Your business is just that, your business. You are not only ultimately responsible for your company, but you want it to grow and be as successful as possible.
With that being said, it is important that you and your company are both organized, and that you have internal controls in place right from the beginning. Internal controls are the procedures and rules that you put in place to improve the efficiency, accuracy and integrity of information, as well a means to help protect your company from falling victim to fraud.
Even if it’s just you on your own as you are starting up your business, it is important to have these controls in place even for you. They will be the foundation for the business to grow on, and it will set good habits up early. Not only that, but these internal controls can help build your customer’s trust in your business and may change how potential investors look at your company.
Some of these controls include those listed below.
Policies and procedures
Policies and procedures are what helps you to keep your company running efficiently. This can start at the beginning, by making sure that you have accurate job descriptions for all of the positions that you are hiring for. Not only does this help when you are hiring, they can be used to avoid confusion over whose job is what. It is important that people know what they are being hired to do, so that everyone knows who is responsible for what.
In addition to job descriptions, training manuals also assist in shortening up training periods, as employee knows what they are supposed to do right from the start. These manuals can cover the general procedures for your company all the way down to how invoices are checked.
Job descriptions, training manuals, as well as any other policies and procedures that you set up for your company will aid the employees in knowing their roles and help keep your business successful. Even procedures such as completing tasks the same way can be important to your business’s success.
For example, if everyone knows that invoices must be checked for vital information such as a GST registration number, clarity of customer information and dollar values, if another person takes over the job or is simply helping out, they will be aware of this procedure and what is required. They will also know how to proceed if this information is not there.
As a small business owner, it is crucial that one of your internal controls is keeping documentation. Documentation can be either digital or paper, but you should definitely be keeping all of it. This can be something as simple as a gas receipt, all the way up to the lease of your office space, and it is even better if it is kept accessible and organized. Even if you haven’t kept the best records so far, it is never too late to start.
One of the reasons that documentation is important, is that if you ever get audited, you will need to be able to show this documentation to the auditor. If you don’t have it, things may not go as well for you. There are some pieces of documentation that are easy to think about, and some you may not be aware of.
For an accurate list of documentation that your company should specifically keep, speak with an accounting professional.
Another reason to keep your documentation is that it can help you make informed decisions. Proper, accurate and up to date documentation is always important when making business decisions. This can be for a specific project or knowing if your business has the capital to expand.
For example, when completing a project, a project manager relies on documentation to oversee scope, budget and schedule. With this documentation in place and readily available, other team members can also easily access the information. This not only helps to run your business more efficiently, but it can help to reduce any risk to your company.
Another form of documentation is your record keeping. Even if it’s just you, start the habit of keeping track of all of your transactions. Even if it is a spreadsheet set up in Excel, you need to start keeping track. You should then compare, or reconcile this spreadsheet, receipts and bank statement frequently, or even monthly. Accuracy and knowing where your money is, is always critical. Not only for day-to-day operations, but for future growth.
Even though there are many software programs on the market, this may not be in everyone’s wheelhouse. That’s why one of our services is bookkeeping, to help businesses maintain their records and operations.
Another benefit of keeping up with your bookkeeping, or accounting, is that it helps with customer and supplier confidence. When you provide correct and timely billings, as well as accurate payments to your suppliers, this not only keeps them informed, but they know what to expect from you in the future. If you don’t keep track of your finances as you go, you may end up losing money along the way.
Again, it is vital to maintain your books. Not only does it help you to keep control of your assets, meaning you know where your money is, but it helps ensure that your company information is complete and accurate. This in turn will allow you to have financial statements that are reliable and accurate.
According to the Canadian Federation of Independent Business (CFIB), one out of five small businesses have been victimized by fraud. Having procedures in place and making sure that all of your employees know these procedures is a good place to start. As we’ve mentioned in other blogs, in British Columbia, 98.2% of businesses are classified as small businesses. Annually, March is fraud prevention month in BC, and it is always a good time to remind your employees of external fraud possibilities.
Fraud can not only affect a business externally, but internally as well. It is important to make sure you have controls in place. As your company grows, you hire more people. To start, it is important to remember not to allow an employee to have sole responsibility over any portion of your business. For example, an employee should not be solely responsible for you accounting.
It is your business, and when it comes to your money, it is important to always have financial transactions checked.
If it isn’t possible to have two employees cross-check their tasks, and if you as the owner simply don’t have the time to check, you may want to think about having an independent bookkeeper double check the transactions. This is important so that you know your hard-earned money is taken care of.
Even as the owner, if you have a business partner, it is important that all financial decisions are made together. If there are more than two owners, at least two owners should be required to authorize larger transactions. This allows for transparency where finances are concerned, and this is vital for a business to grow.
As your company continues to grow and you hire more employees, you will likely start delegating tasks to departments, not simply individuals. Not only does this create clearer lines of responsibility, but when a department is responsible, it no longer one person’s responsibility. This makes cross checking or reviewing other people’s work simpler.
For example, one employee in the accounting department may check an invoice or payment. Once they are done, another employee can cross check their work. Depending on the internal controls that you have set up in your business, this may be all that is required. If it is a higher dollar value, you may have a department head that checks the work or invoicing again, or you may have a procedure in place where you review it.
As a business owner, you have information that you consider private. Your business does as well. This can include your financial statements, investments and even payroll. Not everyone in the company needs to have access to this information, and this is another vital place to have an internal control.
As well, you may choose to have some of your customer’s information limited to certain employees when it is considered personal, or if it includes access to any of their finances. This internal control is typically set up by an IT administrator, who can limit the access your employees have to financial and vital information.
Internal controls are crucial to helping your business grow. Once they are set up and in place, they will not only aid in your operations running smoothly, but they will assist in mitigating risk down the road.
Need help from an expert?
Setting up internal controls, especially when it comes to accounting can seem like a daunting task. For information or assistance in setting these up, let one of our experts at Valley Business Centre help. For over 30 years, Valley Business Centre has been providing comprehensive bookkeeping, payroll and tax services to our clients in Whistler, Squamish, the Sea to Sky Corridor and metro Vancouver B.C. areas. Valley Business Centre provides reliable and effective services to all clients.
This article is written for informational purposes only. It is current at the date of posting and changes to laws and regulation may result in the information becoming outdated. It is not intended to provide legal, tax, or financial advice. It is recommended that readers get advice from a tax professional before making any final decisions.