Wednesday, May 23, 2012

Business Management Controls for Small-Size Companies

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


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

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),

(c) Business Continuity controls (Business Continuity Plan, IT Continuity Plan, IT Backup and Restore Policy and Procedures and Vital Records Package, and

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:

(1) ‘IT Strategic & Operational Controls’, (main author)

(2) ‘Addendum to the IT Strategic & Operational Controls’, containing audit checklists and programs, (main author)

(3) ‘Corporate Strategic & Operational Controls’, with Dr. Frank Nasuti, Ph.D., CPA, CICA, CFE, as the co-author,

SSRN Free Publications:


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  2. Small business also require establishing authorization controls. Maintaining valid employment contracts and employee documentation for the proper and efficient management of the business is really important.
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