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9 Important Financial Controls Every Small Business Should Have

No matter the size of your business, if you have assets, you need to make sure they’re both properly accounted for and protected.

That’s where financial controls come in.

Financial controls are policies and procedures that a company implements to manage its financial resources, accurately track the use of resources, and shield resources from fraud.

And if you’re thinking to yourself, “We’re too small for that to matter,” think again.

Why Your Small Business Needs Financial Controls

No matter how small your company is, chances are it’s not small enough to fall off the radar of every scammer.

The Association of Certified Fraud Examiners reported in their 2024 Report to the Nations that businesses of fewer than 100 employees represented 21% of occupational fraud, with an average theft of $141,000 — higher than both firms with 100 to 999 workers and companies with 1,000 to 9,999 employees.

“Small organizations (those with fewer than 100 employees) are much less likely to have various anti-fraud controls in place than their larger counterparts,” the ACFE says. “This leaves these organizations particularly vulnerable to fraud, as the smaller staff size typically means there are fewer checks and balances and less segregation of duties in place.”

In other words: Small business fraud is a very real threat.

And none of that even begins to speak of the damage that can be done by faulty accounting and poor financial planning.

All of that is a long way of saying that a small business can benefit from implementing even a few financial controls.

9 Small Business Financial Controls to Consider

Authorization Procedures

Establish clear protocols for approving financial transactions, such as purchases and expenditure requests. This ensures that all expenses are necessary, budgeted for, and align with the company’s objectives, minimizing the risk of overspending or misspending.

Bank Reconciliation

Perform monthly reconciliations of bank statements with internal accounting records. This helps in identifying discrepancies, errors, or unauthorized transactions promptly, ensuring that your financial data is accurate and that your bank accounts are holding exactly what they should.

Cash Handling Policies

Especially important in consumer businesses are guidelines about securely handling cash transactions. Procedures should be established for counting, recording, and storing cash securely. This minimizes the risk of theft, loss, or misappropriation of funds, and ensures accurate financial records.

Segregation of Duties

You can assign different employees to handle various financial tasks, such as approving transactions, recording them, and reconciling accounts. This ensures checks and balances, reducing the risk of errors or fraudulent activities going undetected.

Admittedly, this can be a difficult check for a business with just a handful of employees to implement, especially if most or all of those few workers aren’t at a managerial level.

Cash Reserve Policies

This is another difficult policy for small businesses working with little money to begin with, but it’s one that can save your business’s life in an emergency. Maintain adequate cash reserves to cover unexpected expenses, disasters, or downturns in business operations. This financial buffer can ensure liquidity and stability during challenging times.

Regular Financial Reviews

Conduct periodic reviews of financial statements, performance metrics, and budgetary compliance. This will help you detect discrepancies, anomalies, or just areas of the business that might need prompt improvement.

Randomized Financial Reviews

In addition to your regular reviews, conduct the occasional sporadic, unannounced review. While regular reviews are useful, wily employees can sometimes plan around these predictable checks. Performing the occasional audit at random can help disrupt this kind of activity.

Inventory Controls

You should also consider both manual and programmatic controls to accurately track inventory levels and monitor stock movements. This will not only help prevent theft or loss, but it should also help you reduce your carrying costs, as well as ensure that you have sufficient stock availability to meet customer demand.

Financial Software Security

Implement robust security measures — including access controls, encryption, and regular updates, among others — for any financial software systems. This protects sensitive financial data from unauthorized access, manipulation, or cyber threats, ensuring the integrity and confidentiality of financial information.

Get Your Numbers Under Control

Many entrepreneurs have only ever dealt minimally (if at all) with financial controls before starting a business. So if you feel unfamiliar, don’t worry — you’re not alone.

McManamon & Co.’s accounting team can help small and midsize businesses with many accounting needs, including setting up various financial controls. And if needed, we can also train your staff in accounting best practices, and the implementation and utilization of accounting software programs.

Want to learn more? Call McManamon at 440.892.8900 or contact us online.

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