The business landscape saw one of the most transformational and disruptive periods of history these past two years. With consensus shifting toward a positive economic outlook, it seems more and more entrepreneurs are switching to aggressive positions in their industries. And even if global economic recovery has yet to showcase the world with a massive jump in activity and opportunity, nobody’s going to risk being late to the next wave of innovation and bullish momentum.
However, before you jump in with the crowd and put out all the stops to help with business growth and possible expansions, it’s only fair that you entertain the other side of the argument, wherein playing safe and defensive is an equally apt approach to take this 2022. Plus, if comparing the advantages and disadvantages isn’t enough to convince you, let us remind you that we’re far from fully recovering. Therefore, entrepreneurs can’t afford to overlook the urgency of focusing on control activities to safeguard company assets first.
Internal Control Systems Act as a Shield
Look, playing safe and pursuing a more passive strategy toward business operations doesn’t necessarily win any votes, but let’s not forget that managing a startup is not a race with a clear winner, rather an unending uphill battle akin to a marathon. As a result, internal control systems are becoming increasingly important in today’s business climate because there’s no guarantee when or where the next big hitter will come swinging from. That being the case, preparing policies and procedures beforehand is the smart way to go.
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Preventing External Risk From Taking Shape
Business plans never fail to emphasize existing threats and risks upon entering an industry with existing competition. However, you shouldn’t just account for external risks before actualizing a business idea but also during operations and in the implementation of future projects. This is where internal control systems shine best because they consist of preventive measures that stop these risks from becoming an actual problem in the first place.
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Detecting Discrepancies Before They Run Too Deep
No matter how good you think you are at preventing risks from turning into impactful difficulties, it’s only natural that some will slip past the cracks and go under the radar. And for ill-prepared companies, this can immediately turn disastrous if you’re caught without any liquid resources to reallocate for addressing urgent concerns. Once again, internal control systems help circumvent this issue because they offer detective measures that identify possible discrepancies in source documents and transactions before they run too deep.
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Correcting Errors and Evaluating Better Course of Actions
Although businesses will try their very best to avoid circumstances or situations that affect core operations, sometimes errors can burrow their way through the audit trail and cause a huge mess. Plus, it’s not just in the financial aspect where things can go awry because there’s also the risk of an information breach or virus. And given these possibilities, internal control systems prove to be essential because they strike at the heart of the issue and evaluate what to do better, whether it concerns talent acquisitions of new hires or management responsibilities.
What Control Activities Should Your Business Prioritize?
Of course, there’s no denying that the control environment is a broad concept that you can’t simply cover with one or two compensating controls and call it a day. However, if you are to prioritize some of the more cross-functional control activities, the mix of supervisory efforts, accounting records maintenance, and utilization of independent verification are recommended.
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Practice Team Supervision Efforts
In more established brands, the segregation of responsibilities is a much more effective preventive measure, all things considered. But if we’re talking about organizations with limited human resources, supervision efforts by management roles are far more efficient and cost-effective. Thus, try to include supervisory responsibilities for your managers during the next meeting.
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Maintain Accurate Accounting Records
Going through source documents, ledgers, and journals may appear like a mechanical part of business management, but your accounting records capture the very economic essence of your company. Therefore, maintenance of the audit trail will help with day-to-day operations regarding customer inquiries and aid in the firm’s financial audit.
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Double-check With Independent Verification
Errors and misrepresentations can happen. While adjusting a few transactions here and there can resolve most issues, exposing your system to inefficiencies is never a good idea. Therefore, implementing independent verification helps detect deviations and validates the correctness of data. And whether that’s regarding recent Nissan car sales or partnership deals for IT parts, it will save you a lot of money and stress in the long run.
You Can’t Achieve Business Sustainability Without Safety
Overall, when it comes to building a successful business, an entrepreneur doesn’t simply achieve sustainability without first ensuring their company’s safety. So before you take on more aggressive investing and growth strategies, consider the control environment and system present in your organization first.