What is ‘financial control’ and how does it apply to small businesses?
Running a small business means you’re occasionally jumping into your accounting system to see how things are tracking.
Yet, if you don’t know what you’re looking at (because numbers aren’t exactly what rocks your world – like they rock ours!), those quick check-ins can leave you feeling more confused.
And before you know it, you’re either pushing that uncomfortable feeling aside until next time – hoping it will somehow all make more sense later… or starting a guessing game of “that looks about right.”
Neither scenario gives you the clarity you need to properly gauge the overall financial health of your business and answer the all-important question of: “Is my business actually making good money?”
And that’s why financial control is a concept you might want to get familiar with.
It will save you from panicking when your bank account doesn’t match what your reports are telling you, and your accountant’s asking questions.
So, what is financial control?
Financial control means knowing exactly where your money is coming from, where it’s going, and making sure everything is recorded accurately and managed properly.
In practice, this can look like:
- Monthly reviews of your Profit & Loss (P&L) to see if your reported income and expenses make sense
- Reconciling key balance sheet accounts, like PAYG payable, to ensure what’s being recorded matches what’s actually owed
These small, regular checks don’t take long, and they give a clear understanding of where your business stands financially.
You’re no longer second-guessing or scrambling to fix things when the numbers don’t line up.
Instead, you can rely on your reports and feel confident your accounts are accurate and up to date.
What you might be doing wrong
When it comes to financial control, one thing we see businesses get wrong quite often is the way they record wages.
Often, a business will record payments to employees in the “Wages & Salaries” expense account.
And while this seems like the logical step, it misses something important.
When payroll is processed in an accounting system, gross wages are already posted to the “Wages & Salaries” expense account (with PAYG tax, super, and net wages allocated to a temporary holding account – often called a clearing account).
So if the bank payment is also recorded to the “Wages & Salaries” expense account, those wages are counted twice.
This results in overstated wages in your P&L report.
As a rule, payments to employees from your bank account should be recorded in the clearing account, so the payment is matched – not recorded again.
A good habit you can build
One of the most useful habits around financial control you can build is regularly monitoring your cash flow.
It’s a simple habit that helps you:
- Prevent cash shortages
- Plan for upcoming expenses like BAS and payroll
- Make decisions earlier, while you still have options We go into more detail on cash flow planning in an earlier blog.
As James Clear explains in “Atomic Habits”.
“You do not rise to the level of your goals. You fall to the level of your systems.”
And that’s why financial control is so important – it’s a system that keeps your business right on track so you don’t trip.
Ignoring your balance sheet can cost you
Many business owners regularly review their P&L, but few take the time to reconcile their Balance Sheet.
Reconciling the Balance Sheet involves checking that every asset, liability, and equity balance is backed by real information or documentation – not estimates or assumptions.
This step matters because if balance sheet accounts like wages clearing, GST, or prepayments are incorrect, those errors can flow through to your P&L.
Which means your profit figure might not be telling the full story.
So, there you have it – why it’s worth putting some form of financial control in place across your day-to-day business operations. Need a hand with that? The Cameo Bookkeeping team is always here to help – get in touch.