Do Entrepreneurs Worry About Fraud?

Almost all Entrepreneurs have heard about fraud affecting business. While they might be lucky not to have experienced fraud first-hand, they can appreciate the devastating effect of malfeasance and broken trust in companies.

Entrepreneurs are often too trusting of their employees, especially ones who started at the beginning. Too much trust without built-in internal controls leads to a potential environment for fraud.

Entrepreneurs might be aware of the need for internal controls in their companies, but the size of their organization often limits proper segregation of duties.

Regardless, Entrepreneurs should be vigilant about proper checks and balances as they build their organizations. While trusting your people is a fine virtue, a solid company is built on strong systems and procedures with proper internal controls.

Even in a smaller organization, creative division of responsibilities with reviews and approvals can provide adequate controls.

Protect your company against fraud by doing the right things!

Ravi Patel

www.patelCFOservices.com

Recover from Mistakes

Some Entrepreneurs are just too much of perfectionists. But, they can’t afford to be so!

Entrepreneurs often try not to make mistakes. Sometimes they try too hard. Is this a good thing? Not making mistakes is good, but trying too hard not to make them could be counterproductive. Trying too hard to avoid mistakes often causes them.

Instead learn to recover, somewhat quickly, from mistakes. If one accepts that mistakes will happen, then the correct mindset should be to develop a process to recover from mistakes.

For Entrepreneurs this is even more important. First, they need to recognize that a mistake was made. If not, they might proceed too far down the wrong path costing them time and resources. Second, Entrepreneurs should train their people to recognize mistakes. Finally, they need to develop a well thought-out process to not only recover rapidly from mistakes, but also to learn from such mistakes and implement internal controls to avoid such faux-pas in the future.

Do the Right Things by recovering quickly and learning from mistakes.

Ravi Patel

http://www.patelCFOservices.com

Unintended Consequences

Good decisions for significant matters take into account all angles, even arguing from other points of view.

Adding to this process of making good decisions, Entrepreneurs should also weigh unintended consequences of their decisions. Did you evaluate, at least for significant issues, potential unintended consequences?

Take an example of developing an incentive program. If you have developed a program that correlates high performance with high reward, it is of course your intended consequence. But, what about unintended consequences of employees cheating or manipulating the system to obtain higher compensation? How have you protected the company against such unintended consequences?

When making crucial decisions consider potential unintended consequences and implement appropriate internal controls.

Ravi Patel

 

Internal Controls over Payroll

Payroll costs are a significant cost for most Entrepreneurs. What type of internal controls have you established over the entire payroll processing process?

Some of the questions to ask – who sets up new employees, how are pay rates established and changed, who approves hours worked, is there a process to authorize overtime, who reviews payroll, is payroll reconciled, how are paychecks distributed?

Establishing internal controls over payroll processing is necessary to control this significant cost area.

Ravi Patel

www.patelCFOservices.com

Honest Feedback for Entrepreneurs

In order to continuously improve themselves and their business operations, Entrepreneurs need honest feedback.

While their other employees may be somewhat reluctant to do so, hiring key management personnel who can provide honest feedback may be quite valuable. Obviously there is a fine balance that senior management employees need to maintain between being perceived as criticizing their boss versus being loyal to the company.

Entrepreneurs need to surround themselves with key neutral advisors who are open to providing honest and realistic feedback to Entrepreneurs. Such advisors could be informal friends and business associates, members of a Mastermind Group, or Board of Directors.

It is of course necessary for Entrepreneurs to be ready to accept such honest feedback.

Ravi Patel

www.patelCFOservices.com

Keeping Informed of Company Operations

Although I advise Entrepreneurs to let their key managers run their departments within broad operating parameters, it does not mean that the CEOs should be unaware of what is going on.

Entrepreneurs might want to set up a periodic reporting system with their key managers so they can stay informed on the operations of their businesses. Such reporting systems might include a summary of key accomplishments, planned upcoming activities and issues that might require assistance from the CEO.

A periodic reporting system allows Entrepreneurs to keep informed without micro managing their key managers on a daily basis.

Ravi Patel

www.patelCFOservices.com

Fix Your Credit to Obtain Credit

Although the principle seems too simplistic, I am amazed at the number of Entrepreneurs who get into situations where their personal or business credit affects their ability to obtain lines of credit or loans.

Entrepreneurs start their business ventures through personal funds or credit, hoping to repay themselves from the profits from their companies. However, as they continue to grow, the need for working capital compounds the problems often affecting not only their personal credit but the credit rating for their businesses.

These situations become a vicious cycle where getting out is often very difficult and expensive. Entrepreneurs need to get a handle on their personal and business credit to afford them the opportunity to fund growth for their businesses.

Ravi Patel

www.patelCFOservices.com

How Will You Deal With Potential Inflation?

Given the extraordinary and irrational current and planned government spending levels and resulting deficits, it is not abnormal to anticipate severe inflationary pressures on the economy.

If the other anti-inflationary factors do not not kick in over the next few years, Entrepreneurs will be faced with huge inflationary risks for their businesses.

Does you planning process take such inflationary risks into account?  What type of counter measures are you planning? Entrepreneurs may want to be proactive and start now to develop strategies to deal with potential inflation.

Please contact us at Patel CFO Services (www.patelCFOservices.com) if we can assist you in this process.

Ravi Patel

www.patelCFOservices.com

Are Vacations Mandatory?

Vacations are offered at almost all companies as a benefit to the employees. Employees use this time to spend leisure or social time with their families. Employees can hopefully recharge their batteries to come back to work rejuvenated.

Do you require vacations to be mandatory or can employees use the unutilized vacation time as extra cash compensation? If it is the latter, you might be doing a disservice to your employees. Vacations are meant to be used as a benefit for relaxation and should be used as such.

There is another important internal control feature in requiring mandatory vacations. It allows companies to uncover any irregular activities, if there are any, during the absence of  employees. Entrepreneurs should keep in mind this internal control aspect.

Ravi Patel

www.patelCFOservices.com

Is Your Banking Relationship Changing?

Entrepreneurs may want to get a pulse of their current banking relationship.

Given the tightening of government control over the banking industry, many banks are required to strengthen their capital:debt ratios. As a result of this, banks are reevaluating credit lines and debt relationships with clients.

Entrepreneurs may want to sit down with their banker and get a sense of what is going on at their bank. It might be prudent to draw up backup plans if Entrepreneurs get a feeling that the banking relationship is about to change.

Ravi Patel

www.patelCFOservices.com