ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Running a Retail Shop – Crucial Policies and Procedures

Updated on November 8, 2019
Khumbulani profile image

Khumbulani believes in sharing business ideas, problems and solutions with start up businesses so that they become sustainable and grow

Of course before you start any business you need to have a plan usually for a minimum of a year. The plan details, among others what types of product you will be selling, your shop layout, how and where you are going to purchase your stocks, how and to who you are going to sell your products, what sources of finance are you going to make use of, how much do you need to start and run your business for a given period of time and how much do you expect to make in terms of revenue and profit. This seems like it is common to everyone who intends to get into any business venture. Isn’t it?

There is one area that most of all these plans for startup or established small businesses tend to ignore or tend to focus less on. Policies and procedures or in general, the Internal control system. Before we deal with how to document and monitor the internal control policies and procedures for small businesses, let us look at some cases where losses were incurred due to improperly implemented internal control systems.

One of the case in 2018 involved 4 shop workers who used their personal Point of Sale Machine to collect part of the sales revenue into their own personal account and would then doctor the sales reports sent to management at day end as a way to cover up for this fraud.

Another everyday challenge which almost all retail shops face is shop lifting. A weakness in the shop design and poor physical controls will result in the loss in inventory to professional thieves who usually target supermarkets especially during busy hours.

In March 2018, a conman stole from a supermarket by allegedly calling the supermarket’s manager using a fraudulently registered line and introduced himself as an official from a non-governmental organization. He allegedly later emailed a purchase requisition to the manager and misinformed him that they were buying the groceries as a donation to a children’s home in another city and that they would settle their bill after taking delivery of the goods. The goods were delivered to the children’s home and the conman used the same tactics to have the goods loaded again from the children’s home to his client.

In the case of TM Supermarket v Mangwiro (04/01) ((04/01)) [2004] ZWSC 125 (22 February 2004) the manager got fired for failing to discover and investigate three missing reset numbers. (One that occurred between 20 and 31 October 1998 and two on consecutive weeks between 10 and 25 November 1998). The total cash lost by the company from one till operator was over $24,000. He also did not timeously take disciplinary action against till operators who had huge cash shortages and also did not adhere to proper filing and storage of till audit rolls and DBS printouts and basic administrative systems and procedures stipulated for controlling and managing cash generated at the branch. His failure to adhere to stipulated systems resulted in the loss to the company of over 69,000.

After analyzing the above cases, I am sure you will appreciate the need to set up a sound internal control system BEFORE you even start your business. Policies and procedures should not only be discussed (verbal) by word of mouth but should also be put on paper and communicated to everyone. These should be fine-tuned from time to time as the changes in the business environment occur. Let us look at the two areas where tight controls are strongly recommended.

Cash and sales controls

I encourage every retail shop owner to invest in a Retail Software which has a point of sale module no matter how small your businesses are. There are a lot of retail software packages on the market designed for small shops even as small as neighborhood tuck-shops. Contact us to give you advice on Retail software packages depending on the nature and size of your business. Management or the shop owner should ensure that all sales are captured through the point of sale module of the system. To ensure effectiveness of this control a third party should check the sales invoice/receipt against the actual items bought each customer as they leave the premises to ensure accuracy and completeness. At the end of each day or at the time when there is a changeover of till operators a reconciliation should be prepared between the system total and the actual physical cash and electronic sales amounts. There are also physical controls relating to cash such as lock boxes and passwords for the authorization of opening of cash drawers.

Inventory Controls

From my experience in the retail business, this area is the most risky of all the areas where if tight controls are not put in place, the business will lose almost all the investment and shut down. Inventory is the back bone of the retail and most of the businesses. For most supermarkets, at any moment in time, inventory accounts for more than 50% of the working capital and therefore adequate controls should be put in place to prevent possible loss mainly due to theft and obsolescence.

Firstly, inventory storage should be properly organized in the warehouse and on the shop shelf in a way that that whenever you want to locate any stock item, you can do that with ease. There are various controls around the receipt of goods which are worth talking about these include the goods received note and the invoice as well as the physical quantities and quality of goods received.

There is a very serious risk of inventory obsolescence with perishable products such as meat and vegetables. The warehouse should be continuously checked for obsolete inventory that is no longer saleable. Reorder quantities and order quantities should be carefully established depending mainly on demand and other future circumstances to avoid scenarios where goods get bad while in storage.

Inventory reconciliations are a key control in the retail business. For small businesses with current assets not exceeding USD30,000, I strongly recommend that they perform overall inventory counts at least twice a month if they cannot do it on a weekly basis. Inventory reconciliations are a comparison between what physically in the shop and warehouse against what is in the records/system. If an overall stock count cannot be performed, a random check can be done on a sample of stock items on a regular basis.

Always keep in mind!

At this juncture, I trust and hope that we have touched on the most risky areas and you now have the basic understanding on how to safeguarding your hard earned investment. However there several business areas for which internal controls should be put in place including Debtors and creditors, fixed asset management. We did not deal with these areas here since most of these are managed by the business owner himself/herself in a small business set up.

Before we conclude, I want you to understand that an internal control system is not 100% effective in the prevention of risk but provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. So how about spend your time improving and monitoring your internal control system? Please work on this on a daily basis.

Please keep this in mind;

  1. There is no universal approach when it comes to internal control design. Businesses live in different times and circumstances and therefore each business has its own problems which need to be addressed.
  2. Policies and procedures should be put on paper.
  3. Internal control system design is a continuous process. Improve them on a daily basis!
  4. Don’t forget to regularly monitor your controls please!


Firstly, inventory storage should be properly organized in the warehouse and on the shop shelf in a way that that whenever you want to locate any stock item, you can do that with ease. There are various controls around the receipt of goods which are worth talking about these include the goods received note and the invoice as well as the physical quantities and quality of goods received.

There is a very serious risk of inventory obsolescence with perishable products such as meat and vegetables. The warehouse should be continuously checked for obsolete inventory that is no longer saleable. Reorder quantities and order quantities should be carefully established depending mainly on demand and other future circumstances to avoid scenarios where goods get bad while in storage.

Inventory reconciliations are a key control in the retail business. For small businesses with current assets not exceeding USD30,000, I strongly recommend that they perform overall inventory counts at least twice a month if they cannot do it on a weekly basis. Inventory reconciliations are a comparison between what physically in the shop and warehouse against what is in the records/system. If an overall stock count cannot be performed, a random check can be done on a sample of stock items on a regular basis.

At this juncture, I trust and hope that we have touched on the most risky areas and you now have the basic understanding on how to safeguarding your hard earned investment. However there several business areas for which internal controls should be put in place including Debtors and creditors, fixed asset management. We did not deal with these areas here since most of these are managed by the business owner himself/herself in a small business set up.

Before we conclude, I want you to understand that an internal control system is not 100% effective in the prevention of risk but provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. So how about spend your time improving and monitoring your internal control system? Please work on this on a daily basis.

Please keep this in mind;

  1. There is no universal approach when it comes to internal control design. Businesses live in different times and circumstances and therefore each business has its own problems which need to be addressed.
  2. Policies and procedures should be put on paper.
  3. Internal control system design is a continuous process. Improve them on a daily basis!
  4. Don’t forget to regularly monitor your controls please!


Comments

    0 of 8192 characters used
    Post Comment
    • profile image

      Samuel 

      3 months ago

      nice and useful piece of writing

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://maven.io/company/pages/privacy

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)
    ClickscoThis is a data management platform studying reader behavior (Privacy Policy)