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About Financial Control

Businesses with healthy margins and strong cash flow can easily overlook inefficiencies and waste caused by weak financial controls, and be exposed to unnecessary risks.

On the other hand, businesses with tight margins or cash flows have more urgent reasons for getting better financial control.

Cash Flow
Arguably, the most important tool for planning and control is the budgeted cash flow for a business. Surplus cash is the result of a business's activities (or should be). If cash flow is not positive over time, then the business ceases to exist.

Thus the concept of "financial control" has cash flow at its heart. But although very important, it's not sufficient just to keep a close eye on the bank balance. The successful management of business performance requires profitability and cash flow to be managed together. Doing this effectively requires the establishedment of clear strategic objectives for the business.

Control Systems
This creates the need for systems which measure what's important - both cash and non-cash measures - and prioritise the measurements for action. The resulting actions will include both operational improvements and strategic shifts.

Therefore "Financial Control" encompasses a number of things. Some examples of financial control measures include:

  • A good computerised bookkeeping system, always up to date
  • Clear and secure procedures for the spending of money
  • Budgets which are regularly reviewed
  • Regular financial reports which include comparisons to budget
  • Regular examination of KPIs, and a bias for action
  • Regular reconciliation of bank accounts
  • Tight accounts receivable policies, with regular reviews
  • Clear accounts payable standards with regular reviews
  • Regular cash forecasting, and sound cash management
  • Regular reviews of inventory and work-in-progress
  • Regular insurance reviews
  • Clear and documented operational policies, for delegation and training
  • Logical separation of responsibilities to minimise fraud risk

Most businesses have more than one opportunity for improvement. Having strong financial control systems ensures a business is "on track" (the overall strategic objective) and has systems of measurement and feedback to stay on track.

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