By the time you notice the money theft, the energy and time theft have likely been happening for months, if not years. In this final episode of our small theft series, we examine how seemingly minor financial infractions can devastate your business’s bottom line.
Most money theft doesn’t start with dramatic embezzlement – it begins with an “I deserve it” mentality. Employees who feel undervalued rationalize inflated hours, personal use of business resources, or unauthorized discounts. In retail, especially, a simple 10% employee discount can eliminate profitability when margins are already razor-thin at 50% cost of goods.
We break down three types of direct money theft: inflated hours and expenses, personal use of business resources, and intentionally inefficient resource use. The key to prevention isn’t catching dramatic theft – it’s staying current with bookkeeping, implementing clear policies, and avoiding the double standards that train employees to expect special treatment. Small leaks sink big ships, and the best defense is consistent financial oversight.
—
Watch the episode here
Listen to the podcast here
When Money Walks Out The Door
By the time you notice the money theft, the energy and time theft have likely been happening for months, if not for years. We’re going to conclude our series by talking about when small theft actually becomes a big financial loss and why the number on your P&L is just the tip of the iceberg. We’ve talked about energy theft, which is the basis of all small theft, the death by a thousand paper cuts, as it were. We’ve talked about time theft. Money theft is the endgame. Gwen, you are the person who I heard first say that very few people who are later found to have embezzled funds ever started their theft by stealing money. Would you paint a picture of how you see the mindset of the person who, at some point, ends up stealing money from an organization?
Almost always, “I deserve it” is where we get to. It’s typically the person who thinks they’re working more hours than what their pay is justified for, or they’re providing more value than their pay is justified for. They think they should have gotten the raise that they didn’t get. They think they should have gotten the bonus that wasn’t delivered. It’s all of the “I feel like I am owed this.” Because we think we’re owed it, then we don’t feel like it’s stealing. That is because it’s what I deserve for the thing. When we talk about truly hard money theft, we’re going to talk about things that actually lead up to hard money theft. Once we start getting into hard money theft, that is embezzlement. Lines are clear. This is absolutely illegal to be doing that.
Rarely has someone come in and said, “This looks like someone is not paying much attention. I could totally get a whole lot of money out of here.” That’s not the way most people come into a business as an employee. Does that mean no one does? I also don’t think that’s true. There are probably some folks who actually find jobs that they know they can tell, “This is a place I can totally start embezzling money.” It’s a plan. That’s a tiny percentage of the folks who ever do true, hard, direct money theft, what I’m going to call embezzlement, stuff that is absolutely illegal. There is no line. There’s no grayness that if anyone said, they would say, “Yes, that’s wrong.”
Let’s say that actual theft of dollars and cents, taking the money from the cash drawer and not depositing it in the bank, as you’re supposed to do as a closer, taking it home, and using it to buy groceries, that is actual stealing. Aside from actual stealing of money, there are three other types of direct money theft that can happen in a business. As you said, Gwen, these are more common. One would be inflated hours and expenses. The second is personal use of business resources. The third is being grossly inefficient with how you’re using tools, software, and resources that the company has bought.
Stealing money from an organization almost always starts with ‘I deserve it.’ Share on XI want to say grossly inefficient with intention. Some people are grossly inefficient. That’s more into the time theft that we were dealing with in the prior episode. There’s a point where I’m being grossly inefficient with intention. That’s when I feel like it’s money theft.
The “I Deserve It” Mindset: How Theft Begins With Inflated Hours & Expenses
Let’s start with inflating hours and expenses. How do you see that usually plays out, and why is it a problem?
We talked about this in the time episode as well. It’s where I’m supposed to be an hourly employee. I’m supposed to be recording the amount of time I work, but I padded an hour because I think I’m super efficient. Anyone else, it would take seven hours. I need to be paid seven hours instead of six hours, if that’s what it took me. We’re actually getting paid for hours that we didn’t work. If you’re on a salary, there’s a whole different set of rules that apply to that, but that’s usually not where this is happening.
This usually happens with the hourly employee who is turning in a number of hours. Maybe they’re contracted to work eight hours a day, but they aren’t. Even though they’re contracted for eight, you’re still supposed to record the eight hours that you worked, but if you only work six, that’s not eight. As I said, if you’re actually supposed to be tracking your hours, a salary position is a different thing. Most of the folks that we’re talking about here, that’s not the situation. That is a different piece.
Same thing if you’re looking at billing hours. Are you really working those hours? You may have some agreements in place. I’ll say the classic attorney agreement is I bill you a minimum of fifteen minutes, regardless of how long we talk. We talked for five minutes. You get billed for fifteen. That’s in the agreement. That is not theft because that’s what you know. If I’m going to pick up the phone and talk to my attorney, I’m going to get billed for fifteen minutes, even if it’s a three-minute conversation.
Getting paid for hours that were not worked is theft. Share on XThat’s more of the exception than the rule. Doing the same thing, saying, “I’m going to hop into their email real quick, but I’m going to bill them fifteen minutes for it just because I hopped in,” did you really need to hop in, or did you just hop in so that you could bill a chunk of time? Were you supposed to bill fifteen minutes, or were you supposed to bill the five minutes that you were in? All of these are places where that time becomes a bit of an issue. It’s also the place where you say that I clocked in at 8:00, but I didn’t really clock in. I didn’t start working until 8:45.
The classic that folks will talk about is, “I clocked in at 8:00, but the first thing I did was I went to the bathroom. I got some coffee. I had a couple of conversations with a few friends.” That’s another theft of time. Most of the time, if we’re hourly employees, we’re supposed to start working. Not that we don’t get to have a bathroom break, but if we have to work, we probably should have done that at home before we left. It is not the first thing we do as we come into work, unless we’re actually having an issue this particular day, not as practice.
All of those are the places that we start seeing some of this time piece. The problem is when I am billing for eight hours and not filling eight hours, then when someone needs me to do something more, I want to charge overtime. There were still two more hours using the six and eight-hour example that we’ve been playing with. There were actually two more hours to get the work done. I’m not only charging for hours that I’m not working. I’m charging time and a half for hours that I didn’t need to be charging time and a half for.
Some of these things play out differently in industries. I think back to my college days, working in fast food. They tell you, “Without authorization, you’re not allowed to clock in more than ten minutes earlier than your shift starts. You have to clock out within ten minutes after your shift ends.” When you don’t know any better, some people think, “That means that I should clock in ten minutes early. That makes me a good employee. Clock in ten minutes early. Clock out ten minutes late.” Because you’re eighteen or nineteen, you don’t think of the ramifications, but that’s twenty minutes extra a day. Even if you’re only working three days a week, we’ve got a whole extra hour of pay happening. Maybe you worked it, and maybe you didn’t.
That’s where it becomes the issue. Were you actually working those hours, those extra minutes? Were you there, being, “I’m here, so I’m efficient, but I don’t start until the top of the hour,” using your example? We had a client who was talking about how she realized that payroll was up from the previous month. She realized it was these little fifteen-minute increments, either at the beginning or the end of the hour. She’s like, “I don’t think anyone needed those.”
That’s where it comes up.
I’m sure in this case, those folks aren’t thinking about the stealing. They’re not thinking of it as stealing, but all that stuff adds up over time.
In the case of fast food, usually, where the time clock is, there’s not a place to dawdle for ten minutes before your shift officially starts. You clock in. You start working, but there’s also an issue, even if it’s just ten minutes of having too many people on the floor. You’re all tripping over each other because it’s a small space or whatever. That’s an area where what may look well-intentioned, even, is problematic. Let’s move on to personal use of business resources.
Personal Use Of Business Resources: Where Do You Draw The Line?
This is an interesting one because if you’re an employee, inevitably, there’s some amount of personal use of business resources. All of us have taken home a pen, pens in our purses, or paper for various things. I’m finishing up a pad of paper from Ernst & Young that has the Ernst & Young logo on it. I haven’t worked for Ernst & Young in 30 years. It was in a file that I was working on and whatnot. When I stopped working there, I did not go through everything in my entire existence to find this particular portfolio that had a pad of Ernst & Young paper in it. I probably didn’t find it for another five years after I left Ernst & Young.
There are those kinds of things, absolutely for sure. There’s also the “I’ve got to call my doctor because my doctor is only in the office between 8:00 and 5:00, while I’m also at work. By the way, I have to take lunch between noon and 1:00. That’s when they take lunch.” There are some of those things that go on, but it’s back to how big, how much, and how often we are dealing with it. I know of a story. This wasn’t a client, but this was in a previous situation. I think it was back when I was at Ernst & Young. Someone was running copies of their book. This was before PDFs and all the rest of it.
They were doing this very self-published book thing long before self-publishing was a thing. They were running copies on the printer at the office of a self-published book because they weren’t publishing that many copies. It’s only ten copies. It’s only a few pages. It’s a tiny book. It’s only 75 pages. I’m making the numbers up, but something like that. That’s a ream and a half of paper, plus all of the ink. Back then, the leases often were based on how many pages got processed.
It wasn’t just the ink and the paper, but there was also a lease cost to the printer itself. Even if there wasn’t a lease cost, there’s wear and tear. That’s not appropriate. That’s taking resources. The other side of it is that people will say, “No, I use my work email for everything.” It’s like, “You haven’t actually paid for your work email.” Some of those same people get upset with the work environment. Most of our folks are probably not in big enough environments for this to be a problem. As someone who ran an IT department with a husband who runs an IT department, you don’t have ownership. Anything that’s in that email is the company’s property.
That also means that you shouldn’t be using it for personal things. Have I ever sent a personal email to my husband on his company email? Absolutely. I have. We all have, but I don’t make it a practice. He has a personal email that most personal things go through. When I do send something, it’s usually urgent. He needs to see it right now. I know the only way he’s going to see it is because he’s not looking at his personal email during work hours. These things are about what these pieces are.
You can then get to the other side of it. Do you run expenses through the business? It’s one thing when you’re the owner running expenses through the business. There are things that you can legally do. The IRS allows you. All of that is fine. What I’ve seen happen, especially in small businesses, is that employees see what the owner is doing and they think that authorizes them to do the same level of thing. First off, no, it doesn’t. Second, the deduction that the owner is taking may not apply to you because you’re not an owner. The lunches, the mileage, the expenses, and whatnot, there can be a whole lot there that is misappropriated. If we aren’t careful, it’s easy for those to slip by.
The Owner’s Dilemma: Trust Vs. Accountability
As an owner, some of these are gray areas. I’ll tell you. I had a team. I have an info@ email address. I don’t want to check that email address ever. I don’t ever want to look in that inbox. Technically speaking, I don’t actually care what my customer service person does with that inbox until they change or until they leave. I’m now responsible for that inbox that gets 80 emails a day that have absolutely nothing to do with my business, because now I have to take my time to go through and unsubscribe from all those things.
That also means that they were probably doing all of that personal work on your time.
Right, potentially. Honestly, I care so much less about that than I do about my time that is now spent cleaning up an inbox that’s not even mine when I barely spend the time I need to clean out my own inbox. Those are the things where it seems micromanaging on the front end, what does it matter? You do have to mentally kick the can down the road on these things and recognize that in many cases, you pay the price one way or the other. Your point is, if they’re using their work email for all of this personal correspondence, then how much of that time that you see them sitting at their desk is time that they were working versus personal correspondence? You have no way of knowing. Yes, there’s tech. If you’re into tech spying on your people, sure. Most of us aren’t, though.
That’s expensive and hard to deal with. No one is going to do that.
It’s micromanaging. Nobody wants to be that kind of micromanager. Nobody wants to work in that micromanaging environment. Other ways that I’ve seen it play out in offices is I worked in an office environment at one point, where you would write what you wanted on a Post-it note on the supply closet. If you wanted a particular type of pen, you would just write that. We had an admin for a period of time who took everything on that Post-it as a directive. I would write, “Red pens,” because I was doing a lot of hard copy edits. Somebody else had a preference for a particular brand of pen. They would write. She would see that they listed their particular type of pen. The pens they wanted were $20 a box. Meanwhile, I just wanted a red pen. I don’t care.
Suddenly, the boss is wondering why the office supply expenses are going so far up. He came to find out that the admin was actually ordering each of us our own box of pens, versus going, “Gwen, I see that you like a fine-point pen. Tonya, you like a fine-point pen. This set of pens is $7 a box. How many pens do you go through in a month? A box of pens lasts us about three months. Okay, we’re going to buy this one box.” No, everybody got their own box. The same thing with Post-it notes. Somebody is like, “Tiny Post-it notes.” She would order a set of tiny Post-it notes instead of big ones. It’s because she was not appropriately trained. I want you to imagine what our supply closet looked like for several months with all these very niche, little products.
What I thought you were going to go with this story is where people were putting things that are supplies, but they were getting them and then taking them home.
Yes, if your work pens are much nicer than your home pens.
That’s where I thought you were going to go. I’ve seen people do that. It’s like, “I need this thing. I’m going to order it.” It ends up at home. We’ve seen all the movies where, at some point, someone is arguing about whether or not this is your stapler. It’s the company stapler. The reason it’s funny is that there’s truth in that. “No, this is my stapler.” You didn’t buy that. It is not your stapler.
Company Assets: When Personal Use Becomes Misappropriation
We have issues with business vehicles. Somebody will say, “I’m going to go pick up this thing. Can I take the company car? While I’m out, I’ll take my lunch break too.” I don’t think using the company internet is as big a deal or as big an expense now as it used to be. Software for personal activities, back in my journalism days, and back to your example of a self-published book, you may not want to pay for Adobe InDesign yourself. Back in the day, it used to be $1,800. You’re going to use your company’s InDesign account to do your book. Maybe you can clear that with your boss. Your boss is okay. Maybe not.
There’s nothing wrong with you as a boss saying, “I don’t care if my employees do that.” It is totally fine. It’s just to be aware that these are things that can either directly steal money, because think of Adobe nowadays. You’re paying for a certain number of licenses. You’re paying a certain amount per month per seat. If you’re paying for ten people to have access to it, but only five people need it for their job, and the other five people are using it once a year, that doesn’t make sense. What else would you say? I feel like we sound like we’re nitpicky bean counters. To me, this is a matter of getting the business owner to think critically about where their money goes.
It’s the other side of that. I like the licensing one, as someone who has done licensing and been in the IT world a long time, about it. A lot of folks will be like, “We don’t need to pay for this other license.” Do you, or don’t you? The other side of this is, are you training your people to take advantage and steal through soft steal? One of my favorites is seeing folks who would do things like, “We’re only going to buy one license,” although five people are using it a lot.
They’re playing that game. They’re upset when someone does the same thing to them. Why is it okay for you? “It’s because Adobe is big.” We’re going to keep using the example. They weren’t always big. They started tiny, too. It doesn’t make it okay. Another thing when we start talking about this is, are we being consistent and making sure that we’re representing? I talked about things that I can do as an owner that you can’t do as an employee.
Part of that is making sure that people actually understand what the difference is, because most people follow other people’s leads. Are you using the company card for absolutely everything? Someone way back in my history, every meal went through the company, which is absolutely not appropriate. Could he play that game? He absolutely could play that game. I’m not the IRS. I’m not chasing him down.
He would freak out when one of his employees would actually take a client to lunch, which is a legitimate expense. What are we teaching them? What is the teaching that we’re trying to do? When we go through that, that’s when it becomes obvious that sometimes, we are training people to be bad people financially, because that’s the lesson that we’re giving them. That’s the other half of this equation that we have to pay attention to as well.
It’s funny you bring that up because I had a situation. This is about bad bosses. I needed to interview somebody for a story for the business. I had been trying for three months to pin this person down. Their boss would not let them take work time. He was like, “You can meet with them during lunch break, before work, or after work.” They lived out of town. They were driving a two-hour commute. They were not interested in meeting with me after work or before work. I went to my boss. I said, “If we do this over lunch, can I buy them lunch? I’m only going to get fifteen minutes with them if they still have to go eat their lunch.”
My boss was like, “No, their boss needs to pay for their lunch. This helps their company as much as it helps us.” Who wants the story, and who doesn’t? Their boss doesn’t care about us writing the story because they’re not willing to give them work time to do it. The least I can do is drop $15 and buy this person’s lunch. My boss was like, “If you think it’s so important, you should buy them lunch.” I’m like, “Okay, but back to who wants to write this story. It’s not me.”
“I don’t care. I work here.”
I’m being funny because it’s important to point out that there are bad bosses, just like there are bad employees everywhere. The mindset that goes into a lot of what you’re talking about, which is the focus of the episode, is that it is easy as an employee, especially if you aren’t entrepreneurial-minded and understand the difference between being an employee versus being an employer. You can very easily convince yourself that they can afford it. It doesn’t matter.
What’s ten more copies at $0.02 a copy? Nothing once times 200. That’s a little bit more times 2,000 over the course of the year, which would not be hard to accomplish. It’s extreme. Times that by twenty people in a, say, 2000-employee operation. Our clients are not that big. It gets even bigger. We are all on a very slippery slope when we start making decisions for what other people can afford.
We're on a very slippery slope when we make decisions for what others can afford. Share on XIt is whether we’re doing it for our own company against somebody else’s company, or whether we’re doing it as an employee person for what my employer, and I’m using that term loosely because it could be who has contracted me to do some work, can afford or not afford. It’s very much a perception thing. As I said, part of this is, are we actually inadvertently training folks to behave poorly? Are we holding a double standard? That happens more often than we think it does.
Abusive Discounting: The Retailer’s Silent Killer
This is also another example of the company can afford it. I know you see something because you work a lot with retailers. You’ll see an abuse of discounting.
Let’s go to the abuse of discounting. This is a biggie.
This is a biggie for our retailers who are tuning in. I’m going to give you a slightly related example that we’ve talked about. I want you to go into the meat. One thing, this is something that everybody tuning in can identify with. Starbucks has a very generous refill policy for people who are part of its rewards program. Inside the store, as long as you don’t leave the store, you can get a free refill on coffee or tea if you’re a rewards member. You order a coffee, order a nice tea, a hot tea, whatever. You go up, and you’re like, “I’d like a new tea.” They scan your card. It’s free. Otherwise, there’s a nominal refill fee. It’s like $0.50 or maybe a dollar.
For about a three-year period, I worked in an office that was located in a plaza where there was a Starbucks. I would go there. I’d get a nice tea in the morning, and I’d maybe sit there for an hour. I’d get a refill, and then I’d go back to the office. One time, I was there. I ran into somebody I knew. He was walking in with an empty Starbucks cup. He was standing, and he handed it over. He was like, “I’d like a refill, please.” They gave him a refill.
I was like, “I didn’t know that you could get that if you left. I thought it was only in the store.” He was like, “No. For those of us who are regulars, as long as you can bring them in a cup, it’s fine. You have to buy one a day and then bring it in.” I asked, and they were like, “Yes, for you, Tonya, we’ll do that,” not telling me, “No, that’s actually not the policy or anything.” I was like, “That’s nice.” There’s a change in ownership. They have a sign. They’re like, “Refills are only free for rewards members as long as you stay in the store.” I was like, “New, bummer. Not a big deal. Go back to what I used to do.”
They weren’t honoring it. Pretty soon, the sign said, “This means Bob, too,” which was the person who told me about it. Bob was like, “This doesn’t apply to me.” All the staff members were like, “Surely, this doesn’t apply to Bob,” because not one person who worked in that store knew of a time when Bob was paying for refills. That’s how long this had gone, and granted iced tea, coffee, and pennies per serving. I would have been paying for my refills as I should have all along. It’s always Bob who gets the standard discount. Everybody thinks it’s Bob, but Bob is the one telling all of his friends, “Just do what I do. Tell him I said it was okay.” Is Bob the owner? No. That is my example. I think it’s highly entertaining.
It’s a great example because someone somewhere told Bob it was okay the first time. I don’t know who it was. It could have been the manager of the store at that time.
It was three managers ago.
It could have been an employee who probably didn’t have the authority to do that. Maybe there was a special thing that they did for a week that created it. Bob was like, “You did it last week. Will you do it this week?” They’re like, “Yes, I’ll do it this week.” The next week, it’s like, “You’ve done it now for a couple of weeks. You’re going to keep doing it.” It’s one of those things that snowballs. There’s no telling because, as you said, we don’t know how it started for Bob. This is one of those things.
It doesn’t feel like it’s that big of a deal. “You’re a friend. I’m going to give you a 10% discount.” Is it your money to give the 10% discount? The answer is almost always no, unless it’s the owner. The problem is when the owner gives a 10% discount and doesn’t talk about it to everybody else, and someone else saw it, they think, “If they’re a good customer. If they’re a regular customer.” They put whatever context they want around the situation. “They bought four coffees. If someone buys four coffees, they can get a 10% discount.” There’s no telling. You put your own story about why that worked, if it’s not clearly explained why it worked.
We’re to keep with coffee since that’s the example. “The reason I gave him a 10% discount on coffee is that they are a friend, and I happen to know that their mother died this morning.” There could be this huge, long list. It was a one-time thing. All of a sudden, if you haven’t given all of that context, people are putting their own piece around it. They think they have the authority to do that. Only the owner has the authority to do that.
If you’re in a corporation like Starbucks, that means that only the head offices can be doing that, or the franchise owner. I can’t remember whether Starbucks is franchised or not. Whoever actually has ownership authority can make those decisions. We’ve seen in smaller businesses, where a manager, not an owner-manager, started giving huge amounts of discounts to the people that they liked. It closed the business.
Understanding Margins: The True Cost Of A “Small” Discount
Here’s what I want you to talk about, because this is probably not going to apply to every reader, but there’s a good lesson here, which is margins. If you’re an employee who is not entrepreneurial-minded, and you’re wearing owner pants because you think you deserve to, it’s not a big deal, or the business can afford it, you actually don’t know the actual cost of goods sold. You don’t know the margins that the company is working on.
I’ve seen this happen many times, and I remember being young and dumb as well. I remember, again, back to the fast food days when our manager got really particular. You’re supposed to weigh the fries order. Each size is supposed to be a weight. She wanted us to go back to weighing the fry orders, because we had all this food waste. It seemed so silly. What is that plus or minus ten French fries?
I did not know what the supply order was. I didn’t know how much money we were making from each order of French fries. We could have made 50%. We could have made 10%. What would I know? It seems silly to me because I didn’t have all the context. In your case, Gwen, with all of this retail experience, talk about what the real cost is on even what appears to be a small discount. Let’s say a 10% discount.
Most products and most businesses in what I’m going to call typical retail are generally running somewhere around a 50% cost of goods. It means when it sells for $2, $1 has already been spent a long time ago to get that product sitting on the shelf. These days, it is rarely $1. It’s $1.20, or $1.10, because you have to pay for the shipping. There are all the other things that go with it. That doesn’t include any of the labor to unpack it from the box, put it on the shelf, and do all of the other things that go with it. The margins are relatively thin. It may feel like 10% isn’t that much.
What you’ve said is that instead of making $1, or possibly $0.90, we’re now making $0.90 or maybe $0.80 on the same product. “What do you mean? We can’t possibly only be making that much.” Yes, most of the time, that’s true. The problem is, most businesses, with all of the other expenses, the cost of the physical space, the labor, the employees going on with electricity, and all the other things that go on, a 50% margin is a tight margin.
A lot of the folks that I come into, what they’ve gotten in the habit of doing is trying to follow what I’m going to call the sales cycle of Macy’s, Amazon, or any of these big players. The thing is, they’re ordering in different quantities and sizes. They actually get different rules that they’re playing by. Margins change. They’re designed to be able to take on the discount. A lot of the businesses say, “I don’t know why we’re not making money. We have these great sales numbers.” What I look at is, “Yes, but your cost of goods is running at 65%.”
When we dig in deeper, it’s like, “Because you’re always having these sales at 10% off.” It’s like, “People won’t buy if it’s not discounted.” You’ve got to raise your prices if you’re going to discount them. It’s like, “We can’t do that.” It’s not going to last long-term. It’s a place where if we get in the habit that everyone should be able to buy on sale, that’s another place that we train our employees, in this case, most of the time, retail environment employees. That’s where we train our employees that everyone should get a discount. That’s not how most retail businesses run. They expect to walk into Chanel and get a 10% discount.
No, you don’t. A 10% discount at Chanel would be huge. That’s the other piece.
By the way, they probably have better margins. They can actually afford a 10% discount, but they don’t. This is that whole of “what I deserve.” We’re only going to keep this customer if we give them a discount. Is the customer making you any money? It is probably not because you’re losing money in the process. It’s money that’s leaking. It’s not stolen necessarily, but it’s totally leaking. Back to, if you have not authorized it as an owner, then it’s inappropriate. One of the other places that we’ve seen that’s similar, and this is back with physical product, is when someone says, “I’ll give you free shipping,” if it’s not around a policy that the company has decided to do. “It’s not that big of a deal. It’s a tiny thing. We’ll put it in a next-day mail thing from USPS.”
It is like a flat-rate mailer.
It’s like, “It’s not that big. It’s a flat-rate mailer.” It’s still $6.
This is the point. These things add up. As a business owner, part of it is if you run a product-based business and you don’t have a solid read on your true cost of goods sold, you actually have no idea of how much money is walking out the door with an employee that is over-discounting things or inappropriately extending discounts. That’s the first thing. The second thing that is also important is proper cash handling procedures. This is something that we have talked about.
You actually have no idea how much money is walking out the door with an employee who is over-discounting or inappropriately extending discounts. Share on XThe Bookkeeping Imperative: Protecting Your Business From Leaks
I want to give two things here. They tie together. They don’t completely tie together, but they’re related. Proper cash handling procedure is to make sure that the cash register balances. If it doesn’t, it’s at an agreed-upon amount that the right people know that it hasn’t balanced, because sometimes, we get the wrong change. It happens. Let’s make sure we aren’t giving back a $100 bill when we should be giving back a $1 bill. Did we actually give them three quarters when we should have given them two? The world is not going to end over that. Unless it’s happening a lot, then that becomes a different problem.
Are we making sure that the money that came out of the cash register either went into the safe and came back to the cash register or went to the bank, whatever those procedures are? The piece that ties into this that a lot of folks miss is that you’ve got to stay on top of your bookkeeping. Not staying on top of your bookkeeping is the easiest way to have money leak out of your business. It can happen for a lot of spaces.
For example, if you’re not staying on top of your bookkeeping, not reconciling your bank accounts, and not knowing what all of those charges are that are either coming in on your credit card, on your debit card, into your bank account, or the ACH, you can have fraudulent charges happening that you don’t know about. You can have non-fraudulent charges that people are making that they shouldn’t be making. It is not fraudulent like the spam someone has got on your credit card, and now they’re using it inappropriately, but it could be an employee who’s using a card inappropriately. You also could be paying for services that you’re no longer using if you’re not reconciling your account.
I’ve been changing over bookkeepers for an organization that I work with. We realized that there were a couple of things we’re still paying for that we shouldn’t have paid for for the last six months. Luckily, these are relatively small amounts, but that’s money that was lost. It wasn’t stolen. No one did anything wrong per se, but because we weren’t paying attention to all of those pieces, that’s money that’s gone. We can’t get it back because it wasn’t a fraudulent charge, but you can have fraudulent charges on there. I came across someone who realized that their bookkeeping was six months behind. There are a lot of times when if you don’t catch a fraudulent charge within a reasonable period of time, you can’t get your money back on it.
The other thing that you and I both know, because we’ve both experienced it in our personal lives, is that they’ll put little tiny charges through first to see if they get caught before they put in the big giant charge. When the money is gone, it’s hard to get it back, even if your bank or credit card is going to do it. They may get it back to you, but it may be months. That can damage your cashflow. Staying on top of your bookkeeping is one of the best ways to make sure that the money isn’t leaking.
Staying on top of your bookkeeping is one of the best ways to ensure money isn't leaking. Share on XThat’s ultimately what this is. In many of these cases, this isn’t like file-a-police-report stuff. These are little leaks that add up over time. Also, when an employee has been doing this for a long period of time, it feels like you can’t reprimand them. It’s hard to come to somebody, say, “I should have caught this six months ago, and I didn’t, but you can’t do this. These are the reasons why,” and not have them be very confused. “If it’s such a big deal, why didn’t you catch it six months ago? If you had told me six months ago, I wouldn’t keep doing it.”
You still need to deal with it at the time because the ones who don’t are when it’s like, “If they don’t care about this, they probably won’t care about the next thing.”
Back into our Bob situation, they tell all their coworkers, “This is how things operate around here.”
Just ask for the preferred customer discount. It’s like, “I’ve seen them give the preferred customer discount to other people. I’ll guess I give them the preferred customer discount because they know to ask for it.” That is a problem. We’ve talked quite a bit about retail because it’s an easy place for the money to slip. The bookkeeping is the key. Stay on top of the bookkeeping so that you actually know where the money is going. That’s true for any business, whether it’s retail, whether it’s service-based, whether it’s in person, or whether it’s virtual. It doesn’t matter. Make sure that you know where the money is going at any point in time, because it is easy for it to slip over time. The only way to see trends is to stay on top of them month by month.
The Ultimate Defense: Boundaries, Systems, And Financial Oversight
I love how you bring it all back to the bookkeeping because you can’t control what the people you trust in your business do, but you can control how long behaviors go unchecked. Bookkeeping is one way to do it. It’s probably the best way. In looking at the whole series as a whole, how I would sum it up is that boundaries and systems are what help you prevent and correct energy theft.
Measuring people’s productivity and having accountability measures in place are your best ways to protect and prevent time theft. Monitoring the finances, staying on top of your bookkeeping, reconciling your accounts, and actually paying attention to the payroll or to the subcontractor expenses is how you protect the dollars and cents from walking out the door intentionally or unintentionally. Would you add anything else to that, Gwen?
Nope, that is the perfect summary. That wraps a nice little bow on it.
The bottom line here is that small theft can kill your big business dreams. As I said, it’s not dramatic. There’s no front page news story about a lot of this, but it’s the death by a thousand paper cuts. If this series or even this episode has helped you recognize patterns in your own business, if you are seeing how energy, time, and money theft might be happening right under your nose, and you’re not quite sure what to do about it, know you don’t have to tackle it alone.
The hardest part about these issues is having objectivity. It is moving away from thinking, “How can these individuals do this to me? How can this happen to me?” It’s recognizing that people do different things to benefit themselves. Seeing the situations clearly and for what they are will help you address them effectively. You can do that in a clarity call with Gwen. All you have to do is go to EverydayEffectiveness.com/Clarity. You can talk about your situation with Gwen. She will help you identify the root causes of the situation and how it’s impacting your business. You can discuss next steps. Get that book. I know Gwen would love to chat with you.
Mentioned in This Episode
Related Episodes:
- Part 1 in the Series – Death by a Thousand Paper Cuts: When Good People Drain Your Business
- Part 2 in the Series – The Hidden Cost of Energy Vampires in Your Business
- Part 3 in the Series – The Time Thieves You Never See Coming
About Your Hosts
Gwen Bortner has spent four decades advising executives and entrepreneurs in 45+ industries. She helps women succeed in business without sacrificing happiness by identifying their true desires and aligning their business functions. She spots overlooked bottlenecks and crafts efficient plans toward sustainable success that center your values and priorities. Known for her unique approach to problem-solving and accountability through the G.E.A.R.S. framework, Gwen empowers clients to achieve their definition of success without sacrificing what matters most.
Tonya Kubo is a marketing strategist and community builder who helps entrepreneurs build thriving online communities. As co-host of The Business You Really Want and Chief Marketing and Operations Officer (CMOO) at Everyday Effectiveness, she keeps conversations on track and ensures complex business concepts are accessible to everyone. A master facilitator with 18+ years of experience in online community building, Tonya takes a people-first approach to marketing and centers the human experience in all she does.
