The kind of people who read Ordinary Brilliance and/or are my clients tend to be very upstanding, high integrity folks. They’re probably not worried about employees or family members committing fraud in their business.

Yet, we all know people can do the most unexpected things under certain circumstances, so it’s important not to get too lax with the controls in your organization.

I know business owners who hand the whole thing over to a bookkeeper, controller or administrator and never check the work or validate the information. Others are so afraid of fraud and embezzlement by employees that they refuse to let anyone else come anywhere near their financial books and systems. Either extreme will be bad for your business.

One of my clients, Carl Shaw, a CPA in Hendersonville, NC, was telling me recently about a fraud situation that had recently been brought to his attention. A senior executive of a local business had been entrusted by the owners with all aspects of the organization’s finances. Cash receipts and deposits, ordering and paying for supplies, reconciling bank accounts, all done by this one executive… for more than ten years! When the owners recently discovered that there was not enough money in their bank accounts to cover their payroll (a nice way to say that paychecks were bouncing!) an investigation into the records uncovered that the trusted executive had stolen an amount totaling in the hundreds of thousands of dollars.

In addition to his tax and auditing work, Carl is a Certified Fraud Examiner and helps businesses and organizations set up systems of checks and balances to prevent fraud. He gave me some good info about fraud.

Fraud investigators have found that almost every fraud can be found to contain three common elements, commonly referred to as the Fraud Triangle. These three elements are:

1) Opportunity to steal without being caught, (there’s either not a system designed to prevent a fraud, or there’s an exploitable weakness)

2) Rationalization of why it’s OK in the mind of the perpetrator, (examples – I’m not being paid enough; I deserve more!), and

3) Pressure, external or internal that causes a need for money and gets the fraud started (for example an addiction, credit card debt, or a medical emergency).

The Association of Certified Fraud Examiners (ACFE), the world’s largest anti-fraud organization, does an annual survey to measure the extent of fraud in the workplace. Their 2010 survey showed that the typical organization loses 5% of its annual revenue to fraud. Applied to the estimated 2009 Gross World Product, this figure translates to a potential annual global fraud loss of more than $2.9 trillion!
ACFE reported that the median loss caused by the occupational fraud cases in their study was $160,000. Nearly one-quarter of the frauds involved losses of at least $1 million.

Just who is committing the fraud? The survey indicated the following statistics:

• More than 80% of the frauds in the ACFE study were committed by individuals in one of six departments: accounting, operations, sales, executive/upper management, customer service or purchasing.

• More than 85% of fraudsters had never been previously charged or convicted for a fraud-related offense.

• One of the most common red flags is employees who are living beyond their means (43% of cases) and experiencing financial difficulties (36% of cases).

• The median amount of each fraud is $80,000, much higher if the fraudster is a manager or executive.

• A typical fraud lasts for eighteen months before being detected.

The survey also pointed out that “Small organizations are disproportionately victimized by occupational fraud. These organizations are typically lacking in anti-fraud controls compared to their larger counterparts, which makes them particularly vulnerable to fraud.” Victim organizations that had these controls in place had significantly lower losses and time-to-detection than those organizations without the controls.

The lesson here is to be smart, not fearful. Every business and organization needs checks and balances and a well-thought out system to make fraud and embezzlement very difficult. The honest people will understand and those tempted will find it difficult to pull off.

Although Carl is very busy these days, as a true southern gentleman he offered to talk (no charge) to any of my subscribers who has a question about fraud prevention. (carl.shaw@cshawcpa.com or (828) 698-7725) Don’t let an iron grip on your financial system strangle your growth. With the right system in place you can let others handle most of that work and be free to focus where you’re most needed in your company – marketing and innovation.

A client of mine gave me permission to share this story with you from a recent coaching call that we had. Details are of course changed to protect confidentiality.

My client, let’s call him Mike, has had interns working for him for the past few years. It’s a great way to keep his payroll costs lower (he pays them, but not a lot) and gives a younger person great experience in their new field.

Mike’s most recent intern, “Josh,” has worked with him part time since the beginning of the year. Josh has a professional degree and working with Mike has given him some valuable real world experience in his chosen field, and hopefully a good reference, as well.

Josh had another part-time job to make ends meet. My client had work lined up for him this summer, but just this week, on a day when he was expecting Josh to come to work, he got an email from Josh instead with the subject line:

hey

His message was that he had the opportunity to work full time in food services and so would be stopping his work as an intern with Mike. He thanked Mike and said eventually he would pursue an advanced degree in their field.

You have probably received a few emails like this, often from people in their 20’s (as Josh is), very informal, casual spelling and grammar – the kind you’d typically send to a friend. But, hey, at least he didn’t resign via a text message!

Mike, being the brilliant client of mine that he is, did NOT respond by email. He has Josh’s last check and intends to wait for Josh to come in to pick it up so they can have a little chat about how you resign in a professional manner. Mike is a great guy and a true mentor of young people. He wants to help Josh and will kindly let him know that sending an email is not a professional way to resign from a job and is not very likely to get him a glowing reference from Mike.

On the other end of the continuum is Mike’s secretary, Claire, a competent professional in her early 60’s. Mike was getting complaints from his other employees that Claire was unfriendly towards them, although she had impeccable manners and friendliness toward the firm’s clients.

When Mike sat down to discuss this with Claire, she talked about how she was trained not to speak personally with her boss or other employees. That was often the case 30+ years ago when she was starting out her career, but now the workplace has become less formal and a some friendly interaction with co-workers is the norm.

Mike had to let her know that it is in fact highly desirable that she engage in some informal chit chat with her co-workers. He assured her that he was not worried about any of them losing focus and not getting enough work done.

As is often the case in business (and life), somewhere between two poles lies the best course of action. Ask yourself where you fall on the informal/formal continuum and make some simple adjustments if needed. This can go a long way to improving your professional relationships.

Because, hey, let’s face it, it’s a balancing act.

As a small business owner, you must remember that your employees are not your friends. Don’t get me wrong – of course you want to be friendly and create a relationship based on mutual respect and trust. But so many small business owners fall into the trap of treating employees like friends (or worse yet, hiring family or friends – but that’s another topic!).

It’s not easy taking on the role of “boss.” Unless you have been an entrepreneur from birth, you had a few bosses before you started your own business, so you are well trained in being an employee, not a boss. When it comes your turn to be the employer, it can feel pretty uncomfortable, especially when corrections need to be made and negative feedback given.

One of my clients was quoted this week in the Wall Street Journal on this issue.
Before she started her business, 2 Hounds Design Inc., a manufacturer of designer dog collars, Alisha Navarro had a boss who invasively monitored employees’ activities. So when Alisha started her own company in 2003, she was intent on using a different management style.

In the WSJ article it says, “But Ms. Navarro admits her hands-off approach has backfired on her at times. “I have an intense need to be liked by everybody, which translates into trying to deal with problems in the workplace indirectly rather than directly,” she confesses.”

In fact, with some help from me, Alisha has come a long way in “toughening up” and becoming a stronger (though still nice) boss. If a nice southern girl like Alisha can do it, so can you.

In providing small business consulting services to entrepreneurs around the US and Europe, I am constantly helping clients deal with employee issues. Let’s face it, it’s one of the hardest aspects of running a company, and not nearly as fun as creating new products or services. But your team is your fortune, so take the time to get better at managing them and you will be well rewarded.

As someone who has been providing small business consulting services to small business owners for the past eight years, I have had the privilege of seeing what works and doesn’t work in many small businesses. Not to mention the 20 years I spent in small business before that, owning and running companies.

In order to help small businesses and their owners to thrive, I’ve put together this mini guide. I’m sure that whether you are just starting out or are a more seasoned business person, you will most likely get a few flashes of insight or recognition that will help you improve your business today.

Peter Drucker is famous for once saying that there are really only two core functions of any business: marketing and innovation – and that the rest are all costs. In this guide, I’m adding what I think are two additional core components for today’s small business person: productivity and planning for profitability. To me, this four legged stool provides you with a strong foundation from which to steer your business ship to continued and greater success.

INNOVATION: VALUE DELIVERY

First, our business must provide innovative products and services – ones that clients and customers need or want. The more we can put some extra value into our products and services, the more we can help people enjoy or benefit from them in a more effective or enjoyable way (innovation), the better we have served them and the better our business will do.

For example, I put extra value into my small business consulting services by giving my clients writing and editing help (this is very popular), free books when I think of one that would really help them (without overloading them with yet more to read!), birthday cards and other gifts to let them know I truly care about them and appreciate them being clients of mine, and in-person meetings when I am in their city or town.

Actually, innovation is typically what entrepreneurs love to do. So this one isn’t as tough, typically, as the other three legs.

MARKETING: GETTING THE WORD OUT, BRINGING THE PROSPECTS IN

I’d say a good portion of small business owners hate business development marketing. This is true despite the fact that they are in most cases the best ones to lead the marketing charge because of their passion for their products and services, their personal compelling story and their drive to have their company succeed.

Marketing for small business is, of course, how we get the word out to prospective customers, how we bring in the leads that our sales processes can then sell to. Small business marketing is of course a massive topic, and yet it’s easy to make it an overly
complex process, too. So here are three keys for marketing success.

#1. We have to start with WHO you think your target market is, or your “ideal client” as some like to call it, and work backward from there. There isn’t much in the world that “everybody” needs or wants. Even with such fundamentals as the food we eat, what one person chooses to eat can vary tremendously from the next guy or gal. So you MUST know WHO your business serves and then you must learn as much as you can about those people – their demographics, such as age and gender, location, and income, education, of course, but also their psychographics – attributes relating to personality, values, attitudes, interests, or lifestyles.

Then use all you have learned and make sure your marketing (including headlines and copy) really address the needs and wants of those people. Every business can be different, noteworthy and focused on a specific niche or demographic/psychographic.

#2. One key business marketing strategy is to use direct response marketing, not image or brand marketing (leave that to multinational corporations that sell to the mass consumer market like car companies, Proctor & Gamble, et al). You need marketing that incites the prospect to take an action and that action needs to be measurable. Then make sure you measure it! Track it. Tweak it. Rinse and repeat forever.

Remember the line about he business owner who says “50% of my marketing works great; I just don’t know which 50%”? You can’t afford to waste 50% of your marketing dollars or the time you and your team put into it.

#3. You need to be innovative, somehow unique, have a message. Don’t be afraid to be different – embrace it! It’s an interesting thing to me about the name of my company, Authentic Alternatives. I really liked it at the beginning, of course. A few years later I thought to myself “What a stupid name – nobody knows what it means, it’s not about business per se” – all those self-critical voices we get in our heads. Then a few years later I realized it really is a great name for my business, because it attracts the right kind of clients to me – business owners who march to the beat of a different drummer, who truly think outside the box, who want to be real (authentic) and who aren’t afraid to think a bit “alternatively.”

My advice to business is to make your business ABOUT something, like the way Subway repositioned itself to be about health and even weight loss. Pretty good trick for a fast food corporation!

It’s not easy getting noticed in this world of 7+ billion people and billions of marketing messages everywhere 24/7. So if you and your products need to be a little bit eye-opening and remarkable to reach the level of success you deserve.

PRODUCTIVITY: LIFE IS SHORT

As owner, if most of your day is not spent on innovation and/or marketing, you’re probably having a lot less success than you could be having. In the business coaching services I provide to business owners from a wide variety of industries, the same productivity principles apply, regardless of type of business. You must:

1) Manage your priorities
2) Manage your energy. (a better answer to time management for small business owners!)

Let’s look at each of these briefly.

Managing Priorities

Everyone knows they need to manage their priorities, but what does this really mean? The fact is, we all have too many priorities and too little time.

If you haven’t heard the story that Steven Covey, author of The Seven Habits of Highly Effective People, passed along, it’s worth repeating. Pretend that a big glass jar represents your life. You have a bucket of sand and the sand represents all the hundreds of little things you need to do each day and every week. You have a bucket of big rocks and they represent your top priorities – the things that if you focus on them will bring you the true rewards you want from your business and life. If you put the sand in first, you won’t have room to cram in very many rocks. But if you put the big rocks in first, you can then pour the sand in and it will fill in all the space very nicely and it will all fit!

What this means is on a weekly and then daily basis you must decide what your big rocks are and then schedule them into your calendar. All the other stuff WILL either get done or if it doesn’t, your life won’t end.

In my small business coaching services, I recommend to my clients that they start by picking just three big rocks for the week and focus everything they can on those until they are done. My clients are high achievers, go-getters who set the bar for themselves very high. Most of the time – too high.

Even though they get a tremendous amount of work done, they continually feel either like failures or like they aren’t realty making progress. In fact, the opposite is usually true. They ARE making very good progress.

We need to open our eyes and be more aware of what the activities are that will truly move the ball forward for our business. If you know you really needs to upgrade your website for example but never seem to get around to launching the project, clear the decks!

Your email can wait, Twitter and Facebook can wait, your laundry can wait, doing someone’s performance review can wait.

You have to be RELENTLESSY FOCUSED on your big rocks. If you aren’t, the tsunami of “life” will roll over you and carry you far, far away at best and kill you at worst. So you must RUTHLESSLY protect your time and focus.

You have to develop a killer attitude toward your time, be as fiercely protective of it as a mother lion of her cubs.

If you have an open door policy, change it. You have to create chunks of time every day which are UNINTERRUPTED, meaning no drop ins (unless the building is on fire), no email (turn off sound alerts if you use them), no phone calls (let your voicemail take messages), no cell phone.

Think back to when you had a job and you went into the office on a weekend – how incredibly productive you were. Eliminating interruptions and distractions is a hugely important productivity strategy. Your customers, staff and family can live without you for a few hours. Really.

Managing Energy

What about managing energy? If you ever read The Power of Full Engagement by Loehr & Schwartz, you had your eyes opened about the fact that it’s not so much about time management as energy management.

Most small business owners run on adrenaline to fuel their endless activities. We know intellectually at least that long term a healthy and happy life cannot be sustainable if we run on adrenaline a lot of the time. None of us will fall apart if we have a cup or two of coffee, eat a candy bar now and then or short change sleep occasionally. However, if we overdo these, we will sooner or later start to be incredibly fuzzy and ineffective and head straight toward total burn out. Burn out can come in many forms, such as a failed business, a heart attack or a failed marriage. The Japanese even have a word for it: karoshi – death from overwork.

There’s been a ton written about work/life balance and the fact is running and growing a business is not for the land of “ideal work/life balance.” But what we can do is incorporate energy rituals into our daily lives. These are simple practices that take little time but serve to dramatically restore our energy and focus, our enthusiasm and commitment to the multitude of tasks at hand in running our businesses.

The term “creatures of habit” is incredibly important here – because all of us truly are creatures of habit. A huge percentage of what we do and think every day is habitual, meaning we don’t really think about it. This is a curse (if we have a bad habit) or a blessing (if we have a good one). If we can set up and program ourselves with just a couple key habits for positive energy management, we will experience a powerful and profound difference in how we feel about our business and in how well our businesses actually do!

So what am I talking about? An energy ritual will be unique to you and what it is that restores you. Since most of us overtrain emotionally & mentally and undertrain physically and spiritually, most of us need energy rituals that focus on the physical and spiritual.

Examples from clients of mine include:

- 10 minute break in your office doing a few stretches or yoga poses.
- Putting on your headphones and listening to music you love for 10 minutes.
- Reading 10 minutes from a book you find inspirational (e.g. the Dhammapada, the Bible, Tony Robbins, Martha Beck, etc.)
- 15 minute walk outside.
- 5 minute closed eye meditation break.

You want to put these into your daily routine and on your calendar when possible to take an energy break mid-morning and mid-afternoon. Also mid-evening if you’re working late. Implementing these energy rituals will take simple, small steps and will give you and your productivity a huge pay off.

Here are examples of the old paradigm (on the left) and the new paradigm (n the right):

Manage time ==> Manage energy

Avoid stress ==> Seek (positive) stress

Life is a marathon ==> Life is a series of sprints

Downtime is wasted time ==> Downtime is productive time

Rewards fuel performance ==> Purpose fuels performance (Intrinsic motivation provides more sustaining energy. i.e. wanting to do something because we value it for the inherent satisfaction it provides (versus extrinsic – money, approval, social standing, power, love)

Self-discipline rules ==> Rituals rule

The power of positive thinking. ==> The power of full engagement.
There’s a lot more to this, but I think even this info gives you an idea of how radically effective this new paradigm can be in your life.

PLANNING FOR PROFITABILITY: FINANCIAL MANAGEMENT

We’ve talked about the key things you need to know in marketing and productivity. The third leg of the stool is financial management. If you hate thinking about financial management, you have all the proof you need to understand why 90% of business failures are caused by a lack of financial management, not sales or marketing management!

Most entrepreneurs are great at innovation and creating new products, services and markets. They’re usually good at marketing and are able to be pretty damn productive, even if it may be in a chaotic way that’s less effective than it could be.

However, most of them struggle at financial management (in the beginning, at least, and often for years). The thing is, you don’t have to become a bona fide CPA! (You need a CPA, but you don’t have to BE one.) The cool thing is you’ll start to enjoy the feeling of power and control that you get once you have your arms around the basics and start to create and use some key metrics – critical indicators of how things are going in your business on a daily or weekly basis.

Yes, of course, you need to have your books done regularly, hopefully by a skilled bookkeeper. You need to review P & L’s monthly. But more than that you need to create a plan to be profitable, deciding what your financial goals are for the year and how you’ll get there and setting up a simple spreadsheet that compares your projections with actuals.

Although it is a popular tactic, it doesn’t actually help to stick your head in the sand when things aren’t going well. Knowledge – even when painful – is power. With the proper knowledge about how your company is doing financially, you can be successful. If not, there is a high chance that you’ll be closing your doors within a few years. Especially when times are tough. Like in a “great recession” (they aren’t going to say “depression,” are they?!)

In providing my advice for business, I make sure my clients have a solid profit plan and a good understanding of margins. And I help them identify those critical indicators they need to keep their finger on the pulse of their business.

IN CONCLUSION

Running and growing a small business can seem really complicated. So we have to apply models and systems that help us simplify things and get our arms around our businesses, both conceptually and then in actual daily practice. I hope that understanding these four legs of innovation, marketing, productivity and profit planning will help you do just that.

One of the most difficult areas in any business is successful hiring. Whether you’re hiring your first employee or you’ve been hiring employees for years, you want to remember to hire first for how the person will fit with the team and second for how experienced or skilled they are.

You know that it can be easy to be dazzled by someone with an extensive track record and tons of experience in the area you need help with. Likewise, someone who has little or no experience may seem like a poor choice.

As many of my clients would tell you from past experience, however, if the skilled person doesn’t fit well with the team and lacks the qualities that you value (which might include a collaborative approach, willingness to take on other tasks and areas of responsibilities, interest in learning and growing, congenial, good communicator, high integrity, etc.) you’ll regret your decision and be trying to gather your courage to fire him or her before long.

Let’s face it – it’s no fun firing someone. In fact, it’s a task many entrepreneurs procrastinate about, sometimes taking months or even years to act on. Sometimes they never act and wait until the employee finally quits on their own.

Most of the time, you will actually be helping the person you fire. If they weren’t a good fit, they will be happier in a job where they can truly thrive. If they had a bad attitude or bad work habits, they’ll probably benefit from a wake up call.

If a person has a great work ethic, on the other hand, along with a pleasant and capable personality and is willing to learn, you can end up with a gem of an employee. One of my clients hired such a young woman two years ago whose qualities were a great fit, but her experience was lacking. After a year of learning the ropes, the new employee was performing very well and my client couldn’t be happier.

A subcategory of hiring errors is hiring friends. Another client hired a good friend of his to be the office receptionist/manager for his busy pediatric practice. It’s a demanding job requiring lots of people skills to schedule, handle emergencies, deal with sick babies and their stressed parents, not to mention the computer work.

Unfortunately, this employee/friend has quite a short fuse, a hot temper which has resulted in numerous occasions where she’s been a bit rude to patients. Although my client has told the employee that this is unacceptable, she has not been able to adjust her behavior and my client has not had the guts to fire her. Now, after TEN YEARS of putting up with this, the not-so-good employee is finally leaving of her own accord. (I wish my client had been using my small business consulting services a lot sooner; he would have put an end to that silliness.)

I’ve heard many tales over the years from clients who have hired friends, only to regret it when the time came that they had to act like the boss they indeed were. I know there are exceptions to this rule, but I recommend not chancing it.

Despite the tools and skills available to improve one’s hiring track record, it remains one of the most difficult of skills. It’s impossible to have every hire work out; that’s why having the courage to let someone go if they are not working out is vitally important.

As a small business owner, you can’t afford unproductive, uncooperative employees. Everybody matters. To help your business reach its full potential, be smart in your hiring.