One of the best parts of being a family business (and we at BMR Insurance would know), is working alongside loved ones and building a legacy. It’s a rare find in the business world, not found in the corporate workplace. What we’re beginning to realize is that despite these levels of trust, that trust can be, and often is, shattered. But what if love for the family members one gets to work alongside day in and day out becomes a destructive force of its own? As is said– love makes us blind. Perhaps this is why small, family-owned businesses experience fraud at a rate of 28.8% while those with over 10,000 employees experience fraud at a rate of 19.8%.
How does this happen? Imagine brother Joe is stuck doing what he considers the worst job in the business: supervising payroll. He thinks he deserves more pay, and creates what is called a “ghost employee”, whose money goes straight to him. It won’t happen to you, right? Sadly, it occurs more frequently than any family business would like to admit.
So how can you maintain that united family business without finding yourself in a financial fix? Keep an eye out for these four types of fraud family businesses are most vulnerable to:
- Ghost Employees – as we mentioned above, the paycheck of these fake employees goes straight to the pocket of the creator. Review payrolls and require two signatures on large check.
- Credit Card Abuse – Family members might start putting personal charges on company credit cards. Examine all purchases made with company credit cards and know what each item bought was for.
- Cash Skimmers – This is harder to track: employees skim a small amount from the cash register before the totals are recorded in the books.
- Faux Vendors and Suppliers – Review your vendor and supplier list regularly, checking that all are legitimate businesses.
One of the best things you can do is establish clear rules about finances with family, and hold frequent financial meetings so everyone is aware of the company’s financial situation and expectations.
Questions about insuring your small business? Get a free business insurance coverage quote here, or contact us at (714) 838-1911 with any questions.