use your financial resources for maximum resource-management and operational efficiency. In other words, you need a structure and plan for the results you desire.
For successful financial controls, there are four key elements:
1. Planning
2. Controlling
3. Organizing and directing
4. Decision making
Accounting / Finance – Why and How to Determine Your BEP
Before implementing controls, you should conduct a comprehensive analysis of your policies as they are now and how they’re likely affecting your organization:
1. Check for any duplications and deviations from what is standard or expected.
For a snapshot of your overall operation and performance, examine any and all financial budgets, reports, profit and loss statements and balance sheets.
Before determining new financial control policies, check for anomalies or overlaps. This also will help help you identify and eliminate any issues.
2. Make timely updates.
Timely updates of your data, as well as your management practices and policies, are vital if your organization is to be efficient and profitable.
3. Evaluate all operational scenarios.
Thoroughly assess every possible situation and angles of your operation before you determine and implement a financial control strategy. That certainly would include scale of production or volume, profits, expenses, and safety.
4. Make accurate forecasts and projections.
Forecasts and projections are important. Developing forecasts and projects help you anticipate what your goals and objectives should be. They also help define objectives and goals, and help establish a framework of effective financial controls.
Finance: Zero-Based Budgeting Aligns Resources with Priorities
The importance of financial controls:
1. Insights for cash flow.
When you develop effective financial controls, you’ll be able to monitor and plan both your cash inflows and outflows. In this way, you’ll be on your way to an efficient operation.
2. Managing your financial resources.
It’s critical to have a full understanding of your financial resources. They make it possible to get all the resources you need to operate your organization.
3. Efficiency in your operations.
It almost goes without saying that efficiency in your organization can only result from an effective financial control system.
4. Pathway to profits.
You’ll have a smooth functioning organization from operational efficiency. Operational efficiency will, of course, increase your productivity which is directly tied to profitability. Hence, that’s the importance of stellar financial controls.
5. Prevention of fraud.
You must guard against fraud, of which there are many types such as employee fraud or online fraud. Therefore, carefully watch incoming and outgoing funds. And watch your other assets carefully take inventories of everything in your business.
Embezzlement: Guidelines to Uncover and Prevent it
Three essentials in financial controls:
1. Financial management strategies.
— Create qualification restrictions and hire qualified managers and staff to develop and implement policies.
— Make communication a priority between accountants, bookkeepers, managers and senior managers, especially with your chief financial officer.
— Stay up-to-date in training and sharing of financial information with all employees: Changes in laws and your overall business environment whether it be in marketing and sales and to your customers and competitors.
— Continue to regularly analyze and evaluate your financial ratios and statements.
— Establish an efficient chain of operation with a focus to maintain proper delegation of financial duties in your organizational structure.
2. Income.
— Make certain to have the best-possible credit-reporting policy before you grant credit to any customer or vendor.
— In addition to annual reporting, regularly reconcile your bank statements to the general ledger.
— To guarantee that you fully know the credit worthiness of your customers and to prevent bad debts, regularly review the financial situation of your customers.
— Keep all your support files and backups for financial data in a secured fashion. Make certain that only your trusted senior managers have access to the data.
3. Expenditures.
— To prevent unwanted expenses, monitor all scheduled automatic payments and subscriptions. Require that only approved employees can authorize any expenditures.
— Monitor cash outflow by establishing a vendor database complete with extensive purchase records.
— Regularly reconcile bank statements to the general ledger.
— To prevent employee fraud and stop unjustified business expenses, maintain a detailed reimbursement policy including expense reports and receipts.
From the Coach’s Corner, here are additional resources:
10 Strategies for Internal Controls of IT and Financial Systems – Obviously, the welfare of your company depends on having an up-to-date information technology (IT) system. IT now impacts every facet of your business. So it follows that you should invest in IT controls to protect and enhance your financial system.
Best Practices for Disaster Planning Include HR, Payroll — In disaster preparedness, naturally your goal should be to lessen impacts by designing and coordinating a plan to save your resources and your time. Here’s how.
Management Best Practices Include Solid Operations Checklists – Are you concerned about profits? Would you like for your business to be in a class of its own? Not to oversimplify, obstacles to profits result from two basic barriers: External and/or internal challenges.
19 Best Practices in Due Diligence for Profitability – To lead your company to high profitability – and to stay there – due diligence is needed in critical values.
Vital Steps to Strategically Plan Your Sales Growth – You can plan to grow your business but a solid growth strategy is much more than developing and implementing a marketing plan.
“Beware of little expenses. A small leak will sink a great ship.”
– Benjamin Franklin
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