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Employee Fraud: What You Can Do About It

By BarbaraWeltman, Guest Blogger
Published: July 17, 2014

Employees are one of your biggest assets, even though they don’t appear on your balance sheet. They help you operate your business and are the faces of your company brand. But employees can also be a big liability if they steal from you. What can you do to protect yourself?

Acknowledge the problem

*Recent statistics found that companies lose 5% of their revenues each year to employee fraud. Companies with fewer than 100 employees had 28% higher fraud losses than larger companies.

Fraud can take many forms, including outright theft of property (from paper clips to expensive inventory items), subtle theft by wasting time (focus on personal matters, sports events or other distractions), to embezzlement of company funds. Employees can be very creative in devising ways to steal from you, including creating bogus customers and invoices to siphon funds from the company.

Wise staffing practices

Having the best employees on your staff can go a long way in minimizing or avoiding fraud inside your company.

  • Do background checks before hiring anyone new. You can check public records to look for bankruptcies and criminal records without permission from the job applicant. If you want to do a credit check (there’s debate about whether a bad credit rating is any indication of potential employee fraud), you’ll need permission. Note: About a dozen states bar employers from doing credit checks of job applicants and employees and Congress is considering similar federal legislation (see S. 1837).
  • Get to know your staff so you can detect potentially bad situations. Those with financial difficulties, such as an employee experiencing a home foreclosure or one with a gambling problem, may feel impelled to steal. Those displaying unaccounted wealth, such as a Lamborghini suddenly being driven by an employee who was previously driving a Ford Focus, may raise suspicions.
  • Create the right company culture. Let employees know how seriously you view any theft.


Implement systems for protection

As with the three branches of the federal government, checks and balances can prevent an employee from manipulating financial data. The less opportunity that employees have to steal, the lower the incidence of such action will be.

Frequent inventories can monitor and detect any employee theft of company property. Bring your accountant in to review your inventory and other financial information.

Make it clear that employee theft will not be tolerated and that violators will be prosecuted to the fullest extent of the law. Unfortunately, some small business owners ignore illegal activity, which then breeds more of the same.

Be vigilant

As the business owner, it’s up to you to oversee what’s going on in your business. Look for clues that something nefarious may be going on, such as a bookkeeper who never takes a vacation or declines to delegate work. Limit review of the monthly bank statement to you and, perhaps, your accountant; don’t leave it to the bookkeeper to review the statement before you see it.

Create an anonymous reporting system for employees to tell you about suspected fraud without fear of retaliation. Tips are the *most common method of detection (), yet fewer than 20% of small companies have a system in place, compared with 70% of larger firms. If you want to implement a reporting system, it can be a web-based system or a special phone hotline for this purpose.

And keep your ears open to any talk from staff members about possible thefts that may be going on.


* Denotes non-government website


About the Author:

Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BigIdeas4SB or at

True Story: Why You Don’t Want a Business Plan Writer

By Tim Berry, Guest Blogger
Published: June 25, 2014

It’s been years since I was making a real living off of business plan consulting (I migrated to business plan software instead), but I had an exchange last week that reminded me of one of the biggest problems – and most common misunderstandings – related to business plans.

Not that you, in your situation, should never hire a business plan writer, consultant or coach. In some cases that’s a good idea. But let me explain that after I tell this story.

One of my first engagements in business planning was as business plan consultant to a startup with three experienced founders. I met with them several times, listened always, and did their business plan. I built the financial model, wrote the text, and produced the document as a business plan document. But I wasn’t part of the team. I wasn’t able to promise to go full time. I was just the business plan writer.

It was a good startup. It had a good idea and, much more important, a market window, differentiation and experience to make it happen. The three founders had about 40 years of computer company experience between them. And it was a good plan too.

But there was a problem with the plan: The founders didn’t know it. They thought it was enough to have a plan, but it wasn’t. In every meeting I attended along with the founders, when there were critical questions, I had to answer them. I knew the plan. They didn’t. It was my plan.

And, in fact, the plan failed. My clients didn’t get financed, and the venture never launched. Of course I was disappointed because I spent a long time developing and revising that plan. I repeatedly changed financial assumptions and revised text.

So here is my advice about hiring a business plan writer, consultant or coach:

The best business plan is one you do yourself. Hiring out is threatened by the fact that good business plans in real business use last a few weeks at best. Business planning is about regular review and revision.

Consider hiring somebody from the outside only if you have the budget for it. It is conceivable that you don’t want to do it yourself and your time is better applied to other business functions. Cheap business plan writing strikes me as about as good an idea as cheap surgery, cheap dentistry, or discount sushi.

If you do hire somebody, look for a relationship more like coaching than consulting. Hire somebody who shares expertise and experience, makes suggestions, but doesn’t do the task so you don’t have to.

Don’t believe ever that having a business plan written is any good for more than a few short weeks. Business plans get old and useless very quickly. If you don’t have one you can keep alive, then you don’t have one at all.

About the Author:

Tim Berry
Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and, on twitter as Timberry, blogging at His collected posts are at Stanford MBA. Married 46 years, father of 5. Author of business plan software Business Plan Pro and and books including his latest, 'Lean Business Planning,' 2015, Motivational Press. Contents of that book are available for web browsing free at .

Maximize Cash Flow in Your Business

By bridgetwpollack, Guest Blogger
Published: May 30, 2014 Updated: May 30, 2014

We’ve finally turned the corner on tax season and as a small business owner you may be thinking, if we made that much in sales last year, where did it all go? and How will we hang on until this year’s busy season is in full swing? If you’ve had thoughts like these you are certainly not alone. As if running a small business weren’t hard enough, seasonality makes it even tougher. Use the following advice from financial experts to help you plan ahead for the inevitable ebbs and flows of cash.

Avoid the Cash Flow Pitfalls

To start off, learn from your mistakes (and those of others) and get a map for the bumps in the road ahead. Nathan DauSchmidt, COO of, highlights 7 opportunities seasonal small businesses should take advantage of to ease the strain of cyclical cash flow. Nathan says, “One of the only benefits of having a slow-season is that you have more time to work on business development.” Take this time to negotiate with vendors, plan ahead, try alternative funding methods and even “leverage your future revenue.” How? Read Nathan’s full blog post, “7 Cash Flow Pitfalls of Seasonal Businesses” to learn all 7 tips for staying afloat.

Get Comfortable with Financial Management Basics

Lou Davenport, a long-time SCORE mentor who’s helped hundreds of small business owners succeed through sound financial management, says, “By learning basic financial management skills, you can learn what the numbers mean, why they’re important, and what you should do about them.”

To investigate why last year’s revenues may have looked drastically different from last year’s profits, Lou says to keep tabs on the most important financial statistic: Gross Profit Margin as a Percentage of Sales. He explains why this metric is so critical: “1. Sales alone aren’t real money. You can’t pay expenses with them. 2. If the standard for your industry is 40% and you’re only at 30%, you have a serious problem. You’re either pricing poorly, making inaccurate cost estimates or working inefficiently.”

Gain even more of Lou’s firsthand knowledge on cash flow and financial analysis by reading his recent ExpertAnswers interview. And if you’ve been curious about how a SCORE mentor can help get your financial management in order, Lou also describes specific ways he and other mentors guide small businesses to success.

Strategize for Next Tax Season

Finally, though you’re just catching your breath from this tax season, it’s the perfect time to plan ahead for the next one.

Dominique Molina, President of the American Institute of Certified Tax Coaches,returned to SCORE this tax season to present her popular, info-packed webinar updated with info for 2014: “Instant Tax Relief - Last Minute Tax Strategies for Business Owners.” Listen in from the comfort of your headphones to learn tips to pay less business tax, including:

  • Taking advantage of home office deductions you don’t know about like an “on-premises employee athletic facility” (aka swimming pool)

  • Properly accounting for auto and healthcare expenses

  • Choosing the right business entity

  • Employing family members including young children

Cash flow can make or break your business; one of the most common reasons small businesses fail is because they run out of money. Keep your business on track, no matter the season, by knowing your financial status, planning ahead, and taking the experts’ advice. At the low cost of free, working with a SCORE mentor is a great way to accomplish all 3 of these tasks without spending a single dime.

About the Author:

Bridget Weston Pollack

Guest Blogger

Bridget Weston Pollack is the Vice President of Marketing and Communications at the SCORE Association. She is responsible for all branding, marketing, PR, and communication efforts. She focuses on implementing marketing plans and strategies to facilitate the growth of SCORE’s mentoring and trainings services. She collaborates with SCORE volunteers and develops SCORE’s online marketing strategy.

5 Simple Steps for Better Management

By Tim Berry, Guest Blogger
Published: May 28, 2014

Good news: Here's a simple process, five easy steps, to improve your business. It's easy to do. And, if you're not doing something like this already, then this simple addition to your process offers you substantial business improvement.

Step 1: Visualize your main story

Take a step back for the business and visualize the main business story. Imagine the ideal customer, what they want from your business, how they find you, and how what you do matches your business' unique qualities and what that specific person wants.

Don't make this hard. Don't sweat the details. You don't even have to write it down, although writing down a few key bullet points can be really valuable for reminding yourself and others, later, about strategy.

Do make it strategic. Strategy is focus, so it's a lot about what you don't do and who isn't in your market. Real business strategy has three elements mixed together: identity, which is what's unique about your business; target market, which you want to define strategically; and business offering, which should also be strategic. Who isn't in your market is as important as who is. What you aren't doing is also important. For example, if your restaurant is about a quiet, leisurely, gourmet dining experience, don't offer take-out or drive-though, and don't have kids eat free.

Step 2: Identify your main assumptions

Don't make this one hard either. Take a step back from the business for a moment, and think about the assumptions you make all the time. Are you assuming a healthy economy, for example, or strong regional growth, or good weather for growing lemons? List these key assumptions. Don't go into too much detail; you'll run into diminishing returns. What you want is a good list to help with regular review and revision (my step 5 below).

Step 3: Set your milestones and performance metrics

Milestones have to do with dates, deadlines, and specific task responsibilities. You write these down for yourself and, if you have a team, for your team members. You don't really get accountability into the business without writing down and agreeing on what's supposed to happen, when, and who is supposed to do it.

Even if you're running your own business entirely by yourself, you still list milestones so you can track progress later. I've learned the hard way on this one, both in my one-person consulting business that I ran for 14 years, and for the 50-person product business it became. If we don't write our intentions down, we lie to ourselves later about what we thought we were going to do. I hope that's just me and not you; but I doubt it.

Performance metrics add backbone and accountability. Some are about basic business performance including sales, direct costs and expenses. But many others are also valuable. For example, leads, website visitors, traffic, meals served, trainings, trips, conversion rates, orders, presentations, incoming calls, minutes per call and so forth. These key performance metrics help you stay on top of the pulse of your business.

Step 4: You need to manage your business cash

Profits alone don't guarantee cash. For example, you can be profitable, but have too much cash tied up in accounts receivable, or inventory, so you end up without enough money to make payroll or cover necessary expenses. To manage cash, you need to project sales, direct costs, expenses, extra spending (for loan repayment or buying assets and such) and extra income (from borrowing, bringing in new investment, or selling assets and so forth).

On this one too, don't try to accurately predict the future. Instead, try to lay out how sales, costs and expenses relate to each other, so later when sales are different from expectations, you have an easy time of identifying the related changes you need to expect in direct costs and make in expenses. Think of what drives sales, such as pricing, marketing expenses, traffic, conversions, leads, pipelines and so forth. And don't go into too much detail because, as with assumptions above, you'll run into diminishing returns if you do. For example, a restaurant shouldn't project sales for every menu item, but summarize and aggregate for dinners, lunches, drinks and other. And a bookstore doesn't project sales by title or author or subject, normally, but rather hard over, soft cover, magazines and other. Keep your categories manageable.

Step 5: Review, revise, repeat

Set a specific day of the month, such as every third Thursday of the month, to review results and revise as necessary. If you're working with others, make sure they know about this regular monthly meeting and miss it only when they have to miss it for good business reasons.

Start your review meeting with your list of assumptions. Identify whether assumptions have changed, and how, and what that means for your business.

Include a review of milestones for the past month, including whether or not expected milestones were reached. Then look at milestones for the next month, to review expectations and compare the milestones with the underlying assumptions.

Finally, review performance metrics. Track and manage the difference between actual performance and established expectations.

And now, lo and behold, you have a business plan

I didn't use the words "business plan" in the title or first paragraph because I don't want you to dismiss it because of the myth of the formal business plan document. Too many business owners read the words "business plan" and dismiss the idea, thinking of some hard-to-do term-paper-like formal document that they don't need unless they are applying for commercial credit, seeking investment, or dealing with issues like selling the business or managing a divorce settlement.

The real business plan, however, is as simple as these five steps. You keep this business plan fresh and up to date and it optimizes management of your company. And when you do need a formal plan, you take this real business plan and dress it up with more description and explanations for outsiders, and print it as a formal business plan document.

About the Author:

Tim Berry
Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and, on twitter as Timberry, blogging at His collected posts are at Stanford MBA. Married 46 years, father of 5. Author of business plan software Business Plan Pro and and books including his latest, 'Lean Business Planning,' 2015, Motivational Press. Contents of that book are available for web browsing free at .


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