4.7

• In order for a business to continue building momentum, the business will need to establish financial control systems.

  These systems will allow the business owner to monitor and manage the business’s financial performance.

  A new business could potentially suffer financial problems because of any of the following:

  • Poor systems

  • Lack of cash flow

  • Mismanagement

  ▪ Damage to assets

  ▪ Theft or fraud

  ▪ Incorrect pricing

  ▪ Poor debt management

  ▪ Financial control systems can be used by the business to help prevent these problems and losses.
• There are several different types of budgets that a business can

  prepare (e.g. cashflow budgets, budgeted income statements,

  budgeted balance sheets...).
• Managing cash flow is crucial to the survival of the business
• Strategies to ensure day-to-day expenses are met

  1. Keeping track of money owed

  2. Hiring accounts staff

  3. Offering discounts for early payment

  4. Withholding future supplies

  5. Arranging short-term loans and bank overdraft
• Strategies for managing cash flow

  • Track outstanding debts
  • Hire accounts staff
  • Offer discounts for early payments
  • Withhold supplies for late payments
  • Arrange short-term loans and overdrafts
• When a business makes a sale, has delivered the goods or services to the

  customer, but the customer still owes payment, the amount is recorded

  under accounts receivable (e.g. trade services such as plumbers)
• Inventory control is can assist through minimising cost by

  not allowing materials to remain idle and ensuring

  materials are readily available for production.
• Auditing can be done internally: where employees of

  the business perform the audit.

  ▪ Or externally: where another business performs the

  audit.
• Financial control systems are the processes, methods and tools that the business uses to monitor and manage

  financial performance. The business can use financial control systems to prevent financial problems and losses.
• Financial control systems include budgeting, cash-flow management, control of accounts receivable and auditing.
• A business can predict or estimate its financial performance for a given period in the future using budgeting, ensure

  that adequate amounts of cash are coming into the business by using cash-flow management, and keep track of the

  money owed to it using control of accounts receivable.
• • A business can test its accounting processes and internal controls through the process of auditing.