Perhaps the most tragic thing that can happen to a small-business owner happens when he finally achieves success. And then he discovers it has all been stolen away. I’ve been a business owner for most of my life. I’ve had businesses that did really well, and businesses that missed the mark. In almost every case, the business might start with an idea, but it’s lots of hard work that makes it prosper. I’ve never seen an overnight success that really just takes overnight.
That’s why it can be so upsetting when you discover that, just as you started seeing fruit from your labor, someone was stealing your business’s assets away. And it’s even more heart-wrenching when you realize it was a trusted employee who took it.
The people most likely to steal from you will be the people handling your most liquid assets: the cash. Every business owner runs the risk of theft, and for that reason, watching the cash is usually what CPAs will first concentrate on. The term “cash” includes all liquid assets such as checking accounts, savings accounts, and the like. Good business planning watches cash through five cash cycles. These are listed below.
From the time your business makes a sale, the cash should be traced. Are actual cash sales tracked? Is there a second verification of the sale amount and deposit? In the case of accounts receivable, are these properly recorded? Is there tracking on billing and collection?
This is where separation of duty can come into play. For example, you don’t want the person who is taking in cash at the cash register, also reconciling that register’s tapes at the end of the shift, and verifying that the money makes it to the bank. You should have more than one person involved in that process. A 3rd party should also periodically review statement balances for accounts receivable. The secret is to have more than one person involved in each process.
Make sure expenditures are going for the business, not funding an employee’s personal lifestyle. A physical inventory should be regularly taken and reconciled with the inventory on the books. Again, make sure that you have different people involved in each process. That way, you can separate out the duties to limit your exposure to theft.
In this cycle, you’re creating the product or service that you sell. This is where good cost accounting comes into play, so you can separate out the cost of goods for each product, division, special, etc. The better your analysis, the better you’ll do at tracking where there is waste and possibly stealing.
In this cycle, you borrow money and pay it back. Although it may seem that you’re far removed from employee embezzlement during this cycle, there have been some pretty outrageous cases of theft. For example, some bookkeepers have used the business’s money to pay their own credit card bills. In other cases, bookkeepers have gotten loans secured by company assets. If something goes wrong, the company pays the bill. All of these problems could have been avoided if someone else had been watching over the processes.
The final cash cycle is buying and selling depreciable assets. Anytime there is cash involved, you’ve got to watch it. You’ve worked hard for your business. Don’t let someone steal it away.