When planning for your small business, you set goals and objectives and strategies for reaching them. The control process enables you to measure progress towards your goals, identify deviations and any remedial action necessary.
Other than the financial controls detailed below, you should also keep an eye on indicators such as:
- staff turnover
- sales force performance
- new product development
- plant safety
- employee productivity
- public relations
- market share
- product quality.
These issues also need to be controlled to ensure your business goals are met.
Control of cash
A cash budget can highlight financial tight spots and indicate weaknesses requiring attention. Your cash budget is an important management tool and should be referred to regularly and forecasted results compared to actuals at least monthly. This comparison will show you how the business is performing and enable you to take corrective action where necessary.
Control of debtors
You commit funds to debtors because you expect a net gain from the commitment – a gain which will enhance the value of your business through a greater inflow of revenue from sales.
However, there are costs attached to extending credit to your customers. They include the cost of funds tied up in debtors, the cost of slow-paying accounts, bad debts and administration costs.
Control of inventory
Holding inventory (or stock) is costly. Costs include interest on funds invested, storage facilities, staff costs, insurance, deterioration and losses.
As the manager of your business you need to take responsibility for your business. Tight controls minimise the risk of stealing and embezzlement and will depend in a large part on your willingness to be actively involved in the business.
Particularly when your business is small you need to be actively involved in:
- personally approving financial transactions
- reviewing bank reconciliations
- following up tardy debtors
- being familiar with the fixed assets of your business
- periodically doing a physical inventory check
- personally approving and signing payroll cheques or bank documentation where a direct credit system is used
- reviewing the bank reconciliation or randomly performing a bank reconciliation
- hiring and firing staff
- ensuring you comply with your legal responsibilities in relation to staff.
This content was first published on www.business.tas.gov.au