Starting and growing your business are both incredibly difficult, especially if you don’t think about setting up business controls for growth early on.
Internal controls play a big role in promoting sustainable growth, helping many startups with risk mitigation, streamlining operational efficiency, and even maintaining financial integrity.
If you are thinking of starting your own business or are struggling to manage your fast-growing company, internal controls may just provide the structure you need. We can help with that.
Through our outsourcing and staff augmentation models, you can be connected with a highly experienced developer or team of developers to help your growing company build and manage its products or services.
Our developers are hand-picked based on what you need, with a focus on company culture alignment and experience in niche fields.
They can recognize and advise you on any potential issues your early-stage company might run into before helping you design and implement the required controls in a cost-effective manner.
What Are Internal Controls and Why Are They Important for Startups?
Understanding Internal Control Frameworks
Internal controls are systematic measures, policies, and procedures that you put in place to make sure your business continues to run efficiently.
They usually affect your operational efficiency, help you safeguard assets, maintain your financials, and even comply with any legal standards and regulations that may apply to your business.
Internal control frameworks generally refer to the approach that you take to implement these controls throughout your business.
A good control framework that you could consider is COSO (Committee of Sponsoring Organizations).
Based on this framework, controls are broken into five aspects: control environment, risk assessment, control activities, information and communication, and monitoring.
The Role of Internal Controls in Startup Success
There are many reasons you may want to think about internal controls, but one of the most important factors for startups is that they help foster trust.
This is vital when you’re in the early stages and looking for funding or partnerships.
This is because demonstrating that you have controls in place signals your reliability, as well as your potential to scale in the future, which would be critical in terms of mergers and acquisitions.
Controls also guarantee your success by helping you protect your new company against fraud, errors, and inefficiencies that could greatly affect you early on.
Detective Controls vs. Preventive Controls
Detective controls – as the name suggests – identify issues. Usually, these controls are put in place during processes like reconciliations or audits to help you pick up on problems that have occurred.
Preventive controls, on the other hand, aim to stop problems before they happen. Some common examples that developers here at Trio have worked on include authorization procedures and system access restrictions.
Usually, your core business will benefit most from having both in a balanced approach.
How Can Internal Controls Facilitate Controlled Growth?
Scaling Your Business with Effective Internal Controls
Internal controls naturally make your company more scalable.
They allow you to allocate resources effectively, uphold compliance, and minimize risks from the start.
These allow many companies to scale without sacrificing operational efficiency or anything else.
Checks and Balances: A Key to Organizational Growth
Management is essential in order to ensure accountability in your company. Checks and balances play a key role in ensuring that this accountability is happening across all levels of an organization, even in larger companies.
The important thing is to segregate responsibilities – like having a separate department manager for finance, procurement, and operational duties – so that you can reduce the risk of any bottlenecks, errors, or conflicts of interest.
Empowering Your Management Team Through Internal Controls
Your management team can use internal controls to give them everything they need to make informed decisions.
The tools and guidelines that it can provide them with allow them to be better positioned to identify issues proactively and may expose issues they would not have caught until much later otherwise.
What Business Controls Should Startups Implement?
Essential Business Controls for a Growing Business
Startups should prioritize controls that address their immediate risks and growth challenges. These include:
- Financial controls: Budgeting, sound financial forecasting, and variance analysis.
- Operational controls: Workflow automation, internal cybersecurity, and process standardization.
- Compliance controls: Adherence to industry regulations and data protection laws.
If you are not sure where to start, we can help connect you with a developer experienced in getting startups off the ground. They will be able to lead your development team and effectively promote business growth through technology.
Implementing Strong Internal Controls for Cash Flow Management
Cash flow can be one of the biggest issues you will face as a startup. Although internal controls cannot create money out of thin air, they can help you manage your hard-earned money in the best way possible.
If you are starting from scratch, we’d recommend that you implement controls such as regular cash flow forecasting, approval processes for expenditures, and robust accounts receivable and payable tracking systems.
By making use of financial reporting like this, the controls will help you see where your money flows and put corrective measures together when you notice a problem.
Controls for Product Development and Purchase Orders
If you are involved in product development, you carry a larger degree of operational risk. Errors or delays could be enough to destroy your company in the early days, whether it is because of the resulting financial losses or the loss in reputation.
Implementing controls to manage purchase orders, supplier contracts, and inventory levels can prevent any issues.
How to Develop Your Business Growth Strategy with Internal Controls?
Integrating Internal Controls into Your Business Strategy
To make sure that your internal controls are integrated into your business strategy, start with a thorough risk assessment and figure out if there is anything that may hinder your organization’s growth.
Then, make sure that you assign clear responsibilities and that your internal controls are communicated to all employees. This helps with oversights and accountability.
This process requires time to perfect. You need to regularly evaluate whether each of your controls still aligns with your objectives at regular intervals, and you need to make sure that the measures in place are still effective.
Proactive integration – which we’ve defined above as detective – can help you anticipate obstacles that may impede your growth as you make changes to controls implemented within your teams.
Framework for Developing Effective Internal Controls
A robust framework involves:
- Risk Assessment: Identify and prioritize risks.
- Policy Development: Establish clear policies and procedures.
- Implementation: Train staff and integrate controls into daily operations.
- Monitoring: Regularly review and adjust controls as needed.
Identifying Areas for Improvement as Your Company Grows
As already discussed, we recommend that you reevaluate your controls regularly to make sure that they are still working for you or to see if there are some new areas that you may need to pay attention to.
As a startup, this will happen regularly, thanks to your rapid expansion in areas like customer service, supply chain management, and IT security.
To identify areas for improvement, we often suggest that our clients consider conducting periodic surveys with team leaders to uncover bottlenecks or inefficiencies and use data analytics tools to track performance metrics across departments.
An auditor or executive team overseeing certain portions of your company may also be able to make some recommendations.
What Are the Best Practices for Maintaining Internal Controls?
Regular Audits and Assessments of Control Systems
Audits are not just about going over your financials, combing through your bank statements, and making sure your accountant is doing their job.
You can get an external auditor or use internal teams to conduct assessments of any part of your business.
The important thing is to establish a consistent audit schedule and make sure you’re using tools like checklists tailored to your business process to guarantee the reviews are conducted thoroughly and consistently.
Training Staff on Internal Controls and Compliance
Staff training maintains a culture of accountability. It makes your employees feel like they are a valued part of the process when they understand the importance of controls and their role in upholding them.
We suggest that you implement regular training sessions and use interactive methods, such as workshops or scenario-based exercises, to help employees grasp the practical aspects of compliance and controls.
Adapting Your Controls as Your Customer Base Expands
As your customer base grows, you will need to adapt controls to handle increased transaction volumes, diverse customer needs, and evolving market conditions.
Your sales team will need to use customer feedback and transaction data to identify emerging risks and refine your processes to figure out if your current controls are viable or if you need to start implementing new ones and adjusting what you already have.
It is important, though, that you consider your existing customers as well as your new customers. Be careful of neglecting one in favor of the other, especially as you grow.
How to Monitor and Evaluate Internal Controls Effectively?
Using Metrics to Evaluate Your Control Systems
The most accurate way to evaluate your controls – especially when it comes to medium-sized companies or large enterprises – is to look at the numbers.
Tracking metrics like error rates, compliance breaches, and anything else that could indicate process efficiency is a good way to gauge the effectiveness of your current controls.
Whatever key performance indicators (KPIs) you decide to track, make sure that you are gathering them in the same way to get the most consistent results.
Feedback Loops: Ensuring Controls Go Hand in Hand with Growth
You can involve your employees by using feedback loops. This is where your employees and management report control issues and suggest improvements.
Surveys are a great option for this, but you can also create anonymous suggestion boxes or host regular brainstorming sessions to gather direct input.
Another great option – which we even use here at Trio – is regular team meetings to review feedback and prioritize actionable steps,
Continuous Improvement of Internal Control Processes
While you need to keep updating your controls as your business grows, you also need to keep an eye on the latest changes in technology and industry.
Everything your competitors are doing will affect you, so focus on staying educated and hiring valuable employees who can give you valuable insight into your company.
If you need developers to help you create the technical portions of these internal controls or even the feedback mechanisms, you’re in the right place.
Here at Trio, we have developers with multiple years of experience in implementing business controls for business growth, as well as a variety of other niche fields.
We can set you up with the perfect developer for your individual company rather than a one-size-fits-all solution. If you want to learn more, reach out to us to schedule a free consultation!
