Business Management Controls for Small-Size Companies
By John Kyriazoglou*
‘Rule
number 1: Never lose money. Rule number 2: Never forget rule number 1.’
Warren Buffet, CEO of
Berkshire Hathaway
Abstract
This article deals with the business management controls for
small-size companies. A business performance
model for small companies of five dimensions (C1P4 Model
(C one, four Ps), ‘C1’ for customers, ‘P1’ for people, ‘P2’
for property, ‘P3’ for production and ‘P4’ for
performance) is introduced and five general recommendations with specific
controls for each performance dimension are presented.
Key words: Small Business Controls, Internal Controls,
Small Business Performance Model
1. Introduction
Managing
a business, small, medium or large-size is quite a difficult, complicated and
strenuous task. Whether you are the owner, major shareholder, CEO, Board
Director or other corporate functionary, you must understand how your company
works in all its strategic and operational aspects: governance, corporate
management, risk assessment, compliance, strategy, operations, etc. You need to
establish controls and comprehend, fully, their manifestations and impact, and
employ the right internal control framework and its components to suit the
specific aspects of the organization you lead, direct and manage.
In managing a
small-size company, it is a matter of business life complements by my
consulting experience that controlling a small business does not get any easier
and in fact it is also to be considered a rather cumbersome task. Especially in
the case of a sole company owner whereby the owner and the management of the
business is usually the same person, the problem becomes worse.
Here are some recommendations and guidelines, as an example, to
help with the aspects of controlling and managing more effectively a small-size
business entity, on the basis of a business performance model of five dimensions:
C1P4 Model (C one, four Ps), ‘C1’ for
customers, ‘P1’ for people, ‘P2’ for property, ‘P3’
for production and ‘P4’ for performance.
2. Recommendations, Guidelines and Specific Controls
2.1.
Business Performance Model Dimension C1:
CUSTOMERS
Recommendation 1: Make your customer your number 1
priority.
This
can be achieved by the following controls:
1.
Identifying, attracting, increasing and maintaining your customers.
2.
Establishing excellent customer sales and support function.
3.
Developing and implementing your customer service
policy.
4. Ensuring that you are selling, delivering and
servicing highest-quality products and services.
5. Maintaining your effective sales ledger and other
support systems.
6. Monitoring and reviewing your customer sales and
support strategy and operations.
7. Improving your customer sales and support performance.
2.2.
Business Performance Model Dimension P1:
PERSONNEL
Recommendation 2: Manage your personnel properly and
fairly.
This
can be achieved by the following controls:
1.
Screening of personnel during the hiring process,
2. Maintaining valid
employment contracts and employee documentation (job application, job
description, resume, records of participation in training events, salary
history, records of disciplinary action and documents related to employee
performance reviews, coaching, and mentoring),
3. Establishing authorization
controls (for purchases, expenses, invoices, payments, contracts, investments,
hiring and firing of personnel, transaction processing, file and records
management activities, archiving of critical records, reports, and data, etc.),
and implementing
segregation of duties (where possible) or compensating controls (as required
and if possible).
4. Communicating constantly your company’s ethics and
values to all parties, and practicing what you preach,
5. Rewarding all your employees on performance,
6. Responding, resolving and punishing, if needed, all violators to your
standards of practice,
7. Making decisions on accurate facts and data and by understanding of all
your business functions and actions of individuals.
2.3. Business Performance Model Dimension P2.:
PROPERTY
Recommendation 3: Manage and protect your property
with due care.
This
can be achieved by the following:
1.
Money and other financial assets can
be managed and protected by establishing and implementing financial management
controls, such as:
(a)
Appointing a Financial Manager,
(b)
Executing basic accounting and bookkeeping procedures (Chart of Accounts,
General Ledger, Trial Balance, and Financial Statements),
(c) Managing your Liabilities by noting
down all payments and maintaining invoices, cheques and other payment
documents,
(d)
Managing Petty Cash, Payments, Accounts Receivable, Accounts Payable and Payroll,
and
(e)
Developing and monitoring your budget.
2. Physical property (buildings,
plants, machinery, furniture, computers, etc.) can be managed and protected by
establishing and implementing controls, such as:
(a)
Security guards and protection systems,
(b)
Asset Registers, and
(c)
Taking Inventories,
3. Intangible assets (information
systems, knowledge repositories, patents, etc.) can be managed and protected by
establishing and implementing business management controls, such as:
(a)
Registration of Patents, Copyrights and Trademarks,
(b)
IT Governance controls (IT Manager, IT Security Policy, Password Controls,
Computer Security Incident Controls, IT Backup and Disaster Recovery Plan, and Security and Safety Controls for Personal and other Computers
holding corporate data, and valid maintenance contracts with bona-fide
contractors for all hardware and systems),
4.
Business Records can be protected by
establishing effective policies and procedures to manage your business data. Keeping business records can be easy if they are organized well.
Understand the nature of your business and then appoint people to maintain your
business records.
Recommendation
4: Execute excellent production policies and procedures to satisfy the needs
and expectations of your customers and optimize your production process.
This can be
achieved by the following controls:
1. Developing, making
or purchasing and pricing properly and a competitive basis your products and
services,
2. Establishing effective purchasing
procedures to avoid fraud and maintaining your purchase records (purchase ledger, invoices, checks, bank statements, bills
payable and credit purchase slips, etc.) very well.
3. Executing effective inventory procedures and maintaining proper inventory
records, and
4. Streamlining
your production process by efficient procedures, and by maintaining proper manufacturing
and production files (e.g., Bill of Materials (BOM) File, Master Production
Schedule (MPS), Materials and vendors contingency list, and Equipment
Operational Description File).
2.5. Business Performance Model Dimension
P4:
PERFORMANCE
Recommendation
5: Implement your business performance management controls with due care and an
open mind.
This can be
achieved by the following controls:
1. Implementing
a performance management system by getting and deploying a Business Dashboard
system or by a system suited to your purposes,
2. Establishing and
executing a Continuous Business Management Monitoring Plan,
3. Monitoring and reviewing your operational data such as: customer sales
and support strategy and operations, financial performance, production
performance, etc.
4. Improving your financial, customer sales and support, and production
performance.
5. Executing effective compliance and risk programs to ensure adherence to
both to internal and external regulations,
6. Ensuring that a
qualified auditor (usually external) examines and evaluates all your operational controls,
besides your financial reports, at least annually, and
7. Improving your overall performance monitoring process.
3. Conclusion
Consider all
these and customize them to your purposes and business environment.
My experience is that controls are definitely required to ensure that you
are profitable and that your small company survives and prospers.
My favorite watchdogs, however, are the budget, cash flow and expenses. The
topic of the budget may be boring, but the need for budgeting is indispensable.
It gives you immediate warnings that your company is doing well or not.
Your objective should be to have a system of controls in place that will
give you excellent warnings when your business is approaching its financial
limits that, if exceeded, could do serious harm to your small company.
And of course always and always watch your customers. Excel in providing
excellent service and high-quality products to them and the rest will fall in
place.
*Author’s Credentials
John
Kyriazoglou, CICA, B.A (Hon-University of Toronto), is an International IT and
Management Consultant, member of the Institute for Internal controls, founder
and supporter of a number of cultural associations, and author of several books
in a multitude of topics.
In the domain of
internal controls his books include:
(2) ‘Addendum to
the IT Strategic & Operational Controls’, containing audit checklists and
programs, www.itgovernance.co.uk (main author)
