From the course: Finance Essentials for Small Business

Using controls to safeguard info and track business activity

From the course: Finance Essentials for Small Business

Using controls to safeguard info and track business activity

- A good system of recordkeeping and controls is what the scientists would call a necessary but not sufficient condition. A good information system will not ensure the success of your business, but a bad information system will certainly contribute to your lack of success. Now about controls, what are they? Controls are procedures that should be in place to ensure that one, the information that is being collected in your accounting system is accurate and reliable, thereby helping you to run your business better. And two, to safeguard your assets and your records. Now what sort of control should I have on information that I will collect? You will need to answer questions like how will you document that your cash outflows are legitimate business expenses? You better have proper documentation. If I'm in a business that has inventory for resale, how will I know how much I have on hand? How do I know how many hours my employees have worked? You better have a system for tracking this information. And of course you will need a system that collects information about your cash inflows and your cash outflows. And you also need to know who you owe and who owes you. We've talked about that. What else? Well, you'll have information that's confidential about employees. Pay rates, Social Security numbers, et cetera. That all has to be safeguarded. What about customer lists? What about pricing information? As you can imagine there's a lot of top secret information relating to the inner workings of your business that you don't want getting out. You need to ensure that you have systems that protect your information and ensures that the system producing your information is accurate and reliable. One last thing to mention that is often taken for granted. You will need to safeguard your cash. You will need procedures in place to make sure that cash and checks are quickly and correctly deposited in the bank and that only authorized expenditures are made. This is no fun to talk about, but we tend to assume that those with whom we work are looking out for the best interest of the company. Now that is often the case, but it is also often not the case. Many individuals are looking out for them. You need to make sure that those individuals are never given the opportunity to be exposed to a situation where they might compromise their integrity. That is done by developing a set of controls within your business to ensure that information is collected quickly and correctly and that procedures are in place to ensure that assets, especially cash, are handled properly. Now remember we said at the outset that this topic is the no fun part of business. No one likes to talk about paperwork. If you don't talk about and establish a system that collects accurate information in a timely fashion and safeguard your assets, you will have plenty of time to talk about that topic later when your business folds up.

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