As a business owner, you know it’s important to have systems and procedures in place to help protect your company from financial mismanagement, fraud, and other risks. These are what we call internal controls. In this blog post, we’ll discuss what internal controls are; outline the reasons why they are important to your business; and talk about some key factors you need to consider when implementing them into your organization. Whether you’re just starting out or looking to improve your existing system, read on for helpful advice on setting up internal controls that will keep your company safe and sound.
What are internal controls?
Internal controls are procedures and policies put in place by a company to provide oversight, guidance, and structure for its employees. They are designed and implemented to safeguard your business finances. In addition, they can improve safety and reduce risk. For instance, a film production company may implement physical internal controls to ensure only authorized people are on set.
Internal controls are an extension of an accounting system, which is a set of rules and procedures used to record, store, and analyze financial transactions. The accounting system is the foundation of internal controls, and together they help to ensure the integrity of a company’s financial statements.
Lastly, internal controls can preserve spending and reduce unexpected costs. Remember that point above about only allowing authorized people on set? Well, if an unauthorized person was on set and happened to get injured by a falling light, the film’s insurance policy wouldn’t cover damages. Instead, the production company would have to incur any costs or damages out of pocket which is not ideal! This is precisely why internal controls, whether financial or operational, are crucial.
While internal controls are not required by law, they are often implemented in response to regulatory requirements or as a part of best practices. When done properly, internal controls can provide significant benefits to your company, including improved efficiency, reduced costs, and enhanced business risk management.
Two other examples of effective internal controls for creative, innovative businesses are financial planning and time management. By carefully tracking your income and expenses, you can ensure you are making enough money to sustain your business. Similarly, by monitoring the amount of time you spend on each project, you can avoid scope creep and ensure that you are using your time efficiently. By implementing these and other effective internal controls, companies can help to ensure the long-term success of your business.
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Why are internal controls important for my business?
Creatives and innovative corporations and non-profits face unique challenges when it comes to internal controls. Many of these entities are small, with limited resources and staff. As a result, it can be difficult to implement effective controls over all aspects of the business. Additionally, many creatives are self-employed or work on a freelance basis. This can create additional difficulties in tracking expenses and income, as well as ensuring that all financial transactions are properly documented.
Despite these challenges, internal controls are still essential for the visionary company. They help to ensure that finances are managed effectively, preventing costly mistakes and protecting the business from fraud and theft. Additionally, well-designed internal controls can help to increase efficiency and reduce operating costs. In today’s competitive business environment, you cannot afford to overlook the importance of internal controls. This is especially true as your company grows beyond a one-person show.
Creative and non-profit entities deal with a lot of sensitive information, from financial records to intellectual property to client data. Without strong internal controls in place, there is a high risk of fraud and errors that can have serious negative impacts on your bottom line. If any of this information was mismanaged or leaked, it could have disastrous effects on operations and image too. To effectively reduce these risks, you need to implement systems that keep track of every step in your processes.
You should also have clear processes in place for reporting and addressing any issues as soon as they arise, ideally through a playbook. By monitoring your internal controls closely, you can safeguard your reputation and maintain the high standards that are crucial to your success. Given the competitive landscape in this sector, implementing strong internal controls is simply a smart business decision.
You need to be efficient and have strong internal controls to remain successful, especially as you grow. Internal controls help you by streamlining operations, improving communication and documentation, and reducing costs. By creating standard procedures and documenting them, you can avoid duplication of effort, wasted time and materials, and ultimately make your operations more efficient.
When should I be concerned about internal controls?
Innovative, visionary companies should be especially aware of the need for strong internal controls. Creators have a long history of working independently, and many creative businesses are small operations with limited resources. As a result, there is often a relaxed attitude towards financial management and record-keeping. However, as your team and company size grows, it becomes more important to formalize your internal controls. This will help to ensure that your finances are properly managed and that your records are accurate and up-to-date. It will also help to prevent fraud and embezzlement.
As a business owner, you should be concerned about internal controls sooner rather than later. While there is no “right time” to implement such controls, it’s better to have a system in place before any major problems arise. Here’s some indicators that you need to start designing and implementing internal controls:
- Your team of employees and contractors is expanding quickly
- You no longer handle the finances of your entity directly
- You’re missing crucial deadlines, such as payroll/HST/corporate tax filing and compliance reporting deadlines
- You’re experiencing the same operational issues over and over again
- You notice systematic issues that could be easily fixed with a better process or training
- You have no method of tracking financial/operational performance and assessing the effectiveness of your operations
In addition, you may have difficulty complying with tax laws and regulations. As a result, you should take steps to establish internal controls as soon as possible. By doing so, you can protect yourselves from potential problems and ensure that your operations run smoothly.
Implementing strong internal controls can be daunting, but it is essential for any growing business. With careful planning and execution, you can develop a system that works for your company and helps to keep your finances healthy.
Incorporating internal controls into your company
While it is important to have an understanding of the different types of internal controls, it is also crucial to know how and when to implement them. If you are unsure of where to start or need help incorporating internal controls into your business, our team at Creative Clan can assist you. We have years of experience helping businesses just like yours put in place the systems necessary for financial security and compliance. Contact us today to learn more about how we can help you protect your company from fraud and theft.
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