What are financial controls and why would I need them?

Small organisations often know they need to have financial controls but put it off.  Virtual FD Lyndsay Henderson shares the business benefits of taking action and why it may not be as onerous as you think

When you lead a small organisation there are so many things to think about – running the operations, winning clients and delivering a product, service, or fundraising. One of the areas that can sit at the end of a very long to-do list (if it makes it there at all) is documenting your processes so your employees understand how the business works and can run it in your absence when you make it on that elusive holiday. In addition to understanding your processes, it is important to understand where your business is susceptible to risk e.g. theft of cash, or poor cash flow management, and build controls into your processes to mitigate these risks.

For me, as a virtual finance director, processes and controls are critical to business success and make scalability much easier. Here are my reasons why I think you should be thinking about them:

1. Controls minimise risk

Controls minimise risks to your organisation. For example, as your organisation grows, you won’t have the time check every supplier invoice and make every payment. If you implement controls such as segregating tasks so that the employee putting together the list of invoices for payment is different from the employee making the payments you minimise the risk of fraudulent payments and errors being made.

 

2. You might have what you need in place already

My view is that effective financial controls must be right for the size of the organisation. A limited company with the director as the only employee doesn’t need detailed process maps and segregation of duties around controls as that’s simply not necessary or practical when only one person is doing all the tasks!

 

3. But be ready when it’s time to grow

When your organisation starts to grow, it’s key that the leaders continually assesses the need for putting in clear processes and controls and implement these pro-actively. When you take on new employees it will minimise the amount of time you need to spend explaining the basics if it’s all there documented leaving more time for them and you to get on with their day-to-day roles! There will be fewer errors and issues as everyone will be clear on who’s responsible. You should continue to regularly review e.g. once every six months, or after a big change, to ensure the processes and controls are still fit for purpose.

 

4. Leverage what you already have

Many accounting packages have ready-made controls in place such as purchase orders which allows an employee to request a purchase on the system, ask for approval and then when invoiced your book-keeper can match the invoice to the approved purchase, minimising the risk of unauthorised purchases and questions from the book-keeper about what an invoice relates to.

 

5. Financial management

Strong processes and controls will enable better financial management which will mean clarity for cash flow forecasting and management. For example, by using purchase orders and recording invoices in a system when they are received it’s easier to forecast upcoming payments to suppliers so any tight points can be identified and pro-active steps taken to minimise them. It’s also worth considering that investors will look favourably on companies with clear processes and controls in place that are ready to scale up.

Implementing processes and controls shouldn’t be a daunting task and the benefits and value it will add to your organisation will far outweigh the time needed to do it. At Holy Brook, we have a wealth of experience in reviewing, assessing and implementing controls and processes, so if you would like help with your organisation please contact our Co-ordinating Director, Rachel Eden rachel.eden@holybrook-associates.co.uk