Let’s talk about one cause of cash flow problems that turns every entrepreneur’s stomach, I know it turns mine and that is Employee theft or embezzlement.
Most business owners never think it can happen to them. Someone they trust needs money and has figured out a system for stealing and embezzling. It happens a lot more times than you think. By the way 80% of business theft is employee theft while 20% of business theft is customer theft. The key is implementing checks and balances and making sure one person doesn’t have too much responsibility.
Here is an example:
I had a client who really trusted their bookkeeper. This bookkeeper did everything. She did the entire bookkeeping job, made bank deposits, prepared payroll, recorded sales transactions, entered accounts payable, printed checks and prepared quotes. She had no watchdog, there were no checks and balances and she did everything. She just bought a new house and was having problems making payments on the mortgage. It appears she overpaid for the house beyond her family’s means and did not want to go into foreclosure. She understood that she literally controlled the company finances and the temptation to steal was building. The owner had two companies of which one was dormant. She began by writing extra payroll checks out of the dormant company. No one knew as no one audited or oversaw the dormant company. Then she got lazy and simply wrote checks to herself out of the main company account. The theft was discovered but not until several thousand dollars were stolen.
Sometimes the temptation to steal gets too great and people with weak characters give in to the temptation. Never have any one person assume this much responsibility. Have a professional financial person, like a CPA or part time CFO review the books at least quarterly and implement internal controls to prevent theft and embezzlement.
I know there is someone in your business that you entirely trust, unless it is a family member you can never be 100% sure that they are not stealing. I am not saying you go and assume everyone is stealing, but you must be aware that employees are human beings and if they are faced with a temptation to steal and they have personal problems where they need money. You simply cannot be sure.
Other ways for employees to steal includes putting inventory in dumpsters and picking it up after work. Putting inventory in duffle bags, using dressing rooms as a tool to stuff product in a bag or inside clothing, wearing merchandise under other clothing, accepting cash from a customer and not ringing it into a register and throwing away a sales slip. You never live long enough to see all the ways an employee can steal, but I have seen a lot of them. Get the necessary controls for your business to reduce employee theft.
