Most small businesses get so trapped in day-to-day operations, competing for clients, and trying to grow the business (increase revenues and profits) that they don’t expend adequate time and resources on key business activities – finance/accounting and human resources.  These seemingly “simple” areas of business – dealing with people and doing the “math” – are potential minefields for the small business.  One wrong step and you can seriously damage or destroy your business.

Five Major Human Resource Risk Areas

  1. Lack of expertise to address:
    1. Compensation and benefits
    2. Recruiting and hiring practices
    3. Compliance with Department of Labor and other regulations
    4. Employment agreements
    5. Skills assessment and training
  2. Litigation exposure – employment practices
    1. Recruiting and hiring
    2. Performance evaluation
    3. Discrimination/harassment/other
  3. Benefit regulations and laws
    1. Fiduciary oversight of retirement plans
    2. Other mandated benefits
    3. Participation thresholds
    4. Administrative issues
    5. Confidentiality
    6. Payroll activities
  4. Documentation
    1. Incomplete or inaccurate documentation of employees
    2. Failure to file mandated filings with government agencies (i.e. new hire reporting, etc.)
  5. Function not coordinated with business activities
    1. Management making decisions inconsistent with polices and/or regulations
    2. Raises/promotions not backed by performance evaluations, etc.

Five Major Finance/Accounting Risk Areas

Cash management – The lifeblood of the business is the cash available to meet immediate demands – inventory purchases, payroll, rent, and the multitude of recurring payments which provide the core activities of the business.  Cash availability is a function of sales and the successful, efficient management of the business – including credit terms to customers and from vendors as well as “investment” in inventory, equipment, and people.

Credit terms and risk – This aspect of the business has two perspectives – the ability to gain the most favorable terms from vendors and lenders and the ability to establish and manage credit provided to customers.  The need to maintain a finely honed credit policy results from the potential to lose sales revenues from customers who seek to match payments to collections within their own cash conversion cycles and the potential risk and cost of financing your customer’s purchases.

Procurement – The ability of your purchasing agents to negotiate favorable terms – payment, shipping, discounts, and price – can be one of the most effective means of controlling the cost of inputs into your business.  From materials purchases to shipping costs to equipment acquisitions, well-trained, knowledgeable, skilled, experienced procurement professionals can pay for themselves through their ability to prevent high costs and poor quality of inputs.

Internal controls – Are necessary to preventing poor quality transactions and to ensuring that any cash outflows are necessary and part of a plan to achieve strategic objectives.  Internal controls including budgets, project reviews, and specific requirements for results keep everything on track and ensure that the highest returns are achieved on dollars deployed.

Recordkeeping – This is a critical element due to the multitude of information users, stakeholders, and regulatory agencies (IRS, government grant agencies, and so on) that have oversight rights.  The need for “adequate” documentation is spelled out in a multitude of places.  Lack of documentation can lead to audit and compliance issues that substantially greater than the cost to maintain appropriate records

Is your business facing or in the midst of a minefield of issues?  Can you assess the degree of risk and potential cost?  Can you determine the potential dollar savings from improved operations – cash management, procurement, and human resource systems?

Copyright ©2005 Lea A. Strickland, F.O.C.U.S. Resource, Inc.

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