Strictly Business

Wednesday, Jan 22 2014 02:00 PM

RUSS ALLRED: Saving business owners from their own mistakes

  1. 1 of 1

    Russ Allred, business consultant and author at Sunbelt Business Brokers & Advisors.

    click to expand click to collapse
BY RUSS ALLRED Contributing columnist

Mr. Banks was far too busy to spend time with his children. Owning a bird feed business gave him ample excuses to miss ball games and recitals. Mr. Banks' bookkeeper couldn't convince him that he could relieve him from a lot of busywork.

Mr. Banks longed for a better balance between work and home, but each new day blew in a load of new invoices. Until one day, Banks attended a seminar by the East Wind Consulting Group led by M. Poppins.

Poppins postulated that one of the strongest strings tying entrepreneurs to their shops is their checkbook, specifically check signing authority. A business owner finds it hard to take a vacation because someone has to sign the checks.

"Poppycock," says Poppins. "Accounts payable is primarily a clerical function. Many payments like rent, utilities, product purchases and even payroll are the same month after month. To save the owner's time, these payments can be preapproved and the check-signing authority delegated to a subordinate."

Sensing Banks' hesitation, Poppins explained further that business owners can control their level of risk by creating a payables account at their bank. While all receipts should be deposited into one account, the owner can transfer just enough money into a payables account and authorize the bookkeeper to sign only on that account. Requiring a second signature is another control that a business owner can employ.

Banks protested, "What about the non-routine purchases?" "The best control for purchasing is a requisition system," replied Poppins. "Issue a block of pre-numbered requisitions to each department. Anything they wish to purchase is submitted on this form. After proper approval, a purchase order is sent to the vendor. Upon receipt of the item, the bookkeeper matches the requisition to the purchase order and compares them to the final invoice. Because the purchase was preapproved, the owner needn't be present to sign the check.

"Larger businesses allocate a budget to each department and authorize each manager to make purchases within their budget. An additional control requires that the person requesting a purchase be different from the person paying for it; anyone who can request and pay for a purchase, other than the owner, has too much power to cheat."

Banks became frustrated and confused; he couldn't admit that he had been doing it wrong all these years. He told Poppins to "go fly a kite" and returned to his bird seed business. Banks confided his situation to Burt the bookkeeper.

Burt said, "It's not that you've done it wrong, but the way you're doing it won't allow you to grow. The business you've built pays enough, but it also takes a lot of time, something you can never get back. Time is often more precious than money."

Just a little spoon full of sugar from Poppins, Burt and me.

-- Russ Allred, MBA, is a business consultant and author with Sunbelt Business Brokers & Advisors. These are his opinions, not necessarily those of The Californian.

Have something to share? Comment on this story

Bakersfield.com Daily Deal!

El Tazumal

Daily Deal

$20 worth of Salvadorian food for $10

Value
$20
% Off
50%
You Save
$10
0 Bought
Buy Now! See more deals