DOES A SMALL BUSINESS NEED POLICIES AND PROCEEDURES?

The simple answer is YES.

POLICIES are similar to laws.  They are a directive announcing what should and should not be done.

PROCEEDURES are the how to instructions to follow when complying with a policy.  They give direction or point the way.

Policies and Procedures can apply to how to do a specific job, employee behavior employee relations, or the office environment.  Here are two examples:

Policy #1 – Funds received are to be recorded and deposited weekly.

Procedure #1 – The secretary is to open all mail and prepare a list of all funds received recording the name of the payer, transaction type the date and the amount received.  The bookkeeper is to record the funds received, prepare the deposit slip and make the deposit.  Copies of the funds received ledger prepared by the secretary and a copy of the deposit and bank receipt are to be given to the Treasurer for review and comparison.

It is extremely important that a company safeguard check, cash or other payments received.  I can tell you many horror stories of companies that did not follow a procedure similar to #1 above.  Employees often rationalize that they are worth more than they are receiving when they see how much their employer collecting (forgetting all of your expenses).  Or they will plan on paying back a small unauthorized loan, only to think that was easy maybe I can take more.  Another reason to have policies and procedures in place is what happen will if you lose an employee for an extended period?  How will anyone know what needs to be done and how?

Policy #2 – The Accounts Receivable will be maintained on a current basis.

Procedure #2 – The Treasurer will review the open Accounts Receivable list for overdue accounts.  The Treasurer will decide which overdue accounts should be dunned (and at which level) or referred for legal action.  The allowable dunning actions and the ordering of those actions are as follows:

1.      Phone call requesting payment.

2.      Formal letter requesting payment.

3.      Forceful letter demanding payment or legal action will be taken.

4.      Contact attorney or collection agency to enforce collection.

Policy #2 and the corresponding Procedure have legal implications.  You should consult your attorney when preparing the letters requesting payment.  An improper statement could end up with a law suit.  Here again we are attempting to protect one of the company’s assets.

Your accountant and lawyer can assist you in preparing the policies and procedures for your company.  Try searching the internet for examples.  Ask other business owners about their policies and procedures.  The lack of policies and procedures could be the end of your business.

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