The past few months have seen some positive changes in the dairy industry. In the last six to 12 months, some dairy operations have been able to refinance with new lenders and move out of the special or troubled assets branch of their old lender.
Operators have learned to manage on slimmer margins, and margins have at least opened up to offer the ability to turn a small profit with positive cash flows. We need to make sure we are planning for the future in a prudent, fiscally responsible manner.
I’m not sure why, but it appears a new trend has also emerged, one that indicates more than just that the owners are aware that cash flows are now generally on the positive side. For the last couple of years, we spent all our time working with managers, struggling to stay afloat in a period of low cash flows. Currently, we are doing the same, only in a really different way. The issues now involve protection of the assets, including the excess cash flow, or in other terms, the avoidance of embezzlement.
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As operations recovered and have been able to use the excess positive cash flows to catch up on debt and vendor payments, it was rarely left lying around in bank accounts or excess inventory levels. Since cash flows have created the ability to catch up with liability payments, a few are starting to see some growth in their cash balances or reductions in their lines of credit. This positive cash flow can unintentionally invite additional risks.
It does not take much time surfing the Internet to find hundreds of articles about an employee being terminated and charged for misuse or misappropriation of funds. And if you look, you will find the perpetrators are not from any specific area of an organization.
It can be the janitor on staff as easily as it can be the bookkeeper you have trusted for the past 15 years. Keep in mind that the information we are able to research and review online represents only the cases that are reported. How many cases exist where embezzlement is identified by an employer and it merely ends with the employee being terminated and never reported?
Generally, smaller businesses are at greater risk because they have very few controls or the resources to implement and enforce the controls. More often than not, the small business owner relies mostly on his or her bookkeeper or CPA.
Spending a few minutes to make sure the appropriate basic controls are in place can go a long way toward helping remove any opportunity to misuse, misdirect or misappropriate business funds that may exist. A basic study performed by someone outside your business does not have to be complicated or costly.
If you remember some of our earlier "Fiscal Fitness" columns, we spoke about the need for a management team and its ability to change as your business moves forward. This is an issue that might need a different type of financial consultant than you currently are using.
We cannot express enough that a second opinion regarding your businesses financial health can be just as important as that second opinion we all look for when dealing with our personal physical health.
Now that your business is coming out of a pretty severe economic storm, be sure to make the needed repairs. Then move forward, preparing for the future.
Do not let someone else begin to prepare for their future at the expense of you and your business’s future. Dairy producers, give your CPA a call and have him or her give your financial record processes a thorough health checkup.
- December 2013