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Business Owners: Keep Up the Controls in 2023

Mike Lanni, CPA
December 29, 2022

As business owners ourselves, we understand the need to delegate tasks (and avoid the “I’ll do it myself” trap) balanced with the need to protect your business operations.

It is important to segregate duties to grow your business and enhance your operation. Putting trust in and empowering your staff frees you up to devote time to other business-building or client-centric activities. It creates efficiencies by streamlining decision-making and business activities. But the reality is that the business owner—especially in smaller companies or offices—must have ultimate control of the business by staying involved with all aspects of the operation.

Lack of business controls leads to lost income

We’ve all read the stories of embezzlement and theft by key employees and those with access to financial records. It often starts small—a little here and there—and the employee is emboldened when he or she gets away with the petty theft. Before you know it, thousands of dollars are missing from the bank account, products are missing, strange vendors are being paid, and odd disbursements appear on the books.

Take control in 2023, starting with the budget

If you have not yet set your 2023 operating budget, do so now. It is the basis of your business planning. Review your company’s financial history from the last few years and budget for controllable and uncontrollable expenses, and project reasonable sales figures. Do you need to hire to meet expected demand or will you scale back? Is there equipment you’ll have to lease or purchase? Are there items you typically stock that you don’t need?

Remember, you can’t know if something is off financially if you don’t have the budget and plan in place.

Put operational controls in place

We recommend business owners review their internal workflow and procedures, and plug any control gaps accordingly. Those business controls will help protect against bad decisions or behaviors that will cost you money and client confidence, and tarnish your reputation.

Business controls can be procedural, visual, or embedded.

For example, you could:

  • Lay out levels of decision-making authority according to role or experience
  • Create a standard operating procedure handbook with checklists for everyone to follow
  • Shift responsibilities now and then among your team to put fresh eyes on a project (and the revenue and expenses related to that project), or have people cross-check each other’s work
  • Implement a standard employee review process
  • Require weekly reports on various activities or KPIs (key performance indicators) — from bookkeeping to sales to human resources
  • Automate certain processes such as data backups or financial controls that are triggered under certain circumstances

Keep the team accountable

Busy owners may feel they don’t have the time to keep tabs on everything that’s happening in their business. But a relatively small investment of time can yield big results that maintain your profitability and operational integrity.

  1. Ask for reports about new clients and vendors. Are these parties really doing business with your company? Or, as we’ve seen when conducting a financial review, has a bookkeeper been paying his or her own personal bills with your money?
  2. Review your weekly and monthly financial statements (cash flow report, budget vs. actual report, P&L) and adjust as needed based on the data. Question percentages that are not according to the plan. If your numbers are out of whack, find out why! Whether it’s an honest mistake or the case of a bad actor, it’s costing your company money.
  3. Review your payroll report to make sure the people you are paying are really working for you. We’ve heard stories of larger employers—who likely don’t know everyone working at the company—paying people who were not employees.
  4. Audit your internal procedures and controls periodically to make sure everything is being done in accordance with how you set up the transaction flow. Also, check that the correct people are in their assigned roles and responsibilities.

Need to review your business controls? Sullivan, Scheidel & Lanni can help.

As a New Jersey CPA firm specializing in corporate accounting and business advisory services, the team at Sullivan, Scheidel & Lanni CPA can help you get that 2023 budget in place and provide guidance on implementing controls that will protect your business. Contact us at [email protected] or 201-236-2226.

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