There is a reason that the top CEOs in business have studied Chinese General Sun Tzu’sthe “Art of War”. There are so many parallels that the book is a “must read” at many of the nation’s premier business schools. Running a business is a lot like managing a battlefield. Tzu says,“The general who wins the battle makes many calculations [ ] before the battle is fought. The general who loses makes but few calculations beforehand.” How appropriate is this quote for the president or CEO of any business? Not only must you plan, you must inspect what you expect. It is a hard lesson, but we all must learn it, and it is best learned early! Having appropriate controls on concert with clear policies and procedures is the best way to ensure the successful operation of your business. Here are a few examples:
Business is War
- Control over company checks Requiring two signatures on your company checks may be as difficult an obstacle as asking your fiancé for “pre-nup” but it is an excellent safe-guard that can avert a host of problems in your business. You can compromise, by setting a threshold, above which amount; the check requires a second signatory. This forces two sets of eyeballs on larger transactions and reduces the possibility of fraud and imprudent spending. It also creates shared responsibility, which can relieve stress and promote constructive discourse.
- Document All financial transactions should have supporting documentation and these will vary with the transaction and the nature of the business. Examples could include receipts for expenditures, proposals and purchase orders. Another aspect of documentation that is sometimes overlooked, are policies and procedures. Policies and procedures should be documented for the protection of the business and its employees. Well defined policies and procedures can make the enterprise run with greater efficiency and less intervention from supervisory staff.
- Insist on monthly reports There is no place for ‘seat of your pants” management in a business. Trends, successes and failures are best determined from monthly reports that comprehend the financial activities of the business. This harks back to the “inspect what you expect” statement made earlier. Such reports are also a critical element in planning because reports show where you have been and where you are headed. Such reports can alert you to imminent financial dangers, such as diminishing cash flow. For example, the reports show that the firm is having cash flow problems. The accounts receivable report shows that receivables are robust, so you can turn to a factoring company to convert those receivables to cash, well ahead of any emergency developing. For those of you unfamiliar with factoring, it is nothing more than a business that takes over all or part of a business’ receivables in exchange for immediate cash. One such firm provides an invoice factoring calculator on its web site that calculates exactly what your receivables convert to in cash. There is no obligation and no contact with the company is required. Just plug in your numbers.
- Annual audits An independent audit by a disinterested third party is an invaluable confirmation of the efficacy of your “command and control”. Independent auditing firms also bring a wealth of experience to the table; experience you can use to enhance or implement “best practices”, inform you of new trends and give you an objective view of areas that could benefit from improvement.
If your business is not doing these four things, you are placing business assets at unnecessary risk from theft, fraud and just plain carelessness.