A recent article in my local newspaper reported a story about a woman who was going to jail for siphoning approximately $120,000 from her company’s coffers. I think the business owner is the one who should be doing time. Granted, embezzlement is not new and larger sums have been swindled away from larger and more established companies, but since this was a small business and the pilfered amount reportedly has the company on the brink of extinction, this is inexcusable. The business owner’s actions are criminal - he should have been more aware.

Perhaps this seems harsh, but I render this judgment as an entrepreneur who was completely uncomfortable with company finances when I started my first business 12 years ago. In fact, I took a “Finance and Accounting for Non-Financial Managers” class almost three years into my start-up. I see too many small business owners, unfortunately with many women entrepreneurs leading the pack, completely abdicating perhaps the most important aspect of their company to others or worse, having no one paying attention except at tax time. While I am not recommending you become an accountant to start a business, I am suggesting that the money in your company should never go completely untended by the owners. I offer the following minimal suggestions to business owners for managing their company’s money:

1. Learn what you can. Again, you don’t have to be the expert, but there are certain aspects of your company’s financial status that you should understand. Like why you need to watch your aging accounts receivable, how much your product or service costs to deliver, and what your burn rate is.
2. Conduct regular reviews of your financials. Additionally, you should monitor and be consistently aware of certain financial aspects of your company, such as what your fixed costs are per month (i.e. how much is your payroll?) and what your cash flow projections look like. You don’t need to know how much money you have in the bank at every given moment, but you should have an idea.
3. Do not give any one person too much financial power. In the above-mentioned instance, I have to ask who signed the checks? The person who cuts the checks should never be allowed to sign them. Make sure you employ appropriate checks and balances (no pun intended) to minimize the probability of losing control.
4. Watch employee credit cards. When I worked at IBM, we were given a company credit card but the bill came to us and we were individually responsible for paying it. This forced me to open a business checking account and carefully monitor what I was charging to make sure I filed for reimbursement from the company. Make sure that you have an audit of all charges and require appropriate documentation for employee reimbursement. If you decide to manage employee’s company credit cards for them, which can be risky, make sure the person in charge of that process doesn’t also have access to one of the credit cards.

Do not use a lack of knowledge as an excuse for not having your eye on your company’s financials. After all, it is your money, and your name is on the line if things go wrong.

This entry was posted on Thursday, July 19th, 2007 at 7:08 am and is filed under Business Growth, Entrepreneurship, business success secrets. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.