You have identified a niche market, taken the risk and ventured. Everything has been successful until when you decide to expand your business and employ a few people. Three questions keep crossing your mind:
- Did I employ the right personnel?
- If yes, then was the expansion the best move?
- How can I keep the expanded units, while still earning the same profit margin?
Well, these questions have been asked by entrepreneurs all over the world, and one concept has proven to be the remedy in most of these situations: accountability. Accountability means that as an entrepreneur, you are able to track the inputs and outputs, income, costs incurred and why they were incurred, and proof of expenditure. The purpose of all these is to guard your business against theft.
According to statistics, 5% of business revenues are lost to theft on an annual basis, and 37% of small business employees are likely to engage in theft. Theft occurs in the form of theft of inventory, overstatement of expenditures, schemes of corruption, and even diversion of customers to the employee’s personal business. It is even more shocking that the fraudulent employees are many times relatives and close friends entrusted with the business. The prevention or reduction of theft requires entrepreneurs to embrace and practice the concept of accountability.
Depending on the size of the business, these steps can be beneficial.
- Account for every transaction
Whether you sell goods or services, every single day, you transact. Money, goods and services change hands between your business and the suppliers, and between you and your customers. Let these transactions be recorded in detail. For example, all goods received should be recorded by type, quantity, supplier, and date supplied. When the goods run out of stock, you can then tally how many were supplied, versus how many were sold. This will help you to detect lost goods.
Just as you take account for transactions, you should also account for expenditures. Keep a record of all bills payable and their due dates, employee related expenditures, and other costs related to the delivery of the services you offer. Moreover, for miscellaneous expenditures such as lunch, printing outside of your premises, put a standard. While standards prevent employees from taking advantage of available allowances, recording will help you to detect abnormal expenditures.
These recordings can always be done by an account together with the employees. However, if your business is too small to afford an accountant, then you as the entrepreneur can do it. Attend financial literacy classes as this will help you not only to understand financial concepts, but also accounting software such as QuickBooks.
- Establish a double checking system
Research indicates that businesses that in businesses where theft was reported, one employee was in charge of every financial aspect. This was also found to be the prime reason for theft. Make sure that the person who approves payment and the one who finally pays are different people. That way, the approvals can be verified by another party before payment is made.
Another double checking system can be in levels of expenditure. For instance, while small expenditures can be made without prior approvals in order to ease business processes and facilitate smoother operations, higher amounts must be approved by the immediate boss/supervisor and much higher amounts by the decision making body such as a business committee or board. This means that cases of theft can be detected much earlier, especially when a committee is involved in verifications.
- Reduce the use of cash for expenditures
When business operations solely involve the use of physical cash, it becomes much easier for employees handling cash to keep part of the money and account for it by inflating expenditures. Come up with agreements with suppliers and customers pay using other methods other than cash. For instance, goods supplied can be paid via cheques, and customers can pay through mobile money transfers and through crediting the business bank account. In businesses where customers prefer to pay cash, put incentives that will encourage them to pay through other means. These payment techniques will ensure that there is evidence of transactions rather than just depending on receipts, which sometimes may be counterfeited by employees intending to commit theft.
- Audit your business frequently
Whether you have an accountant or not, make it your habit to check the movement of your inventory and your cash flow. Don’t just be satisfied by knowing that you are making profit or understanding why you are making losses. Take control of your business by asking questions. If you have the capacity, have a certified account audit your account time after time. Established businesses conduct audits quarterly, enabling them to detect theft much earlier.