Access to capital is one of the major troubles faced by small businesses. Thus, illegal activities such as fraud or theft can harm a small business in an instant.
Here’s a true to life experience involving Ken, an owner of a construction crane rental business. He was passionate about cranes, but was not too confident with numbers. So, the office is being managed just by him and a bookkeeper.
For roughly 15 years, Ken had his bookkeeper handle all of his business’s finances, including bills, bank reconciliations, payroll and corporate credit card. It was only after she left when it was found out that she had been committing fraud, causing the company to lose money amounting well into the $100,000 range.
It was discovered by the accounting company that the bookkeeper hired by Ken was withholding taxes from employees’ wages but was not remitting the payments to the government, and she was using Ken’s credit card for personal use. The accounting firm was able to put Ken’s business back on track financially, but it still ended up losing a considerable amount of money.
Small businesses can learn some important lessons from Ken’s experience to help strengthen their financial security.
1. Don’t let a single person handle all your finances.
Business owners must pay attention to receipts and expenditures that go in and out of your bank account regularly. It may be hard for you to find the time, or you may not find it easy to understand what certain taxes and payments are all about. So, hire a third-party accountant to go over your books on a regular basis. You can find progressive accountants that charge fixed fees at reasonable rates. With Ken’s company, had an accountant came in earlier and went over the bookkeeper’s work, the financial losses could have been minimised. If the expense for hiring an accountant were a worry, he would have ultimately recovered that money many times over.
2. Utilise a good payroll system.
Payroll is daunting and complex. But you can choose from many payroll solutions to make the process easier. Some are less expensive than others. Ken’s business became vulnerable when he let his bookkeeper to manually compute tax filings and wages.
3. Build a great team around you.
Ken believes he could run the business all by himself. He turned out to be wrong, so he paid dearly for that wrong assumption. The most resilient business owners are those who surround themselves with a great team of advisors, mentors and confidants who know how to be accountable for their actions. Your success as a business owner is guaranteed with this improved visibility, combined with your team’s diverse and unbiased viewpoint.
4. Safeguarding the weakness whilst maintaining the strengths.
Though they may differ on several points, professional investors will concur that it is crucial to establish a strategy that safeguards your weakness risks. Small business owners are investors in their business and strive to secure new clients, profits and sales. When that capital is recorded in your business, hold on to it. Have adequate insurance, inventory checks and other safeguarding measures in place so that there is cash on hand in the business becomes a victim of fraud, theft, catastrophic events or natural disasters.
If you are looking for a partner to help you run your business and protect your business from fraud, consider working with PJS Accountants. We offer a full range of services, including tax planning and compliance, accounting and SMSF services, estate planning, succession planning, and bookkeeping. For enquiries, contact PJS Accountants.