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How to Secure the Cash Flow in Your Expanding Business

August 13th, 2008

cash-flow-stream.jpgSmart business owners plan for growth. In this tutorial article by Angela Baca, you will learn you can never spend too much time planning and managing your company. You’ll look at how securing cash through internal controls is an important consideration for a growing business. As your business reaches new limits, you will be encouraged to step up your management and planning strategies.

One way to improve business management is to create better controls for your company finances. If your operation involves collecting cash (either physically or electronically), more sophisticated controls are needed. First, think about how you can analyze your operations. What kinds of payments do you accept? What kinds of security features do you use for each transaction? How secure are your methods? These questions and others are important to design controls that fit the current dimensions of your business.

Where do you start with your operational analysis? The first step is to draw a flow chart that tracks where money flows throughout the organization. The second step is to compose a detailed list of procedures for how revenue is currently processed at each stage of the flow chart. These procedures should logically flow from the flowchart. Be sure to include what you do and what your employees do with money received from clients for goods or services. Your notes should also take into consideration any special checks and balances between steps or employees. A final reminder is to include in the flow chart how cash flows out of your business. If you can identify all the paths that revenue takes, you can design a plan to streamline all cash processing.

Once you’ve completed mapping out and detailing all cash processing, you are ready to study other business models. Looking at other organizations will help you to see how advanced cash controls will benefit your business. Here are three ways to find useful business models:

  • Look for a textbook example in the public library or obtain a ready-made business plan from the local small business development agency.
  • Obtain an old copy of a policies and procedures manual for a larger organization. You might obtain this manual from a public accountant or from a retired business executive. You’d also be amazed what you’d find in a thrift store or at a library discarded book sale. Essentially, the more manuals and plans you study, the more ideas you can potentially adapt to fit to your operations.
  • Contact a colleague in your industry with a similar business and ask for a courtesy copy of his/her policies and procedures for cash management. Your research will give you many ideas to incorporate into your new cash controls.

The next segment of your analysis should focus on how you are going to reduce the likelihood that your employees will defraud the company. In other words, try to design policies and procedures that minimize temptation for individual employees. Some simple suggestions involve: using checks and balances, dividing up responsibilities, and requiring a paper trail for all transactions. Checks and balances can be as simple as one employee signing off on a financial action taken by another employee.

For example, if one employee counts down a cash drawer, a manager can initial the contents of the drawer before the drawer is deposited into the safe. Dividing up responsibilities is also important. You should not concentrate too much financial control in one job description. If you divide up cash management duties between employees and ensure that employees stick to other controls, there will be fewer opportunities for fraud. The third idea is the mandatory paper (or electronic) trail. Recordkeeping must be built into each procedure, whether it is counting down the drawer or signing off on a purchase order to purchase a $1,000 photocopy machine.

When you’ve done all your homework of studying manuals from other businesses, you are ready to go back and redesign your flow chart. The next step is to rewrite the policies and procedures to fit your new flow chart. The final step is to provide employees training on your streamlined cash handling.

You can find whole texts on advanced cash controls. You can also seek the advice of a professional accountant who can analyze your current practices and recommend ways to improve the controls on financial activities performed by company employees. Be a good planner and protector of your business by investing time in improving internal policies and procedures. This sound business approach reduces the inherent risk in your company.


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