Recently, I emailed a new client about a £1,000 bill that had come in from one of their employees.
The employee claimed it was to cover some expenses he had incurred on their behalf.
The problem? There was no evidence that anyone knew this bill was coming. The expenses had not been approved in advance.
So, I asked the CEO, what should we do with this bill? “I trust him with my life,” he told me. “We can pay it.”
This little incident illustrates perfectly the difficulties of running a business without clear financial systems.
We started working with this company when their in-house accountant left. They took this as an opportunity to professionalise their financial operations.
One of the issues we immediately encountered was that there were no processes set up to approve expenses. There weren’t even any expense forms for people to fill in.
If a bill came in, the accountant paid it. It was all done on trust.
First of all, and very obviously, this opens you up to fraud.
When people know that there are no financial controls in place, the temptation to stretch their expenses a little bit too far – or even to cheat outright – can become too great to resist.
Having close relationships with your colleagues does not, unfortunately, make you immune to fraud.
In my experience, it is sometimes the people the CEO trusts the most who take advantage.
They are in the position to access the accounts, and get away with “funny business”, precisely because they are close to the CEO.
The only way to stop this happening is to have proper financial safeguards in place, which apply to everyone, from the CEO down.
These include a proper system to have payments approved and processed…
…And having several people involved in every transaction, so that fraud is harder for any individual to commit.
But there’s a second problem with this company’s set-up.
If you have no financial systems in place to control your company’s cash…. No idea which bills are going to hit you next…..
And decisions about money are being made casually, on the hoof…..
Then your finances are going to spiral out of control very quickly!
An unexpected £1,000 bill here, a £5,000 bill there – It all adds up.
As CEO, this is a very shaky place to be.
Most likely, you spend your time fire-fighting, battling to survive sudden gaps in your cash flow. You certainly can’t plan ahead properly for your business.
And you can never be sure where your company stands financially.
Well-run, grown-up companies don’t operate this way.
They put in place the financial systems they need – both to protect themselves from fraud, and to control their finances.
Nothing is paid out unless it has been approved beforehand. Everything is documented.
They understand exactly how much money is in their account at any given moment – and can predict how much money is expected to go in and out over the coming days and weeks, too. Those are the kinds of systems we are putting in place for our client right now.
They want to grow – and they understand that means managing their money much more professionally they were doing previously.
We can do the same for you, too.
Get in touch with me today, to discuss how we can improve the financial management of your business.
If you want to scale from £1 or £2 million, to £5 million, £10 million and beyond, this is a crucial step.
