As a system integrator’s business grows to take on more projects, it is important to get a handle on your finances. How is money being allocated and spent? Are the expenses being documented and accounted for?
Chart Your Course
Another basic financial process is defining your ‘Chart of Accounts’. This is a list of well-organized list of ‘accounts’ to which you can assign your financial transactions. For instance:
- Asset (100s) Resources: cash, building, inventory, receivables
- Liability (200s) Obligations: payables, loans, accrued interest
- Equity (300s) Residual assets after deducting liabilities
- Revenue (400s) Earnings: Sales, service revenue, interest income
- Expense (500s) Expenditures: bills, rentals, depreciation, insurance
There are lots of examples of Chart of Accounts that you can find by searching the web such as this one by Small Business Notes. If you already have an accounting package, it may have a suggested format as well. After picking one, make sure that the costing codes are well-documented and consistently used, so you can enhance your financial accounting and reporting.
Within Your Budget
Once you have a reliable Chart of Accounts for tracking your expenses, it becomes much easier for you to create and monitor your budget. This will not only help you to adequately control expenses, but to plan for necessary expenditures.
The budgeting process starts with the defined account codes and allocations for each of those areas, including plans for capital expenditures. Then, monitor the budget on a regular basis and analyze for variances.
Staying In Control
Closely tied to the budgeting process is expense procedures. You should define:
- The procurement process including proper authorization, guidelines for expediting items, tracking receipts, ….
- Adequate measures for cash control including policies for spending, standard expense forms, ….
- Withdrawal policies (e.g. who, how much, what conditions, …) to reduce risk of embezzlement.
I realize that, in small companies, it is easy to say that we trust our employees, but it is still prudent to have reasonable measures to budget for and control expenses.