When you hear the phrase internal controls, it might sound like something reserved for corporate giants with entire departments dedicated to accounting. But here’s the truth: internal controls are just as important for small businesses. Why? Because in a small business, the margin for error is tighter.
A little mistake (or worse, a bit of fraud) can have a much bigger impact on a small business. The good news? With a few simple practices, you can protect your business, stay organized, and build a more stable financial foundation.
Here are three internal controls every small business should consider putting in place.
Separate Duties to Avoid Mixing Responsibilities
This is one of the most basic, but most powerful, controls. The idea is simple: don’t let one person control all the steps of a financial process.
For example, the person who creates an invoice shouldn’t also be the one reconciling the bank account. Or if someone has access to your bank account, they shouldn’t also approve payments without a second set of eyes.
Even if you’re a team of one, you can still build some checks and balances into your process:
- Use accounting software that logs activity and allows you to review transactions regularly.
- Have your bookkeeper prepare vendor payments, but review and approve them yourself.
- Use dual approval for large payments.
Regular Bank Reconciliations
Reconciliation is just a fancy word for comparing two sets of records to make sure they match. Doing this at least monthly is a great way to catch errors, missed transactions, or even fraudulent charges.
Here’s what a simple reconciliation looks like:
- Compare your bank statement to your bookkeeping records.
- Make sure every transaction is accounted for.
- Investigate any mismatches.
If you’re using cloud accounting software like QuickBooks or Xero, reconciling can be quick and relatively painless. It also gives you peace of mind that your numbers are trustworthy.
Use Approval Processes for Spending
It’s easy to lose track of spending, especially if you have employees or contractors making purchases. That’s why having a simple approval process is so helpful.
Here are a few ways to do it:
- Set a dollar threshold: Any expense over a certain amount, such as $500, needs your sign-off.
- Use software with built-in expense approval, like Dext or Expensify.
- Require receipts and notes for every purchase, no exceptions.
When spending is tracked and approved, you avoid surprise expenses and keep your budget on track. Plus, it sets a clear expectation for everyone involved.
In Small Business, Internal Controls are Possible
Internal controls don’t have to be complicated or overwhelming. They’re about protecting what you have worked hard to build. And you don’t have to be a Fortune 500 company to do it. With a few intentional systems, you can reduce risk, make smarter decisions, and have greater financial confidence.
Need help setting up some of these internal controls in your business? Check out this article on additional steps to keep your money protected.