wardell books

Financial Control Systems

“Businesses always have problems. Numbers tell you where the problems are and how worried you should be.”

- Jack Stack

Financial Control Systems manage the flow of money into and out of your business. They are the systems that track and control your money in real time. Every-time a sale is made, for example, your Financial Control Systems ensure all pertinent details are recorded and transferred to your bookkeeping and accounting systems in a timely and accurate manner.

Done right, these systems will ensure bills are paid on time, purchases are made on budget, only appropriate purchases are made, employees receive accurate and timely paycheques, cash sales are accurately recorded, and so forth.

Financial Control Systems represent your ability to control your money. Every-time money makes a move in your business, it should move in accordance with your Financial Control Systems, otherwise you risk mistakes. Mistakes can cost you money (i.e. inaccurate billing) but, more importantly, they are often symptoms of a deeper problem. Financial mistakes mean that your Financial Control Systems are not doing their jobs properly and that means your finances are out of your control. Remember, left unchecked, even small problems become big problems as a business grows and the last thing you want are magnified financial problems.

Your Financial Control Systems are one more step in the quest to run your business “on purpose.” Once you have confidence that your money is being handled properly, your ability to actively manage your business will be greatly enhanced. A business that runs “on purpose” is able to make faster, more permanent changes and improvements. This also makes the future, financial and otherwise, more predictable. There may be no way to know for certain what the future holds, but solid Financial Control Systems can help you get control of some of the more costly variables.

Financial Control Systems support all of the other systems in your business by ensuring they have the necessary financial resources for their operation. Think back to when you first began developing business systems in “Management.” Your first step was to identify your system's inputs. These might have included office furniture, manpower, materials, and so on. Your Financial Control Systems ensure these inputs are available when they are needed, by providing the necessary funds.

While it may be nearly impossible to make your business completely impervious to mistakes or dishonesty (especially if there is collusion between two or more employees), your Financial Control Systems can help keep honest people honest, identify errors when they occur, and raise red flags when things don't seem quite right. A formalized system, by its very nature, regulates an activity making errors and problems easier to spot. The rest comes down to hiring the right people and treating them properly.

Some of the benefits of good Financial Control Systems include…

  1. Safeguarding assets and the accuracy of financial records.
  2. Assuring that financial transactions are properly authorized and recorded.
  3. Helping maintain accountability for assets.
  4. Helping ensure proper authorization for access to assets.
  5. Providing periodic reconciliation between records and assets.

As a result of years of experience, the owner of a bar knew the sales he could expect in any given month, give or take a few dollars. One summer, he seemed to be consistently short by about $1,000 every week. He suspected that one of his bartenders was stealing, but he didn't have any proof, so he hired a private detective company to find the culprit. After several weeks, the company reported that every bartender was ringing up every transaction and putting all of the money into the cash registers. The owner was puzzled. How could that be? So one night after the bar was closed, he sat down to try to figure the problem out.

He had five bartenders, he thought to himself, putting all of the cash into one, two, three, four, five…six tills? And suddenly he realized that the private detectives had indeed been right. All of the bartenders were putting all of the cash into the cash registers, but someone had added their own cash register, and redistributed the rest of them along the bar so that no one would notice. The following week the thief was identified and charged.

Adapted from How to Save Your Company Big $$$ in Small Ways by Allyn Freeman