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No Business Is Too Small for Internal Accounting Controls

You probably can’t see the term “internal accounting controls” without visualizing an actual accounting team. After all, without an accounting staff, who’s going to ensure that so-called accounting controls are being followed?

Well, that right there is dangerous, backward thinking. In fact, if you’re a small business with little to no accounting staff, not only can you implement internal controls – it’s immensely important that you do!

Internal accounting controls are simply processes you put together that help ensure you accurately report your finances, stay on the right side of the law and operate as efficiently as possible. But why is it so important to establish these controls within your small business? Here are five key reasons:

5 Reasons to Implement Internal Accounting Controls

1. Monitor Your Progress: You can set a budget for the year, but it means nothing if you don’t stick to it. Internal accounting controls, such as monthly budgetary updates on important fiscal goals, is an important step in tracking your small business’ progress and noticing shortcomings before they get out of control.

2. Make Your Business More Predictable: There’s a good chance that your company has no accounting staff, which can make it difficult to accurately record financials. Internal accounting controls set the standard for how things should be done, whether that’s determining how to log a business transaction, or deciding how the value of that transaction is calculated. Internal controls ensure that, no matter who is entering the data, they know what forms they must have, what figures they need to know and what method to use. That means less guesswork and more certainty that your financial statements are accurate.

3. Prevent Fraud: One important aspect of internal accounting controls is segregation of duties. Think about movies you’ve seen where two people need to simultaneously provide a fingerprint to open a security gate, or three officers need to turn their keys to launch a missile. By splitting up the duties when approving or even recording certain transactions, you can minimize the risk of a single employee committing fraud and not getting caught.

4. Stay Compliant: Businesses have to remain compliant in numerous ways, whether it’s with federal tax laws or local operational rules and regulations. Internal controls that require the review of transactions and other business practices can keep you out of hot water. For instance, some states require annual or even biennial financial statements, and failure to comply can result in fines and other penalties. This is why you should establish controls that dictate when these reports will be compiled and who is responsible for them.

5. Prevent Disaster: All of the above issues show the overarching importance behind internal accounting controls: preventing disaster. Not having a system of internal controls that determines who does what, and how things are accounted for, can have significant consequences, from bills going unpaid and insurance coverage lapsing to the loss of federal tax credits because of non-compliance.

In an ideal world, you would have an accounting staff watching for these potential mishaps, but that’s not always possible for small businesses with limited budgets.

If you’re short on resources, McManamon & Co. offers numerous, affordable accounting services, including helping you create and maintain internal controls, training staff, and assistance implementing and using accounting software programs.

Small mistakes can pile up and take your small business down. Stay ahead of disaster – call us at 440.892.8900, or get in touch with us online.

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