You, Your Business and Internal Controls

Some of the most exciting people to have as clients are driven small business owners.  Some of the most exacerbating people to have as clients are driven small business owners.  While they want to make their first billion in sales, they also don’t want anything to stand in the way of them making those sales; even if it keeps them out of hot water.

Invariably, the entrepreneur comes to a decision point; start putting others in charge of areas of the business or shrink the business back to a manageable level.  The really driven, focused owner starts hiring managers.  The rest, well they ignore the advice.

The excuse for not hiring managers is mostly permutations of the, “It is my company, I made it so therefore only I can control it.”  Really?  Look at your balance sheet:

  • You have uncollected receivables from 9 months ago
  • You have nothing recorded for inventory but your shop is stuffed to the rafters with stuff
  • You barely have enough cash on hand to make next weeks payroll
  • You have loaned the company $250,000
  • The bank loaned you $500,000

I can go on but I think you get the picture.  You are not in control.  Because you are the only person who makes decisions, you are merely at fault for what is happening.  Being “in control” in business doesn’t mean making all the decisions, it means that there are natural checks and balances which make sure that one person can start a transaction and someone else verifies it.

So, what should you do as a first step to start building a solid internal control structure?

Start acting ethically and responsibly.

I have worked with small business owners who don’t like safety rules.  I have walked into shops where employees are grinding metal and are not wearing goggles.  Guess what?  I carry a set of goggles in my backpack.  I have walked onto job sites where employees are not wearing hardhats.  Yes, I carry my own hardhat in the car.  The point to make is that you need to set the tone that safety matters.  And it is not just about safety, it is about acting ethically and responsibly at every moment.

Set the example: Be the example.  This one little rule applies to every small business and starts everyone on the path towards better decision making.

Reward good behavior when you see it.  I worked with a contractor who sat back and watched an employee help a subcontractor who dropped a bucket of nails off the back of a truck.  Nails scattered everywhere.  The employee stopped what he was doing and helped shovel up the mess.  It was the right thing for the employee to do.  The owner missed a great opportunity to teach his employees how to act responsibly and reinforce actions that benefit everyone.

Don’t be arbitrary as you teach employees to be arbitrary.  A business owner employed his daughter to work reception.  She would on occasion come back a few minutes late from lunch.  The owner berated her out in the open about setting a poor example.  Another employee came back over an hour late from lunch and he joked with him.  You might think it is not showing favoritism by abusing your receptionist/daughter but it is in fact an arbitrary enforcement pattern.  If the rule is “In your seat at 1pm” then make sure you enforce the rule on everyone, not just the convenient target who won’t fight back.

Strong controls begin with the tone at the top.  If you take shortcuts, your employees will take shortcuts.  If you pad your expense account, your employees will add time to their work week.  You cannot grow and be successful if everyone is always looking for the easiest route.  Believe it or not, your success as an entrepreneur is totally based on the success of the people you hire.  Act accordingly.

Have a great day.  If you would like to learn more about how to start implementing effective internal controls that won’t break the bank, feel free to write me anytime for a free consultation.  I can help you understand how to grow your business while also keeping it under control.  If you would like to learn more about C.O.R.E. and how our services can help your business and association, check out our website.

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