Internal control: a vital tool for SMEs

Three years ago, at the beginning of the activities of the club Business Angels MDE, in search of funding, a start-up founder in the telemedicine sector came to pitch his project. The club had to turn him down because his growth strategy did not seem sufficiently promising. However, we did point out to him that enrollment figures on his platform should have translated into twice as much revenue as his company was actually generating. A few months later, the same entrepreneur returned, delighted, to thank us warmly. Having heeded our advice, he had identified the sources of fund misappropriation within his company and beefed up his internal control system. Having finally achieved financial break-even, he no longer needed our investment.

This anecdote perfectly illustrates the plight in which many entrepreneurs find themselves: despite the evident success of their products or services, they face tight cash-flow situations, most often caused by fraud. Founders of small and medium-sized enterprises (SMEs) or micro-enterprises generally have a clear and ambitious vision of their projects and are usually able to identify and quantify their financial needs. However, since most of them have never worked in structured organizations, they struggle to adopt operational excellence practices that are now widely established.

A key pillar of such operational excellence is internal control, defined as the set of measures designed, implemented, and monitored by management to safeguard the company’s assets and ensure the reliability of its financial statements. Internal control enables companies to avoid delicate financial or compliance situations through proper risk assessment and establishment of appropriate preventive and mitigation procedures.

Unfortunately, unlike large corporations, SMEs and micro-enterprises rarely have the finance resources to hire qualified professionals (CFOs, internal auditors, audit firms, etc.) to set up effective internal control systems. However, my experience with capacity-building programs for entrepreneurs has shown that, given the relatively simple business model of most small businesses, their founders—when properly trained—are capable of implementing at least basic internal control procedures and monitoring their application. Sadly, the current SME ecosystem offers very little training or support in this critical area.

I would like to commend the growing number of local programs supporting SMEs and start-ups. They are doing a remarkable job helping young business promoters acquire management fundamentals that increase their chances of success on the challenging path of entrepreneurship. Yet, alongside the essential managerial disciplines—strategy, sales, leadership, digital skills, finance, fundraising, and human resources—internal control, the true reinforcing steel of any company under construction, must not be overlooked. Otherwise, the promising edifice may inevitably collapse.