Why Is Financial Accountability Important in A New Business?
No company can grow more extensively until the business owner starts thinking and treating it as a big company. One of the key ideas that help a company grow is ensuring financial accountability. Most start-ups fail due to financial mismanagement nowadays. Because they often think that “Oh, that job is only meant for bigger companies.” That is not always the case. It happens because many start-up owners run their businesses more like a job. They lack the skills of holding people accountable.
Maintaining accountability is a fundamental business ethic that is the key to reducing fraud risks and reporting errors. Financial responsibility encourages confidence and credibility among stakeholders, resulting in a stronger position, greater profitability, and saving your time and money.
What do You Mean by Financial Accountability?
Financial accountability means holding an individual accountable for performing the assigned task rightfully, such as financial transaction procedures. It lays the foundation of a secure and well-managed business.
A new start-up can delegate financial accountability to a person having the required knowledge to prepare and review every budget and financial transaction. That person can assign a particular employee or a group with the completion of this task. If the internal control is robust, it can also consider establishing a committee or an internal audit.
Here are five steps to ensure financial accountability in your new business.
Formulate the Right Policy & Guidelines to Ensure Accountability
Employees must follow established and new company guidelines, laws, regulations, and standards to ensure financial accountability. People who understand the ramifications of failing to follow these specific guidelines are more likely to do so, and entire teams who feel the weight of those standards will work together to meet them.
Setting Principles and Holding Responsibilities
When members of an organization are held responsible for their actions, it reduces the number of potential lawsuits or fines your company could face. Set up some ground rules to ensure the employees are held responsible for the tasks performed.
- Rule 1: The head of each department must periodically monitor the official record of people accountable for the different financial duties and ensure that every assigned task that involves financial accountability performs with competency and honesty.
- Rule 2: There should be a proper recording of data and assignments for everyone within the workplace. Any newly assigned project/task should be listed, and it must also record any changes made to the brief or direction to ensure transparency:
- Rule 3: Any individual cannot assign greater financial accountability to others than they have.
- Rule 4: Only qualified individuals should handle the financial tasks. Who is a qualified person? Who has the knowledge and skills to perform the assigned job? For example, one should know the regulations and policies, methods of transactions, or bookkeeping.
Role Of an Audit Committee
An audit committee or outsourcing an independent audit firm can be helpful to ensure fraud prevention and assist the owner in fulfilling supervision responsibilities. You can openly communicate the results of the audit with your team.
Another important way to ensure financial accountability is to compile and update financial reports regularly, which will indicate the income and expenditure on a monthly, quarterly, and annual basis within your start-up. Investors & customers always trust companies that exhibit transparency in their financial proceedings.
Plan and monitor Your budget
Every new start-up needs a solid plan and a budget to fulfill it. Without a budget, you’re flying blind. The budget sets the guideline that is a powerful resource for managing finances. Depending on the type of business you’ve set up, you can allocate a particular budget to each department in the company. There is no set standard for calculating the budget for every department; it depends on your goal.
The point of telling you all this is that you should be aware of where the cash is going and why (meaning financial accountability). Monitor the performance of each department and ensure financial stability by tracking revenues, expenditures, tax payments, designated funds to each department, and spending more on domains that are benefiting you the most in your business growth.