Introduction
Strong financial controls are essential for any business to prevent fraud, manage risk, and protect assets. Here are six basic financial controls that every small business should have in place.
1. Segregation of Duties
Assign different responsibilities to different team members for financial processes like invoicing, payment approval, and bank reconciliations. This helps reduce the risk of errors or fraud.
2. Regular Reconciliations
Reconciling accounts monthly ensures accuracy and helps detect discrepancies early. Use Xero’s bank reconciliation feature to simplify this process, which lets you review transactions and verify account balances quickly.
3. Approvals for Large Purchases
Require approval for significant expenses or purchases. Having a policy in place for purchase approvals keeps spending in check and reduces the risk of unauthorized transactions.
4. Use Secure Technology
Accounting software like Xero provides security features that help protect financial data. Ensure all users have strong passwords and limit access to sensitive information to trusted team members.
5. Regular Financial Audits
Routine internal audits or reviews provide a check on your financial processes and can identify gaps. Even small businesses can benefit from periodic financial reviews to stay on track.
6. Documented Policies and Procedures
Clearly documented financial policies, like handling cash, approving expenses, and managing accounts payable, make it easier for employees to follow best practices and maintain consistency.
Conclusion
Implementing financial controls is essential for protecting your business’s assets and ensuring accurate, reliable records. These controls create a foundation of security and help you manage risk as your business grows.
