Good Financial Controls Create Freedom

When people hear the words “financial controls”, I suspect freedom isn't the first thing that springs to mind. Forms. Approvals. Spreadsheets. Accountants saying no. Perhaps even a little bureaucracy.

But in a growing business, good financial control should do exactly the opposite. It should give the owner freedom. Freedom to make decisions. Freedom to invest. Freedom to delegate. And perhaps most importantly, freedom from constantly wondering whether the numbers can actually be trusted.

Growth changes what you need from finance

A small business can often operate perfectly well with relatively simple financial processes. invoices are raised. Bills are paid. The bank is reconciled. VAT gets submitted and the accountant produces the year-end accounts.

And for a while, that works. Then the business grows.

There are more customers, more suppliers, more employees and more money moving through the bank account. Decisions become bigger and mistakes become more expensive.

The owner is no longer asking simply:

“Have we got enough money in the bank?”

They are asking:

“Can we afford to recruit?”

“Which customers are actually making us money?”

“What will cash look like in three months?”

“Why has turnover increased but cash hasn't?”

“Are margins improving or getting worse?”

“Can we afford that investment?”

At that point bookkeeping alone isn't enough. The business needs a finance function.

The problem is rarely a complete lack of information

Most growing businesses have plenty of financial information. There is Xero, QuickBooks or Sage. There are bank statements, sales figures. Spreadsheets and management accounts. The problem is often that the information doesn't join together into something the MD can confidently use to run the business.

I regularly come back to one simple question: Can you trust your numbers enough to make a decision from them?

If the answer is “mostly”, “probably” or “once I've checked a couple of things”, there is a problem. Because uncertainty creates hesitation and hesitation slows businesses down.

Control doesn't mean controlling everything

Good financial controls aren't about the MD approving every £50 purchase. In fact, if everything has to go through the owner, I would argue that the business doesn't have good controls at all. It has dependency.

Proper controls mean having clear processes that allow other people to do their jobs while giving the owner confidence that things are being done correctly.

• Bank reconciliations happen every month.
• Invoices are raised accurately and promptly.
• Debtors are followed up.
• VAT is correct.
• Expenses are recorded properly.
• Cash flow is understood.
• Management information arrives consistently.
• Exceptions are identified before they become problems.
• Nobody has to chase around at the end of the month trying to work out what happened.

That is what control looks like.

And once those controls exist, the owner doesn't need to be involved in every transaction. That is where the freedom comes from.

Your accounts should tell you what is happening now

There is another important distinction. Statutory accounts tell you what happened. A good finance function helps you understand what is happening.

That difference becomes increasingly important as a business grows. If your year-end accounts tell you six months later that margins were falling, the information may be accurate, but it isn't particularly useful.

Good monthly accounts should allow you to see what is changing while there is still time to do something about it. You should be able to understand your cash position, profitability, margins and the handful of KPIs that really matter to your business.

Not because accountants like producing reports. Because better information leads to better decisions.

But do you need a Finance Director?

Not necessarily.

There is an awkward stage of growth that many SMEs reach. The business has become too complicated for basic bookkeeping and annual accounts to provide the financial control the owner needs, but it isn't yet large enough to justify employing a finance manager, financial controller and Finance Director.

That doesn't mean the requirement disappears. It simply means the business needs another way of creating the finance function and I think this is an important distinction. The objective shouldn't be to buy more bookkeeping, nor should it automatically be to hire a senior finance person. The objective is to create a reliable finance function around the needs of the business, that might include bookkeeping and bank reconciliation, VAT and finance administration, cash-flow forecasting, management accounts, profitability analysis and useful KPIs.

The important thing is that these activities work together.

The real test is confidence

Ultimately, I think good financial control comes down to confidence.

• Can you look at your numbers and understand how the business is performing?
• Can you see where cash is going?
• Can you identify problems early?
• Can you make an investment decision without spending two days trying to reconcile three different spreadsheets?
• Can you hand financial tasks to somebody else knowing there are processes in place to make sure they happen correctly?
• And can you spend more of your time running and growing the business rather than checking the bookkeeping?

If you can, financial controls aren't restricting your business. They are enabling it.

Because the purpose of a good finance function isn't to create more administration. It is to give the people running the business the information, systems and confidence they need to make better decisions.

And that creates freedom.