November 1, 2014

Protect Your Cash or Lose Your Business

Protect Your Cash or Lose Your BusinessIt seems like every week there’s another story about a small business owner who’s been ripped off by someone they trusted with their hard earned cash. Just last week, my plumber said he was probably going to file for bankruptcy because his trusted office manager took off with $60k of the company’s funds.

Red alert folks!

You must have controls in place in your business to protect what you have worked so hard to achieve. Yes, it can happen to you and your business will suffer for it. Here’s proof.

The Association of Certified Fraud Examiners (ACFE) survey conducted earlier this year reported that more than half (55.4 percent) of respondents said the level of fraud has slightly or significantly increased in the previous 12 months compared to the level of fraud they investigated or observed in years prior. Additionally, about half (49.1 percent) of respondents cited increased financial pressure as the biggest factor contributing to the increase in fraud, compared to increased opportunity (27.1 percent) and increased rationalization (23.7 percent). There’s no time like the present to make sure you are protected.

Here are six things you can do to safeguard your cash flow.

1.  Hire properly — Yes, I know your niece (nephew, neighbor, friend’s husband or wife, trusted colleague, etc.) is someone who you’ve known for a good long time. They are someone you trust. But that doesn’t mean you can skip the steps to make sure they are a good fit for your business. No matter who you are hiring, you need to conduct a background check to ensure there are no surprises. And you need to conduct an interview to confirm their values are the kind you want demonstrated in your business.

2.  Spread the wealth (so to speak!) — Responsibilities for handling financial transactions in your business should never be assigned to just one person. You should never allow only one person to perform the task of recording and authorizing incoming and outgoing transactions. At least two people should share this responsibility. And by all means make sure that this person isn’t the only one with signature authority.

3.  Check and balance — Audits should be commonplace in your business. At least once per quarter there should be a scheduled audit of your financial transactions. Plus a surprise audit on a regular basis will keep everyone on their toes too. Internal audits are fine as long as they’re not conducted by the people who process your financial transactions, but you’ll want at least one audit per year conducted by an outside party.

4.  Open communication — Your company culture should foster an environment that makes it easy for staff to raise issues if they see them. No one wants to be a tattletale and often people won’t report what they see because they are afraid of what the repercussions might be. Give them a safe and anonymous way to report things that they think are not quite right. They could save you thousands!

5.  Take a break — Require everyone in your company to take a vacation of at least a week. Often fraudsters will avoid a vacation like the plague because of their fear that their actions will be uncovered. Don’t let tasks sit idle while they are gone. That won’t help protect your business from fraud if everything is waiting for the same person when they return to work.

6.  Model integrity — Trustworthy people work for trustworthy employers. If you like to bend the rules, you are implicitly giving your staff permission to do the same. Just don’t do it. Be the model they want to emulate. Don’t lose your business because one of your staff decided to help themselves to your profits. Take the time to implement proper financial controls and you’ll sleep a lot better at night.

This article was previously published at the OPEN Forum and is republished here with permission.

6 Comments ▼
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Denise O'Berry


Denise O'Berry Denise O'Berry is a small business expert who provides tools, tips and advice to help small business owners be successful. O'Berry is the author of "Small Business Cash Flow: Strategies for Making Your Business a Financial Success." Her blog can be found at Just for Small Business.

6 Reactions

  1. Wow, stories like that of your plumber break my heart. To prevent them from happening to you ALL the above steps should be taken but I really like the last, setting the tone at the top. If you lead by example only then can you expect others to follow.

  2. Denise: You have written a very important post. I think that #6 Model integrity is the crucial one. As long-time student of a rational philosophy, I see that many entrepreneurs, small business owners and business leaders would need some business philosophy coaching. In the new media era, your authenticity and charisma, you really have to become a role mode, otherwise your failure do this will show up on the social web pretty soon.

    I recently listened to Wayne Hurlbert’s interview with Nick Morgan, author of “Trust Me: Four Steps to Authenticity and Charisma.”

    Please feel free to read my post on the same topic, Time for a Small Business Safety Network?

  3. While most of this seems like common sense, I agree with you that many companies break these rules. I would also reemphasize the couple points you made about setting an example. Employees take behavioral cues from you and can easily spot disconnects between what you say and what you do. Avoid even the appearance of a double standard.

  4. The plumber story was very sad indeed, at least we can take this into account and learn from the adversity’s of others to avoid the same mistakes in the future.
    My adage goes to never trust anybody, not even your own best friends. Trust but Verify.

  5. Fraudulency is always an alarming factor in a business. And with this recession period it has increased more significantly. Moreover it has been observed that fraud has been done by the people who are trusted almost blindly, like a close friend or relative. So, it is always advisable to keep a check on the person who is having high authorities and also the flow of financial assets.

    But also a business owner should never forget that an employer must also be loyal to their employees, so that a mutual coordination must be always existing and employee must feel that they have an importance in the organization. This also helps in the growth of their business.

  6. Thank you for the info. It sounds pretty user friendly. I guess I’ll pick one up for fun. thank u

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