Platform companies are businesses that connect supply and demand without owning any products. They rely on technology to facilitate transactions between buyers and sellers. As such, they face unique challenges when it comes to internal controls. In this blog post, we’ll explore some of the key internal financial and operational controls that platform companies should have in place.
1. Financial Controls
Financial controls are a critical component of any internal control system. They ensure that financial transactions are accurate, complete, and recorded in a timely manner. For platform companies, financial controls are particularly important because they deal with large amounts of data from multiple sources. Financial controls should be implemented at all levels of the organization, from the board of directors to individual employees.
Some examples of financial controls that platform companies can implement include:
- Segregation of duties: This control ensures that no single individual has complete control over a financial transaction. For example, the person who approves a payment should not be the same person who initiates the payment.
- Reconciliation: This control ensures that financial records are accurate and complete. For example, bank statements should be reconciled with the company’s accounting records on a regular basis.
- Audit trails: This control ensures that financial transactions can be traced from start to finish. For example, all financial transactions should be recorded in a centralized system that can be audited.
- Budgeting and forecasting: This control ensures that the company has a clear understanding of its financial position and can plan for the future. For example, platform companies should have a budgeting and forecasting process in place that includes regular reviews of financial performance.
2. Risk Management
Risk management is another critical component of internal controls for platform companies. They must identify and manage risks associated with their business model. Platform companies should have a risk management program in place that includes risk assessments, risk mitigation strategies, and risk monitoring.
Some examples of risk management controls that platform companies can implement include:
- Vendor management: This control ensures that third-party vendors are properly vetted and managed. For example, platform companies should have a process in place for evaluating the security controls of third-party vendors.
- Disaster recovery: This control ensures that the company can recover from a disaster and continue to operate. For example, platform companies should have a disaster recovery plan in place that includes regular backups of critical data.
- Insurance: This control ensures that the company is protected against financial losses due to unforeseen events. For example, platform companies should have insurance policies in place that cover liability, property damage, and other risks.
3. Operational Controls
Operational controls are the final critical component of internal controls for platform companies. They must have controls in place to ensure that their operations are efficient and effective. Platform companies should have controls in place for processes such as customer onboarding, transaction processing, and dispute resolution. They should also have a system in place for monitoring and reporting operational metrics.
Some examples of operational controls that platform companies can implement include:
- Customer due diligence: This control ensures that customers are properly vetted before they are allowed to use the platform. For example, platform companies should have a process in place for verifying the identity of customers.
- Dispute resolution: This control ensures that disputes between buyers and sellers are resolved in a timely and fair manner. For example, platform companies should have a process in place for mediating disputes between buyers and sellers.
- Process automation: This control ensures that processes are streamlined and efficient. For example, platform companies should have a system in place for automating routine tasks such as customer onboarding and transaction processing.
- Performance metrics: This control ensures that the company is meeting its operational goals. For example, platform companies should have a system in place for monitoring and reporting key performance metrics such as customer satisfaction and transaction volume.
The internal controls of a platform company can be compared to the seven world wonders. Just as the seven world wonders are a testament to human ingenuity and engineering, the internal controls of a platform company are a testament to the company’s ability to manage risk, ensure compliance, and maintain operational efficiency. By implementing these internal controls, platform companies can build trust with their customers and stakeholders and ensure the long-term success of their businesses.
CFOs and CEOs should be aware of the importance of internal financial and operational controls for platform companies. These controls are critical to ensuring that the company’s financial transactions are accurate, complete, and recorded in a timely manner. They also help to manage risks associated with the business model and ensure that the company’s operations are efficient and effective. By implementing these controls, platform companies can build trust with their customers and stakeholders and ensure the long-term success of their businesses.
