Death by Shortcut is a common reason many small businesses and nonprofits fail. It can be invisible, insidious, and swift. Shortcuts may feel satisfying in the moment, but they can allow the override of valuable controls and leave your corporate assets vulnerable.
Dangerous Shortcuts to Avoid
Cash Coding Significant Payables and Receivables
If you are cash-coding, it likely means you are recording money spent and money received as it shows up in your bank statement or feed instead of creating an invoice for a customer when they owe you payment, or creating a bill when you owe a vendor. Bypassing the creation of invoices and bills prevents you from effectively forecasting your cash flow. If you don’t have a record of money you expect to spend and receive, and how much time it takes you to receive that money, you won’t be able to make smart decisions about when to spend money. This could cause major, and totally avoidable reliance on short term borrowing (which is not cheap anymore!). The end of month is not the time to record financial transactions. If cash is tight, ensure you are creating invoices and entering bills frequently (sometimes daily), so that you can manage your funds more effectively.
Allowing Junior Employees to Approve and Pay Bills
If you are allowing an employee (bookkeeper, payables clerk) to enter, approve, and pay significant bills before they have been vetted by a more senior staff member, you are playing with fire. Even the most detail oriented, conscientious individuals make mathematical errors, accidental duplications, succumb to phishing scams, or make poor timing decisions (failing to check a bank balance before issuing a payment). A secondary approval should be required for purchases entered, as well as payments that exceed a reasonable threshold for your business. Use the approval function in Xero, or ensure sign off is digitally secure and marks the actual bill.
Separating finance tasks such as data entry from others like banking can be challenging for small organizations. Sometimes there aren’t enough staff for the ideal separation of duties. Even minor changes to workflows can increase security significantly. You may even be able to hire a parttime employee with the money you save from resulting cash flow improvements (like reducing interest payments on lines of credit).
Contact your CPA if you need help designing or modifying a workflow!
Cedar Creek CPA 