Insights: Article

Seize More Control Over Your Business - Six areas for business owners to focus on

July 29, 2014

Without the proper "controls" in place, a small business can struggle or go under, especially in this tough economy. Although there are no guarantees, the following are basic guidelines to follow in six areas:

1. Sales: It is important that accurate sales figures are used to establish company revenue and direct inventory purchases. Implement detailed procedures for cash, checks, credit cards and online sales.

  • Use an invoicing system for shipping goods.
  • Ensure that sales figures are correct and commissions are not paid until funds are received.
  • Reconcile sales with payments. Double-check sales against original invoices.
  • Obtain proof of delivery when goods are shipped.

2. Accounts receivable: Failure to collect past due accounts can create cash-flow problems and erode profit. Establish credit and collection policies in writing, and follow through on their implementation (e.g., review credit balances on a regular basis).

  • Separate accounts receivable from cash reporting.
  • Have accounts "aged" regularly and authorize an independent review of the report.
  • Cross-check noncash credits and bad debt write-offs.
  • Establish numerical or batch-processing for billing.
  • Initiate security measures for outside communications.

3. Accounts payable and purchases: Many companies are prone to mistakes in this area. Below are procedures for your staff to follow:

  • Record purchase and accounts payable procedures.
  • Initiate controls to cross-check duplications.
  • Check pricing information and prices of competing vendors.
  • Focus on large billings and items that may be disguised under smaller entries.

4. Cash accounts: If your business processes a significant number of cash transactions, it can easily fall prey to theft, especially if internal controls are substandard.

  • Have employees balance cash at the end of their shifts.
  • Safeguard checkbooks and other methods of disbursing funds.
  • Reconcile all bank accounts on a regular basis.
  • Separate cash deposits from other functions at the bank.
  • Divide responsibility for cash disbursements and purchases from the approval process.

5. Payrolls: Thanks to recent technological advances, it is easier than ever for employees to commit fraud if tight internal controls are not established.

  • Ensure that electronic passwords are protected and changed frequently.
  • Review bank account deposits to ensure that wages are being disbursed properly.
  • Separate responsibilities for payroll preparation, disbursement and distribution.
  • Investigate variations in payroll expenses and monthly budgets.
  • Train backups for critical payroll responsibilities.

6. Physical assets: It is also relatively easy for physical assets to be misplaced or misappropriated. Protect valuable property from external, as well as internal, access.

  • Lock up laptops and other electronic devices.
  • Record all asset purchases and maintain detailed records.
  • Assign responsibility for supervising physical assets to a particular employee and a backup.
  • Divide responsibilities involving expensive equipment among employees, if possible.

Finally, coordinate these activities with your business advisers. They can help you install some meaningful controls.