Internal controls can be important to regulating and protecting the finances of a business or organization. Having worked in hotel finance, I realize just how valuable tight internal controls can be to keeping things honest and accurate. This is why when I moved from my hotel business role into self-employment, I carried some of my internal control teachings with me to help keep my own little business world in line.
Proper budgeting and tracking
One of the things I did when I left the regular workforce was to focus better income and expense tracking, which in turn allowed me to better analyze and determine other aspects of my personal as well as business finances. As a self-employed individual, expense tracking was important as it helped me look for ways to save money as well as gauge costs that were eligible for business-related tax deductions.
However, maybe even more crucial was income tracking, since not only did this help me determine from where income was deriving and in what amount, but it helped me with tax planning and leveling the dips and rises that came with less stable self-employment income.
To do this, I enforced my own internal controls that pushed me to create an annual budget, update income with every incoming payment, and track expenses, as well as retain such documentation for future reference.
Short and long-term forecasting
With data that my budgeting and tracking provided in hand, I was able to expend my internal controls to help me begin forecasting. These forecasts help me determine where costs as well as income would be moving forward.
Just as when I was in the hotel business, these forecasts project not just months in advance, but often a year or more. This helps our family gauge income versus expenses, plan how to use our money, and how to invest any remaining funds. It also allows us to review where we’ve been, where we’re going, where we’ve succeeded and failed, and where we can make adjustments moving forward. We utilize a forecast both for income as well as expenses in combination with our budgeting and tracking controls.
Regular balancing and reconciliation
But all the tracking and planning would largely be useless if we didn’t balance and reconcile our progress regularly. This is why at the end of each month – just as I did in the hotel business – I update our numbers, create files for the new month so that I can review month-over-month and year-over-year progress, and ensure that projections as well as accounts balance.
From our credit card and checking accounts, to our retirement accounts, monthly budget, and net worth tracking, I update all these numbers at the end of the month which helps us determine how close we were in our estimates, where adjustments might be necessary, whether there were any outstanding issues, and if we have areas in which our money might be more efficiently utilized.
These internal controls not only help us look forward, but allow us to look at past performance, which can often be just as valuable in better understanding our personal finances and how to use them efficiently, effectively, and economically.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.