You Can’t Grow Your Land care Business without Tight Internal Controls: Land Care Business Basics
Strong internal controls in your land care business help to ensure the safeguarding of assets, proper recording of transactions and accuracy when it comes to financial reports.
In addition, where there are strong controls there is less chance of theft or other improprieties. The following are some of the more basic controls all LCOs should implement in order to protect their businesses and facilitate profitable growth.
Prepare a Policy and Procedure Document – This document should be distributed in whole or in part to any employee that has access to company assets, systems and or authority to bind the company to a legal agreement. At a minimum the following policies should be documented:
- Cash disbursements
- Attendance and vacation
- Travel, Meals, Entertainment and or other expense reimbursements
- Use of company vehicles or other equipment including personal use
- Guidelines to purchasing on behalf of the company
- Petty Cash
Require Separation of Duties – The concept is to have several people complete various steps in a transaction chain. When more than one person is involved there is more than one set of eyes looking at the entire process. This can reduce mistakes and makes employee theft a little more difficult as there would need to be more than one person colluding to perpetrate the impropriety as opposed to one person if the entire process was owned by one person.That said, if your land care business is in its early stages, you may not have the staff or resources to employ more than one person to work in a particular area. In this case, it’s a good idea for you as the owner to participate in a couple of the steps to ensure compliance. Here are a few items that should be split between two or more people:
- Separate posting receipts and deposits from record keeping functions such as recording transactions and reconciling accounts.
- When handling cash make sure the technicians prepares a daily cash log, the A/R person posts the cash to customer accounts and prepares a deposit slip. A third person should compare the log and the deposit slip and make the deposit.
- Make sure the person who sets up the payroll rates and other payroll information is different from the one calling in (reporting to payroll company) the payroll each period.
- Require a supervisor to approve timesheets before preparing payroll.
- Separate the purchasing function from the payable function.
- Make sure the same person who writes checks is different from the person who signs checks.
- Require accounting department employees to take vacations.
Perform Monthly Reconciliations – All bank statements, merchant statements, and credit card statements should be reconciled preferably by a different person than is in charge of recording receipts or expenditures. The process should at a minimum include:
- Compare all transactions reported by the bank or credit card company to those recorded in the general ledger and identify any discrepancies and determine if and when there is a discrepancy that it was only an oversight and is legitimate.
- Examine canceled checks, wire advice and ACH transactions to make sure vendors are recognized and endorsements are proper
- Make sure check numbers are in sequence and account for any check numbers that are not in sequence.
- Reconcile and prove petty cash
Keeping Your Land Care Business Inventory Secure
Protect Inventory – Inventory control involves purchase, safeguarding and disposition of inventory. Knowing the proper amounts of inventory to purchase can be as simple as establishing reorder quantities. With this method, required quantities of each item to have on hand are established. Those quantities are usually predicated on ordering every week or every month or whatever frequency inventory is ordered. When the quantity of a particular item falls below the required amount to have on hand, a purchase order is created for an amount of each item to restore the quantity to the amount required to be on hand.
In order to get the information on current quantities and reorder amounts, you can use your accounting system if you use an inventory module or using a physical count. If you use a computer module, I recommend that you do periodic physical counts to compare with the quantities that your computer system reports. Differences will be related to either improper recordkeeping or shrinkage.
Poor inventory management will lead to decreased profitability and in extreme cases can lead to business failure. It is extremely important that a set of physical safeguards be put in place for inventory. This includes documenting all purchases and creating technician logs detailing the amount of materials given to each technician that is tallied each month. It goes without saying that physical security is the single most important factor in controlling inventory. Your inventory should be protected by lock and key with only authorized people having access. Video cameras also help keep all parties honest as well as documenting any break-ins if they happen.
If the management controls are tight, end of month inventory should be easily calculated by the following formula:
- Start With: Beginning Inventory
- Plus / Minus: Purchases / Returns
- Minus: Amounts given to technicians
- Equals: Ending Inventory
This ending inventory should trace and agree to the physical count. In addition to this reconciliation, material usage should be compared to monthly revenues to make sure that the usage is in line with the norms of cost of goods sold. If material usage is too high it should be investigated as there may be either training issues relating to proper applications or perhaps something more sinister.
Conclusion – As a land care business grows internal controls become extremely important in terms of ensuring operational effectiveness and reliable financial information. Profitability is a result of effectively executing a business plan. Internal controls are the tools paramount to effective execution.
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