Good financial management is the key to maximising profitability. And for that you need good accounting and business systems.
Recording your financial transactions accurately becomes more of a challenge as you expand your business. A simple spreadsheet may be suitable initially but that is no longer enough when the volume of transactions becomes great.
Also, with the advent of GST, the need for a more organised, structured record keeping (accounting) system is paramount.
To conduct your business properly, you need effective financial management tools such as the right accounting software to keep track of your transactions and finances and a good accountant, who can guide you in managing your finances efficiently.
Discuss your needs with your accountant. He/she will advise you on the best system for your needs and may also have a preferred system.
You also need internal checks and controls to show you that your financial records are complete and to correct or warn you if they contain errors. This may be achieved by internal or external (audit) review procedures. A good internal control system will also help limit fraud and provide support in case an audit is needed.
When you put a control system into place you should aim to separate the steps involved so that each one acts as a check on another.
Basic steps to a control system
There are four basic steps to a control system:
1. Completeness – all transactions must be recorded
2. Accuracy – transactions are recorded in the correct amount and accounting period
3. Validity – only authorised transactions are recorded
4. Existence – assets, liabilities, revenues and expenses are genuine.
If you follow these basic guidelines, many errors can be eliminated. Every business needs to develop its own type of internal quality control system, keeping these four areas in mind. Where possible, different staff members should carry out different functions so that they provide checks and balances on each other’s actions.
The larger your business grows, the less daily ‘control’ you may have. So, internal controls become more critical to ensure your business operates as expected.
If you are unsure of what controls you should use, or how to implement those controls, discuss the matter with your accountant. All businesses need adequate controls – they are in the owner’s interest.