Isn’t hindsight wonderful?  Often when things go pear shaped in business people look back and see that there had been warning signs.

This article will hopefully help you look ahead and think about those red flags before they turn into a real issue.

Smaller businesses v larger ones

Small and medium sized businesses are very different to larger ones – here are a few examples:

  • Bosses are likely to be more involved in the day to day nitty gritty. This reduces the time for working ON the business.
  • Less formal procedures. There is a cost/benefit trade off with cost often winning out at the expense of robust checks and balances.
  • Less segregation of job responsibilities, which increases the risk of fraud.
  • Smaller businesses are arguably:
    • less likely to employ specialists or to provide bespoke training.
    • more susceptible to ‘mission creep’.  Roles can evolve (rather than changing in a planned way), with people doing things outside their main skills. People gravitate towards what they do best and may not be so keen on the other stuff (this can include the bosses!).
  • There may be no annual audit or if there is it may well pay little or no attention to the way things are managed.

Risk indicators

Rather looking back and ruefully saying  ‘if only we’d taken notice!’, why not think about warning signs now? Here are a few pointers:

How things are working at the moment?

  • Are there areas of the business that are by their nature difficult to control?
  • Are there warning signals?
    • From KPIs or management accounts (especially unexplained cash shortfalls).  Or perhaps there aren’t any management accounts or if there are maybe they are late? Are the KPIs tracking what really matters?
    • Areas that are proving difficult to improve despite best efforts
    • High staff turnover, absences or disciplinary issues
    • Areas of the business that are not working well together
    • Bonus arrangements which create a conflict of interest
    • Other factors such as overbearing staff, people working under intense pressure or people not taking holiday
  • Are there less obvious signs?
    • Remote locations or multiple tiers of staff, where messages from the top may be diluted or where there is little scrutiny.
    • People working outside their core skills.  
    • Areas run by long standing staff who have had little challenge over the years.
    • Working practices which have evolved in an unplanned way.

How will things work in the future?

  • Will there be changes where:
    • existing problems could be compounded?
    • there are new process or information needs?
    • past lessons should be considered?
  • Is risk factored into important decisions?  (eg: major projects or selection/retention of suppliers)

Wrapping up

More warning signs are likely to point to a greater risk of problems.  Leakage because of a lack of skills, inefficiency or poor processes might be a risk. Fraud may be another.  Either way, an impartial review can be a great way to get a fresh perspective and ideas to help improve profitability and resilience.

If you liked this article you might also like to read Fraud should be seen as a business opportunity!!  And if you would like to discuss having an impartial review then please get in touch at david@camroseconsulting.co.uk