Controls are the intelligent processes, procedures, and safeguards that protect your company from uninformed or inappropriate decisions or actions by any team member.
When you build a business versus a job, you want your team to have the authority to get tasks done without running everything past you. You need them to exercise their judgment and use their discretion.
But you also need to empower them with the feedback, ground rules, and double checks they need to do their best work. This is where business controls come into play.
Building strong internal controls is not about you, the business owner, being in control, but rather enhancing and giving control to your business. The best controls make the default behavior the right behavior. And they empower your team to get better results with less effort by giving them immediate feedback and a more defined playing field.
Controls are not about you being a traffic cop hiding in the bushes to leap out and give an unwary team member a speeding ticket, rather, you want your controls to be more like a speedometer or cruise control system that helps individual team members autonomously do better work. Your controls, which are really just a specialized subset of your business systems, help your team members do better work.
Further, good controls also empower your managers and leaders with immediately clear and actionable information on how to coach and redirect your team, by letting them know what's going on in an area at any given moment.
Here are 35 examples of business controls in five categories that most businesses will eventually need to get to successfully scale.
As you read this list, understand that it isn't comprehensive--but it a good start. Also, don't stress out thinking you need to build in all these controls this quarter. Accept that building in controls is a work in progress to be implemented over time.
When it comes to the topic of "Control," no subject is more emotionally charged than financial controls. Business owners fear possible financial abuses and mistakes if they don't personally control the money in the business. This is shortsighted and costly thinking.
Take a look at 10 sound financial controls that are both scalable and powerful in protecting your enterprise from financial abuses. Again, the list is not comprehensive, but it provides a concrete sense of what controls look and feel like.
- Have more than one person involved in any one cycle of money. This is an essential "check and balance." Having two or more people sign off on all money flows and money cycles reduces temptation and makes fraud or theft less likely. Here are a few examples:
- Person A logs in checks and cash; person B verifies the math and makes the deposit.
- Person A deposits the money; person B reconciles the bank statements.
- Person A writes out the checks; person B reviews and signs them.
- Thoroughly check employees and independent contractors before you hire them. Do a criminal background check on each one and, if they handle money in any form, a credit check, too. Verify employment history and talk with past references, confirming that these references are real.
- Reduce liquid cash, which is always a temptation.
Get cash out of the system ASAP and with great care and attention. Here are a few examples of what you can do:
- Replace petty cash with a reimbursement system.
- If an employee collects cash from a customer, have that cash immediately deposited the same day with two people involved in that cycle of money flow.
- Get machines that take credit cards versus only coins and bills.
- Have appropriate balances accessible in operating accounts and keep other monies in a segregated account(s) with tighter financial controls. This lowers your exposure yet allows you to give access to small accounts with appropriate controls to staff who need operating money.
- For purchasing decisions, formally set levels of spending authority for your team. For example, if the expense is less than $1,000, no approval is needed, but supporting documentation and receipts must be filed with the area manager. If the expense is more than $1,000 but less than $5,000, the area manager must approve the expense in advance. If the expense is more than $5,000 . . . You get the idea.
- Establish formal refund and return policies that spell out who is and is not authorized to refund. Spell out which kinds of refunds each has the authority to do.
- Determine safeguards for customer credit cards and other financial information.
For example, lock all file cabinets, shred trash daily, use password protection on computer databases.
- Create a formalized expensing system. This would include a list of expenses that are and are not reimbursable as well as a standardized expense report team members must use. Include a space on that form for the person to sign, declaring the expenses submitted are true and accurate. Require that receipts be attached for all expensed items.
- Get to know your business and the key numbers so you can quickly see what's normal and what's not. Encourage your management team to understand the same. Make it a core value of your business to immediately red flag anything that seems strange. Follow up on all red flags immediately. Here are some examples:
- Key ratios: Check your cost of goods sold ratio, net income percentages, gross margins, and other relevant financial ratios for your business on a regular basis. These should stay consistent. If they vary or look abnormal, find out why.
- Key expenses: If you don't recognize a vendor, suspect an expense is out of line, or see income anomalies, investigate immediately.
- Key rough checks: Look at the indirect ways of ball-parking your financial numbers to corroborate that things are in line with what's normal. E.g., compare inventory turns to sales figures; compare staff hours to sales volume; etc.
- Obtain the right kind of insurance and bonding coverage if appropriate.
- Manage costs and expenditures with approved operating budgets.
- Manage client fulfillment with production schedules and checklists of deliverables.
- Monitor client satisfaction with follow-up surveys and informal interviews.
- Establish and follow a Master Marketing Calendar that lays out key deadlines and review dates to make sure your marketing campaigns stay on track.
- Create visual scorecards for key marketing metrics. E.g., cost per lead; cost per sale; net leads per lead source; etc.
- Establish a formal approval process for your quarterly marketing plan, creative artwork, and other key marketing output early in the process before you spend too much time or money on them.
- Have a checklist your team follows when promoting an event or launching a marketing campaign.
- List negotiating parameters your sales team can work within out in the field. Examples might be pre-approved concessions your sales team can use to close a sale, discounts or credits your front-line staff are authorized to give when dealing with a purchasing customer in your store, and so on.
- Establish an approval process for sales exceptions. For example,if a concession is worth less than $x, the sales manager must verbally approve it; if a concession exceeds that amount, the sales manager must physically sign off on it.
- Require standardized sales paperwork and contracts.
- Provide sales team with formalized sales scripting.
- Require employment contracts that protect the proprietary nature of your client list. Possibly parcel out access to that database among the sales people so that they never have access to more of that list than they actually need.
- Require sales people to use only company-controlled contact phone numbers, emails, fax numbers, etc. with clients. They shouldnever be expected or allowed to give out personal contact information.
- Provide a direct line for client feedback that doesn't allow sales people to filter out negative messages.
- Record clear and accurate sales metrics. These would include closing ratios, retention rates, return rates, net referral score, and so on.
Metrics and Scorecards
A scorecard, sometimes called a "dashboard," is a simple visual way to measure how a key area of your business if performing. It's like looking up at the scoreboard of an athletic event and seeing the time remaining, the score of both teams, and who's got possession of the ball.
Quantitative data gives your entire team a simple, clear, objective way to measure the performance of an area of your business. If the numbers show you're off course, your scorecard can flash a yellow or red alert to your team so they can remediate the situation.
Here are examples of metrics your business may want to measure on its scorecards.
- Gross Margins. [(Total Sales minus Cost of Sales) divided by Total Sales]
- Number of new leads into business per day, week, or month.
- Cost per lead by lead source. [Total Number of Leads by Lead Source divided by Total Cost of Generating those Leads by Lead Source]
- Average unit of sale. (Total Gross Sales divided by Total Number of Customer Orders)
- Average time to process new orders.
- Return rate by product category.
- Defects per 1,000 parts.
- On-time delivery rate.
- Average number of days before you turn your inventory.
- Actual expenses to budgeted expenses.
You may be thinking that business controls sound like formalized business systems, and you're right! Every key control is, in reality, a defined, formalized business system so that "checks and balances" aren't left to chance but built into the structure of the business. This protects your company and allows you to have peace of mind, even when you let go of direct control over a process, action, or decision.
If you want to learn more about how to systematize your company and introduce sound internal controls, I'm about to teach a new webinar that will focus in large part how you can do both so you build a scalable business.
If you'd like to join me on this special webinar training, please just click here to learn the details and to register. (It's free.)