The Importance of Financial Controls

March 22, 2022 Mimi Torrington

Controls are necessary for managing both the good and tough times in business. Understanding their importance and why financial controls are probably more necessary during the good times is imperative for your success.

Chris Daniels, CFO at OrcaSmart Group Inc., knows this better than most people, which is why we’re asking him to share his experiences on this week’s episode of CFO Weekly.

The Importance of Financial Controls

why financial controls are important

Chris recounts his time at hedge fund, Millennium, as a story from the Wild West. He was asked to join to establish controls.

The catch? The organization wasn’t ready to embrace what that would mean for their operation.

At the time, hedge funds weren’t regulated as thoroughly as banks, either. Chris did as much educating and convincing as he did implementing the actual controls. Both a challenge and a triumph, Chris’ business continuity plan (BCP) did its job, even through the COVID-19 pandemic.

Both the Ups and Downs Bring Challenges

So many people assume that challenges are unique to tough times in business. It’s a myth. Growth spurts come with a whole different array of problems that require just as much, if not more, skill to navigate.

Chris’s story highlights this. In his experience, the tough times brought about a natural willingness within the business: all hands on deck. Everybody knows that their futures are at stake and they’re driven to do what it takes to survive.

On the upturn, though? That’s a whole different story. In the hedge fund environment, when people are making money, it’s a party scene. That’s actually when controls are needed the most, to make sure that processes are adhered to and that no reckless decision-making occurs, that introduces risk for the business later on.

Controls, Like People, Evolve

The measures you have in place in your startup phase won’t work when you’re running an enterprise. Controls need to evolve alongside the organization.

While controls are essential, the context of their importance lies with people. The people building, implementing and working within the controls: they are your company. There’s no sense in creating controls that don’t align with your vision, talent pool, or hiring strategy. Bringing in the best of the best and limiting how they can serve you is redundant.

Managing Controls Through Business Growth

Chris’ advice:

  • Define your objectives early on and work backwards from there.

  • Set long-, short-, and medium-term objectives.

  • Understand which mistakes are tolerable and which ones are game-changers.

Find the Right Fit

the importance of financial control quote

On securing business funding, Chris runs through your options, including capital for equity and traditional bank loans. His own initiative, Palm Capital, is thriving due to traditional bank loans being less available since the start of the pandemic. He believes that there are too many people with capital, waiting to invest, for you to even think about giving up.

He discusses the typical venture capital model’s expectation for Founders to quickly process the funding and be ready to sell again in a year out from investment. His own intentions are to spend at least three to five years growing his clients’ businesses and reach the IPO stage together, taking on giants in their respective niches. He likens it to finding the right lid for the right pot: you don’t give up until you have it.

Importance of Financial Controls, Reason #1: They Attract the Right Kind of Attention

With controls documented and implemented, you become a savvy investor’s dream. The effort behind building, implementing, tweaking and growing your controls with your business shows your sense of responsibility.

Controls form the safety net that mitigates investment risk, so the more insight into this that you can provide, the better you appear to be at risk management — this is one of the master keys to unlocking funding.

Importance of Financial Controls, Reason #2: They are Valuable Beyond the Business

With technology evolving as rapidly as it is, Chris also comments on the real risk that technological literacy is developing a rift. There are those who excel with it are exposed to all kinds of technology from a young age, and have the ability to learn how to use it. Then there are those who are only just starting to use technology when they enter the workplace.

There are also those who haven’t figured it out and would rather default to asking others for support. It can be overwhelming. But could controls help address this divide in technological literacy? Maybe…

Building controls for advancement of technology doesn’t necessarily mean that you have to slow down. Including people means that you let them guide your pace. Even if it starts out slow, the pace of learning usually picks up.

If you stick to your process and tweak your R&D controls as you grow, you will always be considerate of those who are just beginning their literacy journey yet have so much value to contribute as they gain momentum.

For more interviews from the CFO Weekly podcast, check us out on Apple or Spotify or your favorite podcast player

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