Businesses need financial controls. These precautions can help keep your business from falling victim to unforeseen cash flow issues, catastrophic financial woes, or even employee fraud. Nobody wants to consider that people working for them may not have their company's best interest in mind, but the reality isn't always so rosy.

If you’re willing to invest the time and effort, these 10 financial controls can help protect your business from such threats.  

1. Pay attention to your bank statements

One of the easiest, and perhaps most obvious, places to start is to pay close attention to your bank statements. Make sure every transaction can be accounted for. If there are any items that raise questions, get to the bottom of them. Don't just move on and chalk it up to "there must be a logical reason." Find out what the transaction is all about and determine if any action needs to be taken.

2. Ensure all overtime is approved ahead of time

As the business owner, you have control over overtime. Ensure that nobody is working extra hours without being approved to do so. These hours can quickly add up, especially at time and a half, and especially if multiple people are working overtime. It's well within your control to keep employee hours where they need to be.

3. Make sure you're the one signing all the checks

Signing all business checks not only keeps you in the loop on outgoing payments, but it means that you approve each one, literally by signing off on it. Set up a system where each check must have backup attached for you to review before signing. If this policy is adhered to, it can be an effective financial control.

4. Don't keep pre-signed checks available for use

On that note, make sure you're signing checks as they're being used. Some business owners will sign checks in advance so that designated employees can use them as needed, but this is problematic for at least two reasons: you're forgoing the financial control of signing off on each payment, and it leaves room for abuse of the checks, especially if any fall into the wrong hands.

5. Control company credit card use

If you really want to have the most control over company credit card use, you can be the sole person to use the card, but chances are, this is a major inconvenience. There will likely be times when you'd want certain employees to use it. You can still have some control here by requiring receipts for all uses, then pay attention to them and make sure card privileges aren't being abused.

Ask your bank about controls you can set up for your business credit card. These can include separate spending limits for each cardholder, restricting purchases to specific merchants, or allowing cards to be used only for certain categories of merchants (e.g., gas stations or wholesalers).  

6. Train more than one person on finances

Make sure that more than one employee is capable of handling your company finances. This ensures that things can continue to run smoothly if the principal employee must miss work or takes a vacation. In fact, having another person trained in this department means they can help you verify that everything is in order. According to SCORE, it's a good idea to require employees who handle money to take an annual vacation and have someone else fill in for them.1 Often, criminal activity like embezzlement isn’t discovered until the person responsible for handling money is out of the office for an extended period. In fact, you might begin to see red flags if your bookkeeper is reluctant to train someone else to take over, or if they make excuses not to take a vacation.

7. Pay attention to payroll

As a business owner, payroll may not be on your list of priorities to think about. You already have someone handling this, and with good reason — your time and efforts need to be focused on higher-level concerns. However, it's still a good idea to check in and make sure everything is in order. You may be able to catch instances of people working overtime when they shouldn't be, or padding their timecards with hours they didn’t work. It will also keep the monetary value of each employee fresh in your mind, which can help you make decisions on wages, hours, etc.

8. Keep close track of petty cash

The name "petty cash" suggests that it is basically disposable, but in the end, money is money, and like the company credit card, it shouldn't be abused by those who have access to it. Require receipts, and pay attention to how this money is being used. It's possible that you're replenishing it more often than you need to be. At least be aware of the situation.

9. Request itemized invoices from vendors

When you pay your vendors, make sure you know where your money is really going. Ask them for itemized invoices if you're not already receiving them. Get a look at exactly you're paying for and inquire about any fees that you don't understand.

10. Keep close track of the cash register

Be sure to keep a close eye on the cash register and look for disparities. Count the drawer at the beginning of the work day and again at the end. If you want to be extra cautious, have a video camera on it as well.

You may not be able to control every financial aspect of your business. If it were that easy, fewer businesses would fail. However, taking this advice may give you a better handle on your money. 

 

1. https://www.score.org/resource/17-internal-financial-controls-every-small-business-should-have

 

The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.