EntreLeadership - Your Business Is Easier to Steal From Than You Think

Starting point is 00:00:05 Can you imagine being the first person Dave Ramsey hired to keep books, write checks? Ho-ho-ho-ho. Yeah, I might have micromanaged that person. Guess what? She still works on our team almost 30 years later, because I got a great hire. When we first started Ramsey Solutions, I did everything. I answered the phones, I taught the classes, I sold the product, and yes, I kept the books, because that's what small business owners do.

Starting point is 00:00:32 We're the CEO, the chief everything officer. And then we hired our first bookkeeper. I remember thinking, man, this is it. I've made it. Somebody else is going to handle all these stinking details, and I can breathe a little. Here's the thing, though, when someone else touches the money for the first time,

Starting point is 00:00:49 your business changes forever because you're transferring trust. And one thing I learned early on that saved us a lot of pain later in this, trust without guardrails isn't trust, it's irresponsible. I realized pretty quickly that if I didn't put system around how to handle the money, I wasn't protecting anyone, not the business, not the team member handling it, and not myself. I was just hoping everything would work out, and hope is not a strategy.

Starting point is 00:01:17 So on today's episode, Entree Leadership's head coach John Falcons is sitting down with Ramsey Solutions CFO, Jeff Williams, to talk about how to safeguard your business from internal theft, and why putting the right systems in place protects not just your money, but also your people, and your peace of mind. Let's get to it. Well, Jeff, thanks for being here today. I'm looking forward to this conversation. Good to be here.

Starting point is 00:01:41 Thanks for the invite. So as the CFO, what comes to mind for you when you see stories in the news about small businesses getting embezzled from? The thing that comes to mind to me is just how fixable that is. You don't have to overthink much to put controls in place to make sure that never happens. Because it's, I mean, cash is your most stealable,

Starting point is 00:02:05 It's the most liquid thing you have. And so that should have the most safe cards around it and a very, very few people's hands in it. Yeah, we hear about it more commonly than, well, first of all, than I wish we heard about it. And more than people would expect. And in fact, we picked up a news story where this lady Rita Crunwell, she was the comptroller for this town in Illinois for over 23 years. Government funds, yeah, government funds. Yeah, she's embezzling the tax money into her personal account. $53 million. So I know you talked a little bit about putting controls in place. And you've got your own stories where it's not just people actively embezzling, but just mishandling funds. I know you've come across some of our clients at events too. Tell me a little bit about that. What have you heard from them? Yeah, I was at an event last year and had a meeting there,

Starting point is 00:02:57 got finished with the meeting, and I saw these two guys waiting for me. And so they're like, we need to talk to you. And I'm like, okay, so I sit down with them. And they started sharing just the difficulties that they were going through because they were in a place to where their bookkeeper, the main person with their hands on all of the money, was their mother. Now, the father had passed away and they were taking over the business from. And, I mean, the mother was like in her 70s. It wasn't that her skills were fading or anything, but they were just kind of limited as to what they could do. And they absolutely trusted their mother.

Starting point is 00:03:36 And they could never fathom trusting anybody else with that level of responsibility as much as they've trusted their mother. So there was something they didn't have to worry about until now. And so they were asking me, what do we do? How should we think about that? And I'm like, well, you can't fire your mother. She's got to be on board with this so she can train people. But you've got to find somebody. Either you two guys have got to do it one of you or you got to find somebody that you can trust who won't go.

Starting point is 00:04:00 route of that lady in Dixon, Illinois, so that you don't end up a story like that because it's so fixable. It's so easy to protect people from themselves, but you've got to do the work to do that and put controls in place to where none of them can sign anything. They can't, all the bank reconciliations are reviewed. If a check is over a certain amount of money, he's got to have two signatures, and those two signatures to be you and you, you two brothers. there's a handful of things that aren't hard things. They aren't things that slow you down or make you less nimble, but they're really, really important because you have to protect people from themselves.

Starting point is 00:04:37 Yeah. Most of the companies that we work with, usually what we hear is, is they do work all day long and then they stay up at night, you know, after dinner, doing the books. When do you quit doing that? Because you're a CFO of a $300 million year company. How do you get from doing the books yourself to Jeff Williams is on your team? It depends on the complexity of your business.

Starting point is 00:04:57 What kinds are you selling like single large dollar pieces of equipment or are you selling a whole lot of small things? Once you get above, I would say once you get to a place to where you're cutting over 200 checks a month to people, pay your bills, whether it's payroll or paying bills to vendors or whatever, once you get above that level and you're having to sign all those checks yourself and reconcile all that stuff and keep track of everything, recording stuff in your records,

Starting point is 00:05:22 you're approaching a place where you're going to need a bookkeeper. Somebody that can do this stuff for you. That's the first step. Bookkeeper. You do yourself, then bookkeeper. Bookkeeper. Find somebody that's solid. Somebody that you think you can trust,

Starting point is 00:05:32 that you've known, they've got a reputation, and have the bandwidth to do this. You find somebody like that. What would you say the main thing you're having them do? You know, around here, what would be their KRA is how we would say.

Starting point is 00:05:43 Their KRA for me would be, number one, they're keeping a really thorough checkbook. Basically, that's what it is. It's keeping the books. That books being a checkbook for you, as a business owner, just like it would for your personal records. Somebody that can keep a checkbook and do it well, somebody who can keep the accounts

Starting point is 00:06:03 reconciled, the bank accounts reconciled, so that they always know what's outstanding, what's cleared, one hasn't cleared, and they can help you if you need to make payments like wires or ACHs and those kinds of things. They know how to navigate that with the banks so that you can, because not everybody's going to want a check. Some people are going to want something different. They can help you navigate everything related to your records and the bank relationship. If they can do that, then you're in good shape.

Starting point is 00:06:25 So then where do we go from there? What's the next step and what do they do? The next step up from there would be someone who I'll just refer to as like a staff accountant. There's somebody who's got a little bit, maybe formal training in accounting or finance, somebody who can take those books and records and translate them into a set of financial statements. Okay. Something that's going to help you as a leader see how much money's coming in. Where is it coming in from?

Starting point is 00:06:48 How much am I still owed by the people who bought some stuff from me and I sold it to them on term? or whatever so that you don't have to go figure it out all on your own. They can help you think through those things and navigate the month end or every quarter or annually depending on what you need. And that's the difference between a bookkeeper is just kind of keeping the books, bank reconciliation, those minor things are more, they don't have to have an accounting during or anything like that. Staff account is going to be somebody's got a formal training, knows the business, knows how

Starting point is 00:07:16 to do things and do it well inside of an accounting box and give you information that helps you run the business. Where do we go next? After a staff accountant, what's the next hire? For me, it would be, you may have a staff accountant, maybe two or whatever, and then whenever you get up probably around $5 million of revenue, something like that, you would look to hire a CFO. That is somebody that's going to help you think about where do I place my next investment. I've got this money sitting here. I'm a little bit farther down the growth path in terms of my business, the way I'm running it. Now it's time for me to think about, I need somebody to partner with me to be my eyes and ears on everything financial. They've got very formal

Starting point is 00:07:53 training on accounting and or finance and they're able to look at our business in the way that I look at it as the owner and give me feedback on how I can do the business better. What do I need to set aside right now for something that might be coming down the pike? How can I make great investment decisions on maybe this next piece of equipment I'm going to buy or a business that I'm going to want to buy or I just do I need to take the money out and put it in an investment? account somewhere and let it earn interest. They help you navigate all those kind of of investing things. So it goes from keeping the books to financial statements to investing. That's the progression that I see. The investing part of it, the way you described that makes me think they're

Starting point is 00:08:29 like your financial strategist. They're helping you with your strategy around finances. Something though that I thought you were going to say that you didn't say as a controller. Is that something different than a staff accountant or is that a halfway step? The controller to me is someone who is just a very, very experienced staff account. It's someone who's understood how to put the controls in place and understood how to manage that over time and to manage a staff of people doing this work. That's the way I see a controller. Controller to me is not a strategy person. It's not an investing person.

Starting point is 00:09:01 It's someone who's more of a super accountant, if you will, that again, make sure all the bills are paid, make sure all the people are paid, make sure that everything's recorded, and that enables them to, they can also do the financial reports and stuff like that. as well, but it's not somebody that's doing strategy. It's not somebody that you're looking to to partner with you. They're more of a more experienced staff accountant. We get right back to that episode. But first, for a lot of entrepreneurs, healthcare is one of the most unpredictable line items in the budget.

Starting point is 00:09:34 That's why I want you to look at Christian Healthcare Ministries. CHM is not health insurance. It's a budget-friendly, faith-based alternative to insurance. Instead of premiums that keep climbing and coverage that keeps drinking, CHM gives you a more predictable monthly cost, with programs starting at just $115 a month. Lower monthly costs can free up capital to build your margin, grow your team, and reinvest in your business.

Starting point is 00:10:01 And as a faith-based organization, CHM aligns with Christian business owners who want their health care dollars handled in a way that reflects their values. That's stewardship, not just savings. CHM even offers a groups program for small businesses that want to provide a health care option to their teams. And right now, CHM is offering new members a 50% credit towards their first month of membership. Go to CH ministries.org slash entre and use promo code entree. That's CH ministries.org slash entre and use the promo code entree. Now let's get back to our episode. What should people be doing to prevent mismanagement or just missing things? Yeah, some of the things

Starting point is 00:10:44 that come to mind are you only let certain levels of the company have a debit card that has access to your bank account. Typically, that's just going to be probably the owner, maybe the CFO, maybe your top operations person, those kind of folks who are spending money that you trust to manage that well, but it's a debit card, so whatever they spend comes right out and you can see it quickly. Another safeguard that put in place is just separation of duties. Like the person who can approve expenses, like even the CFO, they're not somebody who always. reviews the bank reconciliations or does the bank reconciliations. You might have somebody like your controller do the bank reconciliations, but they can't approve any financial

Starting point is 00:11:25 transactions. They're only allowed to record them, but they can't approve them. That has to be approved by somebody else that doesn't have the authority to go and do bank reconciliations. You have a checking account, set a limit as low as you feel comfortable with to where if there's, if it's above that limit, it requires two signatures. Okay. And it has to be physical signatures. And a lot of times that's going to be, again, your CFO, your operations person or one of your owners. Doing those kinds of things are the big ones that come to my mind as far as controls that are going to help you know that things are being handled well. And there's always somebody watching. Oh, another thing that comes to mind is having what we used to do is we would always require the person who was doing the bank reconciliations and paying the bills to always be required to take a week's vacation.

Starting point is 00:12:10 And then check the mail while they're gone. Okay. To see if anything comes in, maybe there's a. a bank account that has their name on it that's coming in. Or maybe you walk by their desk and see that there's a bunch of undeposited checks sitting under their stapler. It's always just, it's trust but verify. Okay, that's what I was going to ask you about.

Starting point is 00:12:26 Because that seems almost like a gotcha. Like you're expecting that they're doing something wrong or you're looking for something that they're doing wrong. And I know people on our financial team that work on your team, but you still keep those controls in place. Why? With somebody that you trust, why do you do that? The depravity of man is pretty deep.

Starting point is 00:12:45 We don't have any debt. We don't have any credit cards. All we have is debit cards and cash. And so it's the most liquid asset that we have. And so they want those safeguards. They want somebody looking over. Those people want the safeguards. People who are confident in these roles, they want those kinds of safeguards so that they

Starting point is 00:13:00 know if they're making a mistake. Or if they've done something that's inappropriate in terms of what's been paid or maybe it wasn't approved on time, we put a pretty high premium on that. And our team wants that because it's a level of safety for them that they get confirmation. Yeah, yeah, I'm doing it right. It's protection for them, right? It's protection for both. Yeah.

Starting point is 00:13:22 I'm kind of imagining it's probably weird if you just show up, haven't been doing all of this, and now I'm going to put all these controls in place. We're going to start doing stuff differently. What would your advice be to people how to kind of manage that change within their organization? That's a great question. I think to me, you have to start with helping them understand. why it's necessary. Not that you're assuming the worst in them, not that you think that something's wrong or you've found something that's wrong. Just simply saying, hey, the size we

Starting point is 00:13:52 are, the amount of money going through her in and out, we need to make sure we are keeping ourselves in check. And that's both you keeping yourself in check and us doing the same thing with you. Because in doing that, it protects all of us. It protects the people that are we're paying out there. It protects the team members that are getting paid as well. And it protects the staff that's here doing all these things to ensure they're getting feedback quick enough to know, I'm doing it right or I'm doing it wrong.

Starting point is 00:14:19 It's really no more than that. If you paint it as anything else of, hey, this lady in Illinois stole $50 million or whatever, if you lead with that, it's gonna put them on the defensive. You don't trust me. This is a trust, but verify, because it's too important. Because if we find something that says that you're doing something in a proxious,

Starting point is 00:14:37 then that becomes a really, really short conversation. And nobody wants to get to that place. Thanks, Jeff. You're welcome. Embezzlement doesn't just start with bad people. It starts with bad systems. And listen, systems protect everyone involved. You don't put financial controls in place because you distrust your team.

Starting point is 00:14:58 You put them in place because you love your team. The goal isn't to catch someone. It's to build a business where you never have to. And if today's episode encouraged you, be sure to like, share, and subscribe for more great leadership content. I'm your host Dave Ramsey, and this is Andre Leadership.

EntreLeadership - Your Business Is Easier to Steal From Than You Think

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