How to Avoid A Financial Mauling
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And here’s your host, Matt Hardy.
Today I want to talk a little bit about financial management.
The more accurate title is, “How to Avoid a Financial Mauling.”
There’s nothing quite as devastating to a business as a financial problem.
Yes, cash flow problems can happen – but I’m talking more about setting up financial systems to help avoid financial fraud.
Like when large sums of money magically disappear without a trace.
Or when your usual bookkeeper goes on vacation for a week and his replacement notices some quote un quote inaccuracies??
In one case I know of, this happened, and the person covering for the accountant ended up uncovering about 10 years of financial fraud which had been skimmed off the business.
They figured he took over $150 grand.
This is just one case for a small business that I know of.
The world-wide business scene is FULL of stories like this.
There are all kind of stories of accountants swiping a company’s money and skipping town to lay on the beach in a non-extradition country.
And to that end, you should have some financial controls in place.
It reminds me of the time I went to Northern British Columbia.
We drove up from the coast to a place called Fort Nelson – which was about an 18 hour drive from where I lived.
From Fort Nelson itself, we took a jetboat ride down one of the rivers until we arrived at our campsite.
I think the boat ride was a few hours itself and it put us square in the middle of nowhere.
We set up camp in a valley, bordered on one side by the river and the other by a steep mountain.
We were hemmed in by the surrounding landscape in a place that had all sorts of animals like wolves, bears, moose and elk.
We ended up seeing a wolf, and nearly every night we heard them howling nearly as we slept in the tent.
We didn’t see any black bears, but we did see some brown bear tracks.
You know – grizzlies.
Those monstrous balls of speed, fury and aggression when ticked off or surprised.
During the two weeks we were there, it suddenly dawned on me as we climbed up the dense forest mountainside, that if a bear WANTED to grab us…. it wouldn’t be too difficult.
The thick forest often came right to both edges of the trail – there was no way you’d be able to see a bear behind any of the thick brush.
The point was driven home even more when we were headed back to camp at the end of the day, and saw giant bear tracks overtop of our boot tracks.
And there was more than one set too.
There was one HUGE pair of tracks, and then there were two slightly smaller sets.
I’ll post a picture of it on the website.
Could’ve been a big mamma and a couple of cubs.
Which is even worse, as mother bears are often pretty protective of the little ones.
We followed the tracks to a bluff overlooking our camp with no sign of the bears.
I guess they just wanted to have a look at where we were staying.
I’m glad that they naturally have a fear of humans.
Otherwise, we’d never be able to go into the forest.
Because the thing is – if they decided they wanted to get you, there’s not much you can do to prevent it.
You have a gun? Great.
You probably wouldn’t even get it off your shoulder before it was on top of you.
And even if you did manage to get a shot off, at that close a range, you’re going to need more than one to put it down.
You’re going to try and run?
Good luck – you don’t have a hope.
Bears can run more than 30 miles an hour.
The only possible chance of survival you have is to climb a tree.
But if a bear jumps out at you on an overgrown trail, you’d never have time.
And if you do manage to climb a tree, don’t stop part way up.
Those things can reach up 10 feet high when they’re fully extended.
The best thing that you can do is try to make a bit of noise as you travel so you don’t end up surprising them.
My point with all of this is: even with taking precautions, there’s no such thing as a sure you can’t ever fully eliminate the threat of danger.
Whether it’s with bears or the people handling your money.
Some people – just like some bears – seem to be bent on harming people – no matter what sort of defenses you put up.
So we do what we can to put ourselves in the best possible position as we try to limit the possible damage.
With that in mind, here are 5 tips to help limit the financial mauling you could experience if things go bad.
#1 – Don’t Have 1 Person Doing All things Financial
You’ve got to split up the various duties within the company.
You can’t have the same person responsible for the inventory of the warehouse while also recording all the sales in & out of the warehouse.
Because if the guy does both, he can steal product or sell the product for cash and then enter fake sales to cover it up.
This is often the “Segregation of Duties.”
#2 – 2 Signatures Required
On company checks, you need to require 2 signatures on it before it can clear.
This is normally setup where the bookkeeper or accountant and the owner need to sign.
If you as the owner are not one of the signing authorities required to cut a check, you need to make sure that the people signing are from different departments – so they are less likely to work together to pull off a scam.
#3 – Bank Reconciliation
You’ve got to match all physical cash transactions with your bank records for a certain period of time.
Again, this needs to be done by someone other than the people in charge of billing, accounts payable and creating the invoices and receipts.
#4 – Restrict Ordering
Only certain people should be allowed to make purchases for the company.
This will help keep your accounts from getting run up without you knowing.
You can take this a step further and have them record all their purchases in a master spreadsheet or other system, which gives a certain level of accountability to the whole arrangement.
#5 – Hire Trustworthy People
Do background checks. And check their references.
I know former jailbirds with a history of white collar crime may seem like they work cheap – but it will cost you in the end.
No matter how much they claim they’re reformed.
If you get a feeling that you can’t trust them – get someone else.
These are a few starting points to help you develop your own set of internal financial controls to help reduce your chances of getting financially mauled.
Here’s to preparing for the worst and hoping for the best.
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An idea you can use.
A different thought or viewpoint.
Or maybe you found it mildly amusing.
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Because I want to help as many people as I can, in as short a time as possible.
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