Implementing better financial controls

Posted on July 3, 2009
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small business accounting software

Ask any seasoned business manager how much time they spend dealing with problems in the business and the answer will almost always be a substantial amount. Problems have a habit of leaping out at you when you least expect them. To solve a problem you first have to know that you have one. Good business managers are by their very nature good at solving problems.

All business managers have to develop good financial controls. Financial controls act like trip wires that alert managers to imminent or immediate problems. A good reporting system is essential to the support of financial controls, this functionality can be found in most good small business accounting software. For example good small business accounting software should be able to report actual costs compared with budgeted costs in a given period or versus the last period. I believe the best approach is “get a rope across the river” by starting out with a handful of key numbers and relationships, designing the reports to highlight these, refining the out put and then building out from here.

Vigilantly keep an eye on the margin on sales and don’t hesitate to investigate any changes regardless how insignificant they might be. Changes in margins or volumes in businesses that sell large numbers of products are especially vulnerable and losses can mount quickly if the causes are not quickly understood and addressed. Never take your eye of the fixed expenses of the business in the early part of the year and make sure they follow the budget. A good financial control to have in place is the monitoring of the average number of days it takes for payments on invoices to be collected, use the DSO or days outstanding (a.k.a. Debtors report) available in most small business accounting software.

Experience is the way to learn and over time you will learn which financial controls should be highlighted in your accounting reports, just make sure you have the right small business accounting software that can generate these.

 

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