profit impact Internal Financial Controls for New and Growing Businesses User Guide

Profit impact Internal Financial Controls for New and Growing Businesses

Specifications

• Product Name: Internal Financial Controls Guide
• Target Audience: New and growing businesses
• Purpose: Establish internal financial controls to address risks, protect stakeholders, increase confidence in financial planning, and ensure compliance

Product Usage Instructions

Effective Leadership

Leadership teams play a crucial role in establishing quality and trust within the organization. To implement effective leadership:

• Emphasize customer satisfaction and adherence to industry standards.
• Promote ethical business practices through communication and example-setting.

Accurate Financial Data

To maintain accurate financial records and compliance, follow these steps:

• Reconcile all accounts monthly, including accounts payable, receivable, VAT, payroll, and bank.
• Utilize cloud-based accounting software with good customer service ratings.
• Secure records in compliance with GDPR regulations.

Payroll Protocols

Ensure accurate payroll processing and compliance by:

• Obtaining leadership approval for payroll runs.
• Minimizing extra payroll runs to reduce errors.

Robust Monitoring

To monitor financial health effectively:

• Have balance sheets signed off quarterly by a senior team member.
• Appoint a team member separate from the finance lead to interpret balance sheets.

Strict Data Protection

To ensure data security

• Store log-in credentials securely and do not share them with team members.
• Implement robust password management policies and conduct cybersecurity training for employees.

Tax Compliance & Deadlines

To stay compliant with tax regulations:

• Maintain a register of tax filings and deadlines with reminders to avoid missing deadlines.

Introduction

Internal financial controls are established to:

• Address identified business risks that could threaten your business’s financial sustainability
• Protect your teams, suppliers and customers from the impact of weak financial processes
• Increase confidence in your financial planning and reporting
• Provide you with a framework to comply with laws and regulations
• Put control, rigour and consistency into the way you run your business

Let’s take a closer look at how you can create your own financial controls

Effective leadership

Leadership teams should be driving quality through their tone of voice

Why is it important?

Quality leadership is critical for SMEs as it helps build trust with customers, suppliers, and stakeholders in a competitive market.

Examples

• Emphasising customer satisfaction
• Adhering to industry standards and regulations
• Promoting ethical business practices through effective communication and example-setting

Accurate financial data

All accounts are reconciled monthly, including accounts payable, receivable, VAT, payroll, and bank. Records should be safely secured

Why is it important?
It is essential for tax compliance and financial planning, which are especially important for UK SMEs due to the complex tax environment.

Examples

• Use cloud-based accounting software which is established in the industry and has good levels of customer service. Check reviews.
• Contract with accounting professionals who understand UK-specific financial tax reporting requirements
• Secure records in compliance with GDPR regulations to protect sensitive financial data

Payroll protocols

Ensure payroll runs are signed off by leaders, and minimise extra payroll runs

Why is it important?
Accurate payroll processing is essential for compliance with UK labour laws and regulation

Examples

• Require leadership approval for payroll runs
• Minimise extra payroll runs to maintain efficiency and reduce errors

Robust monitoring

Balance sheets should be signed off at least quarterly by a senior team member

Why is it important?
SMEs need to check their financial health as they navigate economic uncertainties and changing market conditions

Examples

• Appoint a senior team member who can interpret balance sheets (separate to your finance lead)
• Follow UK accounting standards when preparing balance sheets
• Align quarterly reviews with VAT reporting periods for consistency

Strict data protection

Log-in credentials and passwords to access the finance systems are securely stored and not shared across team members.

Why is it important?
In the UK, data security and compliance with the Data Protection Act 2018 (GDPR) are paramount, making secure access to financial systems crucial.

Examples

• Implement robust password management policies
• Use secure password storage tools or encrypted password managers
• Conduct regular cybersecurity training for employees to promote awareness and best practices

Tax compliance & deadlines

Maintain a register of tax filings and deadlines with reminders to avoid missing deadlines

Why is it important?
Timely tax compliance is critical for avoiding penalties and ensuring financial stability

Examples

• Keep a comprehensive record of tax filings and deadlines.
• Set up reminders to ensure timely submissions and payments.

Payment sign off processes

Require senior staff approval for supplier payments and establish clear authorisation limits for different roles within your organisation

Why is it important?
Controlling payment authorisations is essential for preventing unauthorised payments and maintaining financial discipline, particularly in a small business setting.

• Define payment authorisation levels based on the value of payments
• Assign senior staff members or your financial lead to approve higher-value payments
• Implement a clear approval workflow and documentation process for payment runs

Promote cashless payments

Aim for a cash-free business or reconcile petty cash regularly, with sign-offs for withdrawals and reimbursements

Why is it important?
Promoting cashless transactions enhances transparency and reduces the risk of cash mishandling, which is vital for financial accountability

Examples

• Encourage cashless payments wherever possible
• For petty cash, maintain a log with regular reconciliations and approvals for withdrawals and reimbursements

Remove bottlenecks

Avoid relying on one role for all financial transactions and reporting to mitigate the risk of errors and omissions

Why is it important?
Distributing financial responsibilities reduces the risk of single points of failure and enhances internal checks and balances.

Examples

• Cross-train employees to handle various financial tasks
• Implement dual approval processes for critical financial transactions

Payment sign off processes

Create a culture aligned expense policy with timely staff reimbursements and senior approval

Why is it important?
A well defined expense policy ensures transparency, aligns with company values, and promotes employee trust

Examples

• Develop an expense policy that reflects your company’s values and objectives
• Set clear guidelines for expense submission and approval
• Ensure timely reimbursement of staff expenses
• Require senior team members to approve significant or policy-related expenses

About Profit Impact

Profit Impact turns the overwhelming world of sustainability into simple terms, making it easier for you to start being sustainable in a way that works for your business.
Using our designated platform, MindSeed, we equip you with all you need to take measured and informed steps to becoming a more sustainable business.

How we can help:

• Assessing your current sustainability position
• Supporting you through gaining B Corp Certification
• Developing your Net Zero strategy
• Implementing a sustainability strategy

If you want to find out more about how Profit Impact can help streamline your sustainability efforts, get in touch with one of our specialists today.

www.profit-impact.co.uk | sarah@profit- impact.co.uk

FAQ

Q: Why is effective leadership important for SMEs?

A: Effective leadership builds trust with customers, suppliers, and stakeholders in a competitive market, enhancing the business’s reputation.

Q: Why is accurate financial data crucial for UK SMEs?

A: Accurate financial data is essential for tax compliance and financial planning due to the complex tax environment in the UK.

Q: How can I ensure strict data protection in my organization?

A: Secure log-in credentials, implement password management policies, and conduct regular cybersecurity training for employees to promote data security.

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