Trust is such an important aspect of every part of our lives. We cannot reach our full potential without someone trusting in us and trusting others. However, trust is earned and proven time and again. Would you trust your baby boy to someone you didn’t really know well? Of course not! So why do we trust our business, our resources, our finances, the baby of our blood, sweat and tears, to staff, consultants and suppliers that we don’t know very well?

When you first started out, there were 3 people in your business – me, myself and I. You opened up and locked up, you made all the payments, and you didn’t have petty cash. But as your business has grown, you’ve involved more people in your dream. You’ve put processes in place to ensure the quality of the product or service being delivered, and to ensure the performance of your staff and suppliers. What processes have you put in place to protect your assets and resources?

The following are some things that you may have done, or should do:

– Insurance for computers, equipment, personal income protection and medical

– Log books for vehicle usage to prevent personal use

– Lock away and issue out keys for computer and electronic equipment, supplies, and the office

– Lock away petty cash and give the key to only one person

For all the resources (equipment, cash, access to bank accounts) there should be written authorization that the person is allowed to use the resource. Then if something happens, it is clear who had the keys last and who was responsible.

So often there is the sad story of when the trusted bookkeeper left and a new person started. The new person stole a large sum of money and covered it up in the books. Just because one person is trust-worthy doesn’t mean everyone is. The process of checks should be in place regardless of who does the job. It protects the employee (and the other staff) from undeserved suspicion or blame.

Another reason for checks and procedures is to make sure that the financial information that you are relying on to make decisions is accurate and complete. Some ideas include:

– Written authorization for all payments

– Sequential numbering of documents to easily see if anything is missing

– Supporting documentation that provides evidence of the transaction

– Reviewed bank reconciliations

If you are concerned that you may not be able to rely on your procedures, please contact us to conduct a review of what you are currently doing and provide you with recommendations and changes to help protect your future business.

Do you save your shopping lists? My dining room table is littered with old lists written on the back of envelopes or scraps of paper, which have been pulled out of my handbag when I’m looking for something. Occasionally, I’ll bundle them up and dump them in the recycling. They are no longer useful.

Now imagine if I kept all the lists and each week compared what I bought with the last week? Over time I’d be able to draw some insights from the information, such as how often we bought toilet paper, how much we spent on average over a month, or how much the hot chocolate quantity increased over winter. Now the lists are useful, have value and can help our family make decisions around our spending. This is Financial Reporting and it works the same for your business.

The key element necessary for reporting to be useful is there has to be a comparison of some kind:

– Compare this week to last week to establish trends;

– Compare the reality to the plan (the budget); or

– Compare the income to the expenses to see if the activity is viable.

For comparison to be valuable, the items you are comparing need to be for the same period and for the same thing. If I want to know if the price of oranges has increased since last week, I need to compare oranges with oranges and not oranges with apples. Also, it isn’t helpful to compare what I spent on ink or paper this week with the whole of last month, it is better to compare this month with last month, to gain any useful insights.

We must not forget that the whole purpose of putting together financial reports is to provide useful information to make decisions. If the type of information or the format it’s presented in, does not give insights into the reality of the business situation, it is a waste of time. Choose wisely what you report on, as too much information can also detract from the value of the reports and confuse the decision-making process.

Next week we wrap up this series by discussing how we can reduce our financial risks.