Trust But Inspect

I see too many small business owners who put infinite “trust” in their Chief Financial Officer (CFO), President, bookkeeper or whomever has access to the cash and provides them with financial reports, signs checks, etc., in other words, the employee who is the caretaker for their revenues and retained earning. Far too many small business owners get burned by these situations because they trusted, but failed to inspect. Honest people without malicious intent “borrow” some cash for a college tuition payment or whatever their specific need is, and it never gets paid back. It happens way too often and is an avoidable issue that can cost you dearly when it happens.

Equally disturbing is the number of owners who are fed incorrect financial reports demonstrating cash flow strength when there is actually cash flow weakness, all to cover up poor performance of a manager. The number of embezzlement cases is also increasing rapidly and this can be devastating to your business.

The stories I hear are frequent and varied, but with one common theme: trusted employee takes advantage and covers up until discovered when it is too late, when the damage has been done and is irreversible. Actually, I see this as a direct result of owners acting irresponsibly as opposed to trusted employees taking unfair advantage. Why? Because the owners should never allow themselves to be put into such a situation in the first place. It is ineffective management and the losses are a direct result. The abuses range from petty to earth-shaking but the cause is usually the same–not bad employees but poor management tactics.

TRUST, BUT INSPECT! This should be the mantra for managing your cash.

Dig deeper than just reading reports. Test, check and confirm. Millions of dollars in receivables ended up being only $50,000? Covering up for poor performance, declining revenues or outright thievery, there are many reasons for this kind of scenario to happen and none are very good. It can be uncovered early or prevented altogether if you check, test and inspect your numbers more deeply than just by reading a report.

Trust, but inspect and never have to face the reality that while you thought you were flush, you were really broke, the cash was gone and you did not see it coming. There are no safety guides you can put in place that more effective then inspection and testing. It is your business and your cash is the lifeblood. Yes, trust your employees, but inspect and test their work. This is the only plan that works, the only safeguard for your success.

Personally, I have my accountant come in every month and test the entire financial report, including receivables. It costs me a few dollars but I sleep very well knowing all is good aside from the occasional innocent error. You can do this yourself or outsource it, but get it done. Call it your insurance.