We really are creatures of habit. The color red, to most of us, signals our brains to be warned in some way or another. A red stop sign tells us to stop, take a look around and be cautious. Or when we’re at our breaking or boiling points, we describe ourselves as “seeing red.”
Perhaps the most identifiable summertime “red flag” is the one found at the beach. One red flag lets swimmers know that the surf is dangerous while two red flags indicate that the water is closed. Whether you are beach bound or not, summer is the perfect time for business executives to use, what we call, red flag management.
At Foster Results, red flag management is looking at the most vital indicators of a business’ financial health to determine, at a glance, whether or not your financials are in order.
Summer is the time of year when many business executives and owners are most compelled to slow down and take time away from the typical company routine. Because of this change of pace, some also may not pay as close attention to their company’s day-to-day financial status.
How can you avoid a costly business and financial mistake while you are away (physically or mentally)? Employ red-flag management tactics so you can chill a little and enjoy your summer without worry. Review your data for red flags to help you avoid facing undiscovered inconsistencies when you return to a normal work schedule.
Keep an eye on the bottom line and try these red flag management tips:
Practice prevention: Take time to set up the red flag process. This might include a list of indicators or perhaps even a modified dashboard so you can quickly review data and detect problems while you are on vacation or working fewer hours.
Set internal controls. Small- to mid-sized companies are at the highest risk for fraudulent bookkeeping. Usually, one “trusted” employee handles all of the bookkeeping and financial reporting. By setting up some basic checks and balances and monitoring account activity often in your absence, you can pre-empt any attempt to conceal unacceptable or damaging internal financial activity.
Compare and contrast. Even while away, you should be doing a comparison from month to month, how last year’s financial view looked in comparison to this year’s, and how both look in the context of the actual budget.
Watch your statements. Weekly, take a quick look at your bank and credit card statements for any outliers.
Look for dramatic change. Change can mean a multitude of things. But a dramatic swing in incoming or outgoing cash, unexplained or unexpected expenses or unidentified changes in payroll are all signals that something isn’t quite right.
Be diligent and responsive. You have only so much time to react and investigate. By keeping a real-time (ideally online) view of your bottom line you’ll be better able to safeguard your assets and identify glaring financial changes quickly.
One way to ensure that unethical or mistake-ridden accounting practices do not take place is to consider outsourcing. As a peace-of-mind option, outsourcing payroll and other basic accounting services ensures that a watchful and ethical eye is on your company’s financial status at all times – especially when you are away.
Go ahead – enjoy your summer. Just make sure to keep an eye on your company’s bottom line so that you don’t end up “seeing red” this fall!