• Financial controls to support your business

Financial controls to support your business

Maintaining core financial controls should help your business mitigate some of the risks associated with the Covid-19 pandemic.

Implementing and monitoring robust financial controls will allow your directors and leadership team to focus on the activities that underpin your business – the important tasks that sustain growth and profitability. 

Here are some tips on processes and routines to help you monitor performance and do things right.

Monitoring performance

1.    Create a budget – and review performance against that budget

Almost all companies have a budget. The problem is that when things get busy, or external events affect business, it’s easy to stop reviewing performance against that budget on a monthly or quarterly basis.

Reviewing your management accounts against your budget will highlight where things are going well and where there are potential challenges. This insight will ensure you take corrective action to deal with problems before it is too late. This is why having a budget and regularly reforecasting based on actual and known future outcomes is so important. 

2.    Report on and review critical measures for your business 

The current and future health of your business isn’t just revealed by conventional financial performance measures. What are the factors that make your business successful? These could be levels of website traffic, sales conversion data or helpdesk calls and issue resolution. Work out what matters in your business, then capture that data and monitor it.

If your business would benefit from support on how to analyse the data you collect – you might want to consider the field of Data Science, which allows you to harness the power of data along with modern mathematical modelling techniques. It allows you to extract knowledge and provide useful, practical insights that will improve your bottom line. 

3.    Keep track of your expenses

It’s important to identify the key costs in your business and then monitor expenditure against budget month on month. 

For example, payroll could be a major cost. So could cost of sales. Prepare a ‘payroll bridge’ or a ‘cost of sales bridge’ showing the movements from the previous month to identify significant changes. This way you don’t need to review all the data, but can easily see any unusual or unexpected increases.

From a profitability perspective, spend an equal amount of time tracking your margins. You should look to examine profitability by service line, product, location and region where the data allows – so you can make well-informed strategic decisions. 

Doing things right

1.    Make use of the user permissions in your accounts software

Every accounting package allows restricted access user permissions designed to prevent people from doing things they shouldn’t do. Unfortunately, many businesses forget to activate them or fail to create and enforce controls properly. However, establishing user permissions is an easy control to set up and particularly powerful for preventing fraud and errors. 

Posting manual journals is just one of many ways that frauds are covered up. So if you restrict the access for posting manual journals to certain qualified people or even just the directors, you have a better chance of preventing fraud.

2.    Get your contracts in place, signed and keep them securely

As your business grows, it is important to formalise relationships, including employment and leasing relationships. It is easy to overlook. Making sure contracts are in place and correctly documented protects both the business and employees from onerous legal situations in the future.

3.    Keep Companies House filings up to date

Filing documents with Companies House might seem like a boring and routine task, but it is a key part of running a successful business. 

You should review your filings at least annually to make sure you’re up-to-date. Key documents you need to file include your annual accounts, annual confirmation statement and other documents relating to events such as a change of directors or share capital.

Online filing via Companies House makes this relatively simple to do.

Ongoing support for your business

From a finance function perspective, you should conduct a thorough analysis of your systems and processes. This should identify pain points that affecting the performance of the function. 
Businesses should also look to use cloud-based technology, enabling teams to work seamlessly and remotely if need be. 

If there is a risk around key staff members being unable to work due to illness or self-isolation, then the business should explore the possibility of partially or fully outsourcing back office finance and accounting tasks such as management accounts, production of financial statements, bookkeeping and/or payroll.