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E-Myth – “Why most small businesses don’t work & what to do about it”

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Part-time CFO | Protecting Small Businesses From Fraud


One of the challenges facing small businesses today is problems with cash flow says part-time CFO. It is one of the top three reasons why businesses have failed within five years of opening. One of the ways that businesses can guard against this risk, is by ensuring that they are not at risk themselves before fraudulent activity. Many business owners of small businesses donít believe that they have the resources available to them to properly guard against fraud. However, business owners can learn all the various ways that they could be the victims of fraud and easily take steps to safeguard themselves against it. If they eliminate the risk of staff stealing money from them, business owners can increase their odds of staying cash flow positive in their business.

Owners need to have one person working on their accounting or finances, because they believe they donít have the resources to add a second person or outsourced that task says part time CFO. Business owners should weigh the risks of a staff member stealing money from them against the increased cost of hiring a second person or outsourcing. Itís often cheaper in the long run especially if that means business owners will not have thousands of dollars stolen from them. By researching the outsourcing options ability to build to them, business owners can decide what option is best for their business.

Another way that businesses can guard themselves against fraud is by being very careful with their checks. Many business owners assume that banks are checking the signatures on all the checks they receive, however that is rarely the case says part-time CFO. Business owners should treat the checks in their business like cash and be very protective of them. Fraudulent checks are huge way that business owners could be at risk, and is very easy to avoid

Another fraud risk in businesses is the petty cash fund. Not only is petty cash a fraud risk, but it is also an audit risk. There is no reason that business owners would need to have cash in their business anyway, all the purchases that would ever need to be made for their business can be done electronically or using a debit card. Business owners can minimize their risks immediately by removing the cash from their business and replacing it with a locked debit card. By ensuring that staff canít use it for online purchases, and having a transactional limit as well as a daily limit, can allow the staff to make the purchases they need to throughout the day, without having access to huge amounts of money. If a staff member did use the card for fraudulent purchases, the business owner would be out a much smaller amount of money.

If a business owner does believe that a credit card is necessary instead of a debit card, the best practices says part-time CFO is to create credit card just for that specific employee who would then be responsible for the card and all its charges. That way if there was fraudulent activity on the card, business owner would know exactly who did it.

Entrepreneurs of small businesses often only have one person working in their financing department working on accounting and managing payroll says part time CFO, and are completely unaware of the risks associated with that. In fact there is many fraud risks that the business owner faces right from within their own business and donít even know it. Thereís many things that a business owner can do in order to minimize or completely eliminate fraud from happening in their business. Once business owners are aware of the risks, they can make the right decisions for their business.

One of the ways that business owners can minimize fraud in their business is by using an electronic fund processor on a set schedule. The way this works says part-time CFO is that a business owner or their finance staff can set the schedule of when it will disburse those payments, and then they can organize all of the payments through that processor. This does many things. First it changes the amount of transactions out of a business bank account significantly. It goes from several smaller charges every single day to one disbursement from the electronic fund processor once a week or once every two weeks. Because of this, itís much easier for a business owner to double check the payments that are coming out of their account, and much more difficult for an employee to put through dishonest payments.

Staff members that are working alone may defraud the company through dummy corporations says part-time CFO. How they do that is they create the payment to a corporation that doesnít exist because it has a company name on the payment, however the employee takes a check and cash is that themselves. If the business owner reviews the transactions, it looks legitimate. Business owners can safeguard against this either by having two people working on accounts payable, or ìcheck themselves. Even if a payment looks legitimate because it is going to a corporation, businesses should investigate it if it doesnít look quite right, or have an invoice to go with it.

Employees can also use payroll as a way of defrauding the company they work for says part-time CFO. This is one of the most common payroll fraud types businesses will see. What happens is the employee working on payroll, inflates their hours that they are to get paid, or increases their wage per hour. Many employees donít even consider this theft, and unless someone is doing payroll with them, or a business owner is reviewing each employeeís hours and wages manually, itís hard to catch. The employee who is stealing the money this way from the company is counting on the business owner not catching on, and stealing a little bit of money over a very long period of time.