Fraud Prevention Tip: Regularly Monitor and Review Monetary Trends

In some ways this tip is similar to the tip about taking all shortages seriously, but I think that this is broader. If you dip into your Quickbooks or whatever software you use for your accounting, you’ll discover that there are hundreds of reports that your system can generate for you from the top view P&L and Balance Sheet to the nitty gritty item detail by customer.

Understanding your company’s KPIs – or Key Performance Indicators – is a great place to start when seeking the trends that matter to you. However, thinking generally about other numbers in your business, and regularly monitoring them, is a very important exercise.

The beauty of this tip is that you can determine how to run the necessary report you need and then have someone in the accounting department run and provide these reports daily, weekly or monthly, depending on the relevance, scope and immediacy of them. Chart the differences over the period of time in question, and you’ll notice a variety of fascinating things.

Let me tell you why at a high-end, couture dress manufacturer in New York, they should have been watching their scrap and the cost per dress of manufacturing.

In the world of couture, the profit per piece is generally quite high, especially at this particular dress manufacturer. What started to happen, though, as we later discovered, was that the production manager was taking the overrun of these $5,000 dresses and selling them to discount operations. As this started to work well, he would buy more materials and then write them off as scrap; to make them into dresses and sell them to discount retailers, though, he still had to run the plant which obviously costs money, too.

Had the CEO been receiving regular reports on the, for instance, scrap rate, then he would have noticed something out of whack much earlier and asked the plant manager to reevaluate his processes. Similarly, tracking manufacturing costs could have uncovered this fraudulent activity. As labor and material costs rose while revenue remained steady the CEO should have thought more carefully about the impact on his profit and why it was happening.

If you are making a widget day in and out and you know that the material is x and the labor is y, you need to watch the trends to make sure that the numbers are staying consistent (or inconsistent in your favor).

This applies to all relevant numbers in your business. Regularly monitor and review monetary trends.

Which trends do you monitor? How frequently?


5 New Years Resolutions for Your Business in 2012, Part 3

It can be very easy to neglect your financials and just assume that as long as you’re making payroll, the lights are on and no tragedies are coming your way that all is well. But that’s not the kind of attitude that helps you protect and grow your business.

As 2011 draws to a close, resolve to sit down and review your business’ financial documents.

The most important thing here is that you’re honest with yourself.

Make or Break?

Compare the results of your financial statements with what you had planned for 2011. Would you call this a successful year? According to which metrics? Where did you over-perform? Perhaps you can adjust your expectations accordingly for 2012 and make more accurate projections. This will help you plan better in the coming year.

What goals did you miss? Why did you miss them? Was it some singular event or did things just not transpire as you’d hoped. The key is not just to review your financial documents but to act on the information you garner.

If you didn’t achieve particular goals, figure out what you can do differently. If it’s just because “the economy’s bad and no one is buying our [insert widget here]” then you better think long and hard about how 2012 is going to be different. The economy is not getting any better, and what people were reluctant to shell out for in 2011 is something they’ll be equally reluctant – if not more so – to shell out for in 2012. If you want to keep making payroll and enjoying the lights on, I suggest you think long and hard about how to do things better and different.

Review Contracts

Part of reviewing your financial documents is also pulling out contracts and agreements and giving them a once over. Are there any personal guarantees that you made a while ago and have proved yourself worthy of removing? Go back to the beginning. You never know where you’ll find a personal guarantee that just doesn’t need to be there anymore.

Take a close look at all of your agreements, including your business’s operating agreement, employee contracts, contracts with financial institutions and more. It’s not that you have to do this every year, but because I feel like you might not have done this in a while (or ever), now is a great time to review those documents and ensure that you’re protecting yourself and your business.

Meet with Your Financial Team

This is also a great time to sit down with your accountant and/or financial advisor and think about your budget, your taxes and your opportunities. Perhaps things went well this year and you should be purchasing some key items before the end of the year. Maybe there’s an opportunity that you should be considering, but both your accountant and financial advisor will be hard pressed to share those with you if they can’t review accurate financial statements.

So, in Closing, Look Closer

The end of 2011 is a great time to work on your strategies and goals for 2012, but you can’t do that without an accurate financial understanding of how things went this year.

So, resolve to sit down with a P&L, Balance Sheet and documents that share the details of your business’s KPIs. Even if the news is bad, you won’t regret having done this. It’s one of the most important ways to prepare for a successful 2012.

Did you meet your goals? How or how not? Please share in the comments below.