It seems no one conducts inventory control or even cash control anymore…are you all nuts?

I rarely see inventory controls anywhere. I rarely see reviews of expense accounts, or checking against receipts for petty cash, it seems we are simply trusting everyone to be honest and do the right thing.

Realistic? NO! Does it work? Absolutely not.

First of all let me start of by saying most everyone is honest, few employees ever start off with the intention of stealing. But if the business demonstrates lack of controls, it is saying that the owners really do not care about expense account abuse, travel and entertainment abuse, credit card abuse, gas and oil abuse, taking a few inventory items, no big deal.

The boss demonstrates this message of not caring by not keeping track of the systems they should be using to track, monitor, and control the assets and resources of the company, like inventory controls, expense account reviews, credit card usage, etc.

I see bosses saying, “well he is trustworthy so I do not have to check up on him.” But that’s not the point. It is not about keeping the dishonest employees at bay, its more about keeping the honest ones honest.

It starts off small, grabbing a few quarters for a parking meter, using the expense report to make a few personal purchases or for personal entertainment and charging it to a client or the company, taking a few things from inventory for home or personal use, taking some office supplies like a ream of paper for your home office, and it grows over time.

How many times do I see employees who know the employer takes cash from the till and puts it in his pocket. This says he has no cash controls and thus has no idea what should be deposited and what is deposited, as he is disregarding the system himself.

Thus when the men on the truck get paid cash for a job, and then go to lunch and one is short cash so the other says, well we worked hard and it’s ten minutes into our lunch, the boss doesn’t know and he doesn’t really care, he is making a small fortune anyway and he would have bought us lunch if he was here, so lets let the company buy us lunch, and on it goes, growing and growing until a sizable amount of abuse is happening everywhere you look, every day.

It all starts from an employee group who knows the boss does not keep controls over critical areas of potential abuse, like inventory. This signals that it’s okay to dip in for just a little, but that grows to a lot until it’s huge and disruptive to the business. It becomes an entitlement, an acceptable abuse.

Thus keeping inventory systems, cash controls, reviewing expense reports. etc, promotes honesty and supports integrity, not allowing the horse to get out of the barn. It also supports improving your bottom line as probably more damage is being done then you can imagine… by honest employees.

If you have no systems to monitor your assets you probably have few systems monitoring your sales and marketing efforts as well as a financial tracking system and thus profitability will not be maximized.

Additionally, if inventory amounts to a significant expenditure, and if you have no idea what you have at any given time or what you need over time, and if in addition you are supporting some ugly habits as inventory walks out the door inflating your sense of sales movement, and thus not knowing for certain, how do you plan inventory purchases? Seems impossible. How do you know what are the best sellers and what to order again? How do you know what your business is doing, what it needs, and what capital you require to support it? How do you plan your capital requirements if you cannot determine your inventory turns? Beats me….I guess one just does his best guessing he can as opposed to knowing what is actually happening and planning effectively.

Successful business requires certain systems to run effectively, smoothly and profitably. Inventory controls and cash controls are just such an example of a mandatory system and is seldom done by small business operators. Too time consuming they will tell you. Too costly, to interrupting, no one wants to fill out the paperwork. To which I say, do it, it is the only way to be in in control of important assets and to ultimately control your business profitability.

Take the time, monitor your inventory and make people accountable for its accuracy. Track, monitor and control all your cash accounts. These systems are critical for long term growth and development and profitable operations. Call me if you need help 413-549-2966.