The Advantages of Following the Organizational Rules

Not all rules were "made to be broken."Your small business benefits from rules you set and enforce. They define your organization and give it its personality, and they can keep your business in compliance with the law. Those rules also help managers and employees understand where they fit into your business. Effectiveness of Decisions When your organization follows the rules of reporting to supervisors and managers, your decisions spread throughout your business uniformly. For example, if you decide your company will adhere to a business casual dress code, you can ask your managers to enforce that code, deal with any infractions and provide you with a workplace that offers the appearance you choose. Larger decisions, such as pursuing a new market, spread through your organization efficiently when everyone obeys the rules of the reporting hierarchy. Reduced Discrimination Fair treatment of employees results from firm rules regarding discrimination in hiring and management practices. Though one complaint about rules is that they can be impersonal, in this case the removal of personal bias in the treatment of employees works in your favor. If you clearly state anti-discrimination policies, you can show that your position is clear in the event of a violation, accusation or lawsuit. The rules protect you and your company by showing that discrimination is against company policy. Clear Authority When you set rules, you decide who enforces them. Conveying authority to managers and supervisors establishes guidelines for discipline and correction. Employees learn not only the rules but who they are accountable to for their adherence to those rules. This creates an orderly workplace with clear lines of authority that save employees and managers time determining who enforces the rules. Criteria for Promotions When all of your employees follow the rules, you can promote people based on their skills rather than their compliance. For example, if all employees follow safety regulations, you don’t have to spend your time evaluating each employee on the basis of adherence to safety measures. You can instead evaluate useful skills and aptitudes that earn the employee a higher position with more responsibilities.

Organizational Structure Guidelines

Every company in the business environment has a specific organizational structure. This structure usually includes the framework that outlines various features regarding the company’s management layers and organizational objectives. Most organizational structures are unique to each company, since the size and operational environment often dictate the policies or rules within the business. An organizational structure may also depend on whether a company is a sole proprietorship, partnership or corporation. TYPES Two common types of organizational structures exist in the business environment: centralized and decentralized. Centralized organizational structures: This rely on one individual to guide the company and make business decisions. This structure often works well in small businesses with few employees. A decentralized organization may use a management team or allow employees to use some level of autonomy when making business decisions. These organizations may require more work when managing business operations. Features Most organizational structures are written as a chart outlining the responsibility of each manager in the business organization. This chart provides the company with a visual representation of the company’s organization. Organizations are usually broken out into groups, or similar business functions fall under the direction of one individual who has experience or expertise in these business functions. This ensures that individuals with the proper knowledge and understanding of business functions operate in a familiar environment. Functions Organizational structures provide companies with high levels of internal control. Internal controls are the specific functions developed to safeguard and protect various business operations and the information produced in each department. These structures may also create a system of checks and balances, ensuring that one department or manager does not have too much control in the organization. Companies may develop the disciplinary process in the organizational structure for departments or for individuals operating outside the company’s formalframework. Benefits Businesses with a formal organizationalstructure may be able to spend less time working on internal management issues and more time producing consumer goods or services. Increasingoutput of business operations allows companies to maximize their profitability rather than spending copious amounts of time adjusting theirinternal management structure. Companies may also be able to improve their communication and information work flow, since managers and employees have a clear understanding of who needs what in the business.Expert Assistance Law firms, management consultants and public accounting firms are a few private sector companies that can help businesses create formal organizationalstructures. Each of these professional groups may provide specific information to assure the company does not overstep its bounds when developing an organizational structure. Businesses may also use the local chamber of commerce or Small Business Administration (SBA) for providing additional information on creating an organizational or management structure.

Roles of Organizational Structure

One role of organization structure is decision making. Organizational structure pertains to the way in which companies arrange their departments. Smaller companies tend to have flatter organizational structures with few management levels. Larger companies use tall organizational structures with many echelons of management and employees. Companies use several types of organizational structure for specific roles. For example, companies using a geographic organizational structure decentralize various functions like marketing because of varying regional needs. Efficiency One role of organizational structure is efficiency. Most companies need to make the most of various resources. Duplicating raw materials or job duties is wasteful and inefficient. Consequently, a company will structure its organizational according to productsand services it offers. A small software manufacturer may use a customer-oriented organizational structure because of its wide variety of customers. For example, the software company may sell to consumers, corporations, financial institutions, hospitals and health clubs. In this case, organizing departments by customers is efficient because of diversity. Product management duties may differ widely by customer type. Marketing to consumers is much different than targeting corporations. Harnessing Experience Another role of organizational structure is harnessing experience. Companies may arrange their companies by specific functions, such as marketing, accounting, finance and engineering. The purpose of grouping departments by function is to use the experience of groups to accomplish tasks and projects. A certain synergism exists when skilled employees of similar talents work together as a whole. For example, marketing and advertising managers can better evaluate the potential success of a new product introduction as a group. Decision Making Organizational structure in a company also enhances decision making, according to Referenceforbusiness.com. Companies will often structure their organizations to make the best decisions possible. For example, a company may decentralize its marketing to make quicker decisions locally. Consequently, the company may put marketing managers in one of four different regions. It is much easier for regional marketing managers to make local decisions about consumer needs than a marketing manager in a distant corporate office. Communication Companies also also use various organizational structures for communication purposes. Larger companies have many levels of management. Therefore, the most effective way to communicate is usuallyfrom the top of the organization down. Executives create certain operational procedures which they communicate todirectors and managers. Managers, in turn, explain these operational procedures to subordinates or hourly employees. Span of Control Organizational structure is used for span of control. For example, a vice president of marketing may be in charge of four directors: One for marketing research, brand management, advertising and public relations. The directors may have three separate groups of managers reporting to them. Span of control pertains to the number of employees an executive or manager oversees. This reporting structure is how companies establish accountability.

How to Do Bookkeeping for a Small Business

Every small business must keep careful track of its present and future cashflow.It is very possible for a profitable business to go under because it does not have enough cash on-hand to meet its current financial obligations. Careful tracking of future cashflow is crucial to avoid this unhappy outcome. Step 1 Create a ledger with the current balance of all of your financial accounts. Most businesses carry accounts for cash on hand, a checking account used for rolling revenue and expenditures, and ancillary accounts as necessary to properly manage their funds. Your ledgers can be in accounting software; personal finance software, which is sufficient for some small businesses; or the old school paper ledger. If you find it difficult to keep accurate and complete records on a computer, use paper as a temporary holding place until you can enter transactions into your software. Step 2 Record all payments made from these accounts in your ledger. Payments are usually listed with the following information: date, payee, category (for tax purposes), memorandum and a record of the check number if a bank check is used. Step 3 Record all money actually received by the business for any reason, with the exception of loans and investment funds. Loans and investments should be accounted in separate ledgers and not booked as revenue. Incoming revenue is typically recorded with similar columns or database categories as payments: date, payee, category and memorandum. Step 4 Create an upcoming payment schedule of all future payments anticipated by your business, such as rent, utilities, and other recurring payments. This is called your Accounts Payable, or AP. If you have upcoming one-time expenses which you would like to make, you can also use this ledger to budget for them; for example, if you would like to spend $5,000 on renovations in January, you can book that as a $1,000 set-aside for the months of August through December. Many businesses book their AP with two dates: the date it is due and the deadline which it is actually due before penalties are incurred. Step 5 Create an upcoming monies received schedule, which anticipates future receipts. This is called your Accounts Receivable, or AR. This ledger is most important for businesses that process invoices to their clients, and hence do not receive payments until their clients actually cut the checks. If you are using software, it is crucially important that AR payments do not automatically roll over into actual payments received ledger. You do not want to book a payment scheduled for 7/15 that does not actually arrive until 7/22, or you risk bouncing checks drawn against that amount. Step 6 Reconcile your ledgers with your bank statements. This is where accounting software truly shines over paper ledgers; most software will automatically download your bank records and allow you to quickly mark which payments and deposits are already recorded in your ledger, and which must be separately accounted. This is typically done on a monthly schedule, but with software and online banking, it is not onerous to do this on a weekly or even daily schedule--and this is not too often for a small business.

How to Record a Loan to Your Business in Bookkeeping

Bookkeeping tracks and records business transactions, including financing transactions such as a loan to a business. Recording a loan in bookkeeping often involves reporting the receipt of the loan, paying for interest expense over time and the return of the loan principal at maturity. If a loan is amortized, the recording must reflect changes in outstanding loan balance over the loan term. This would require periodic adjustments to the original loan principal. The accounts used to record a loan in bookkeeping consists of different liability accounts, an interest expense account and the cash account. Step 1 Record the loan proceeds and loan liability. When a business takes out a loan, it incurs either a current liability if the loan is a short-term loan payable, or a long-term liability if the loan is a long-term debt. In exchange, the business receives the loan proceeds in cash. To record the initial loan transaction, the business enters a debit to the cash account to record the cash receipt and a credit to a related loan liability account for the outstanding loan. Step 2 Record the loan interest. Lenders charge interest on their loans on a periodic basis such as monthly or semiannually, and interest is paid out based on payment schedules. When recording a loan in bookkeeping, a business must accrue the interest expense on the same periodic basis even if the interest is not currently due. The accrued interest is debited to the interest expense account and a credit is made to a current liability account under interest payable for the pending interest payment liability. Step 3 Record interest payments. Interest payments sometimes are made after the interest is accrued and recorded. In this case, making an interest payment does not cause a business to incur interest expense again. To record such an interest payment, the business enters a debit to the account of interest payable to remove the pending interest payment liability and credits the cash account for the amount of interest paid. Step 4 Record the loan payment. Unamortized loans are repaid at once in the amount of the loan principal at maturity. To record the loan payment, a business debits the loan account to remove the loan liability from the books, and credits the cash account for the payment. For an amortized loan, payments are made over time to cover both interest expense and the reduction of the loan principal. To record a periodic loan payment, a business first applies the payment toward interest expense and then debits the remaining amount to the loan account to reduce its outstanding balance. The cash account is credited to record the cash payment.