Building Strong Financial Controls

Effective financial controls and management are essential for every business. During turbulent economic conditions, it becomes important to re-evaluate every aspect of your finances regularly.

How Do You Build Effective Financial Controls and Processes?

There are a number of areas that you should keep under review when it comes to your company expenditure and the following list is in no way exhaustive. That said, the areas worth covering generally to ensure a basic level of governance can be found here: 

  • Budgeting — Projecting revenue and deciding exactly what you will spend money on. 
  • Marketing — While it's essential to promote your business, it's equally important to monitor the costs and returns of all your marketing tactics. 
  • Technology and Automation — Digital technology and automation tools are advancing at a rapid rate. How do you determine which tools are a worthwhile investment and which are shiny objects that are merely draining your budget? Creating a business case or conducting a cost benefit analysis could help you to avoid unnecessary or untimely expenditure.
  • Employee Training — Employees need to be prepared to make the best use of their time and the technology at their disposal. Lack of training can be a source of inefficiency and affect your cash flow, as can excessive, unbudgeted or unplanned training.
  • Security — Experts predict that cybersecurity threats will only get more common in the coming years. These costs may creep up quite substantially over time, so you will want to make appropriate provisions where it seems sensible to do so.
  • Contingency Funds — It is always prudent to carry a contingency fund where you are able to do so, to cover a period of 3-6 months of expenses. This protects the business should revenue performance suddenly slip or should I crisis of any description occur. Such an allocation may be useful should opportunities present too. There is wisdom in working to build an a suitable financial safety net, and to replenish any contingency funds as soon as you can if called upon.

Improving the financial stability of your company and maximising growth opportunities requires you to pay close attention to everything that influences your finances: budgeting, forecasting, spending, corporate governance, and more. 

Being Aware of Your Finances 

To understand where improvements might be needed, you first need a good awareness of where your finances stand right now. Analyse every element of your financial performance. This requires working closely with all departments and employees who may contribute valuable insight. Areas to focus on include:

Work closely with your bookkeeper or accountant and make sure you understand their reports, and that you feel confident in their accuracy. Ask questions as often as you need to.

Manage Your Debt

Most businesses incur a certain amount of debt. However, you want to manage your debt strategically so it doesn't hold you back. As in many places, UK corporate debt rose quite a bit during the pandemic. Create a plan to pay off your debt as quickly as possible. Do everything you can to pay debts on time to avoid additional interest and penalties. Think carefully before taking on any new debt. 

Implement Sound Cybersecurity Measures

Breaches in security can cause major financial setbacks for a company. Make sure you take all appropriate cybersecurity measures to safeguard your data.

This includes:

  • Keep all software up to date. 
  • Educate all employees to use secure passwords and to recognise potential phishing attacks
  • Use the latest anti-virus and anti-malware software.
  • Consider using secure cloud storage for sensitive data. businessman hand show 3d cloud icon with padlock as Internet security online business concept

Create a Workable Budget

Budgeting is a key component of financial controls and management. You should reconsider your budgeting practices regularly. 

  • Find practical ways to cut costs. Negotiate better terms from suppliers and service providers. You can also research less costly alternatives.
  • Complete a thorough analysis before allocating monies for your budget. Some outlays of cash, such as equipment, technology upgrades, and hiring staff can help your business grow. At the same time, make sure you consider historical data, current market conditions, and potential risks before committing to such expenses. 
  • Be flexible. Don't try to calculate a budget that will be precisely on target. It's best to allow for discretionary expenses, so you can take advantage of last-minute opportunities as well as cover unexpected expenses. 

Automate Financial Tasks

If you rely on outdated methods, it may be a good time to start using the latest automation tools. It can be beneficial to upgrade your technology to handle areas such as:

  • Accounting software. Having efficient cloud-based software helps you monitor your finance and communicate more smoothly with your accountant.
  • Inventory management. You can better manage your finances when you can easily track what you have in stock and what you need to order. Inventory management software helps you avoid shortages or overstock. 
  • Payroll. Automating payroll saves time and helps prevent errors.
  • Invoicing. Manual invoicing is not only inefficient but also makes it cumbersome to track overdue and unpaid invoices. Automation lets you issue invoices quickly and accurately. 

Optimise Your Marketing Budget

Marketing is essential for maintaining and growing your company's revenue. It's also an expense that needs to be consistently scrutinised to ensure you are getting an acceptable ROI.

Gartner reports that the average marketing budget of leading companies in North America, the UK, France, and Germany dropped from 11% to 6% of total revenue. Due to the pandemic and economic challenges, companies are increasingly looking for ways to streamline their marketing spends. The following are some ways to manage your marketing budget and lower your costs. 

  • Have clear goals for all marketing activities. Goals may include generating leads, building brand awareness, selling a specific product or service, or educating your market.
  • Always rigorously test paid ad campaigns such as Google and Facebook ads. 
  • Rethink your content marketing strategy. Content marketing provides a good ROI, helps boost SEO and brand awareness, and is cost-effective compared to advertising. Blog posts, social media content, videos, podcasts, and webinars are all good ways to engage with your audience. 
  • Email marketing is one of the most cost effective ways to reach customers. Upscaling your email marketing efforts is worth considering if you are trying to scale back your marketing budget while still building your influence. 

Use Reliable Financial Forecasting Methods

Looking ahead helps you plan the best strategy for your business. Forecasting is valuable at every stage, from the time you launch and create your business plan to when you're established and looking ahead. Consider these factors when forecasting.

  • Historical Data. The future seldom turns out exactly like the past, but it can provide you with some useful data.
  • Your Goals. Are you intending to grow in certain areas, such as expanding your goods or services? Consulting your business plan can guide you.
  • Delphi Method. The Delphi Method,  developed by the Rand Corporation, involves surveying and/or interviewing a panel of experts to provide objective information about your company. The panel may include experts in areas such as productivity, economics, psychology, technology, or whatever is relevant (but not directly connected) to your industry. 
  • Macro Trends. This includes wider social and economic trends that are likely to impact your business. Financial Times points out that investors should remember that macro trends are always unpredictable. While this article is aimed at investors, the same is true when you are forecasting for your own business. Pay close attention to macro trends, but remember they can change at any moment. 

Keep Re-Assessing Your Financial Controls and Policies

To optimise your financial management controls, you need to regularly assess your budgeting, forecasting, security, and other relevant areas. You also need to stay current with the latest macro trends that affect your industry and maintain a healthy eye on the general economy. Like most business initiatives, ongoing improvement will play a part and your controls should evolve as needed over time. 

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Tim Hatari

Tim Hatari helps businesses improve performance, creating strategic development plans and establishing structure via the 5PX Executive Business Coaching System. As CEO and Founder at TMD Coaching, he oversees the vision setting process with clients, leading on sales acquisition, the drive for operational excellence and market leading innovation. For Tim, helping others is the most rewarding part of the role. Follow or connect with Tim on Linkedin -

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Topics from this blog: Finance, Forecasting

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