Nearly 50 percent of small businesses operate without a budget. Forty percent pay IRS tax penalties. And most pay over $80,000 yearly to meet compliance requirements, which evens out to around $10,000 per employee. But here's the bigger problem: despite spending significant amounts of money and time on financial compliance, half of small businesses are still confused and unsure of their compliance requirements.
Policies do not succeed or fail on their own – rather, it's often a failure between implementation and business reality. Many organizations have experienced noteworthy failures when policies, procedures, results and expectations do not properly align.
So, it's not too surprising that around 20 percent of small businesses fold during their first year of business, with an additional 11 percent following a year after. Navigating the hyper-complex financial landscape isn't second nature for most business owners.
Your financial and operational policies and procedures safeguard your company against financial woes. Sure, they're not sexy. But they're an incredibly important component of your overall financial health. Here's why you have to tolerate financial policies and procedures. But be warned: you might end up celebrating them.
The truth about policies & procedures
You like cash, right? And growth? Your policies and procedures are the foundation of your long-term financial health, growth, and market success. They're the little documents and rules that dictate how you handle financial activities throughout your organization. Unfortunately, they're also incredibly misunderstood.
Financial policies and procedures are not one-size-fits-all. And they're also not supposed to be extremely rigid. Your policies and procedures must be built with your business goals in mind and provide enough flexibility and elasticity to allow for alternative growth pathways when they pop up.
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Ideally, every policy and procedure should accomplish the following goals:
- Keep employees aware of financial obligations and financial strategies
- Empower C-level with the qualitative data they need to make strategic decisions
- Minimize disputes and improper financial decisions
- Create clear and consistent guidelines for everyone in the company
By gluing procedure with action, you can make incredibly impactful financial decisions. But how do you take a "boring policy" and make it actionable?
Approaching the gap between policy and action
The key to creating policies and procedures that are actionable and meaningful is to create them with flexibility and simplicity. Most often, policies fail to be actionable because they're either too complicated or not relatable to the current situation. So, as an example, let's say you create a policy surrounding who deals with receipts and disbursements. If you simply put a few names down, your policy can quickly become an issue when there are sick days or attrition. Instead, you should create these policies with checks and balances, and make those checks and balances simple and relatable.
Here are some tips for creating actionable policies:
- Be simple and straightforward
- Include step-by-step instructions along with alternative procedures for "just-in-case" scenarios
- Bake flexibility into the policies by giving alternatives and providing flow charts and related documents
- Create policies by blending financial best practices and business-oriented goals
Policies & procedures to bypass brick walls
Believe it or not, policies and procedures should be celebrated. They're a bastion against waves of financial uncertainty and regulatory scrutiny. Creating the right policies and procedures is often the difference between growth and failure. And, for mid-growth companies hitting that ever-frustrating "brick wall," a few policy and procedure changes can create new financial gateways towards smarter and faster growth.
Need some help? Focused Energy specializes in helping companies tackle their financial frustrations. Contact us to learn how we can create growth through smart financial assistance.
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