Here at company liquidation services, we often find ourselves giving out advice to people who are struggling to cope.
Running a business can sometimes so complex it almost seems like you’re spinning plates but important in amongst all of the myriad things that demand your attention, is that you think about putting some key controls in place.
Controls might appear to be just another level of bureaucracy but in fact they can protect you and your business from some significant risks.
The Bank rec needs to be the cornerstone of all the accounting controls you have in place. Making sure that what’s in the bank account matches up to what you think is in the bank account can uncover any nasty surprises from that forgotten and unrecorded transaction to the employee who has been spending company money on nights out with the boys.
Any competent finance team should be well versed in producing a reconciliation but a further test is that this is reviewed by someone else who understands the process. At the very least the Financial Director or Financial Controller should have oversight of the results and the reconciliation needs to be completed on a regular basis.
Delegation of authority
This is a fancy way of saying that you need to tell employees what they can spend and under what circumstances. It will be a document that lists out the levels of employees and the amount they can commit to in particular categories, for example a manager may be allowed to authorise a certain amount as an expenses claim, a different amount as a purchase order and a further figure for a contract.
If you already have a delegation of authority then make sure it is regularly reviewed and updated.
Balance sheet reconciliations
It’s often the case that we spend our time looking at the P&L on a daily basis but it is also true to say that the balance sheet can hide a multitude of sins. Major accounts sitting on the balance sheet need to be analysed and a schedule produced showing what makes up the amounts held.
Bank account signatories
A surprising fact is that many companies fail to regularly review the signatories on their bank accounts. Although it may seem to be a bit of a joke that letters come addressed to someone who left years ago the fact is that having inappropriate signatories on the company bank account is a significant weakness. Decide who should be on the signatories list, what their authority should be and get the bank in line.
A company that holds stock also holds easily stolen money sitting on shelves in the warehouse. If your stock never gets counted then employees may see it as an easy mark and visiting delivery drivers may take the chance to make a pick up at the same time!
At the very least a stock take that falls short may show up weaknesses in systems that mean that sales and stock aren’t aligned.
Make sure regular, unannounced and independently verified stocktakes are carried out together with smaller verification counts between times.
Aged Debtors review
If your company sells goods or services on credit then you’ll have a balance sitting on your aged debtors account. Thought about another way – this is your money being used to run someone else’s company.
An aged debtors report should be regularly reviewed and balances that have gone past their settlement date marked for debt collection action.
This will not only make identification of delinquent accounts easier it will also show up areas where mistakes have been made with invoicing and credit notes. A side benefit of this is that it will increase cashflow and reduce debtor days.
Often overlooked, controlling access to documents, information and assets to people who actually need it is a useful method of decreasing risk. Making sure that only trusted people can use bank systems and credit card machines and that moveable assets are properly secured is vital in this respect.
Although it may seem like a ‘nice to have’ in fact it is a legal requirement in the UK when it concerns information regarding employees and customers so companies need to ensure that they have relevant policies and procedures in place to prevent disclosure.
Monitoring business performance against budgets and forecasts is one of the best ways of spotting when something is going awry but this only works when it is done regularly and comprehensively.
It’s also important to make sure that those same budgets and forecasts are realistic and credible allowing reasonable conclusions to be drawn. Businesses that don’t keep and review regular management accounts run the risk of missing small issues before they become big ones.
Although this list isn’t comprehensive it should give business owners a start towards decreasing risk in their companies. Taking a small amount of time to regularly assess and mitigate risk with some simple but effective controls will give directors and managers some much deserved peace of mind.