One of the biggest troubles small business owners face is access to capital. So activities like theft or fraud can cripple a small business in a heartbeat.

Ken ran a construction crane rental business. His two-person office was plastered with pictures, magazines and models of cranes – he was a passionate guy. But numbers weren’t his strength.

Ken, his bookkeeper and fraud

For about 15 years, Ken had a bookkeeper take care of all his finances, including his corporate credit card, payroll, bank reconciliations and bills. Larger organizations wouldn’t allow one person to have such unchecked control over cash and finances, but in Ken’s case, he felt such segregation of duties was impractical.

It wasn’t until after she left that he discovered his bookkeeper had been acting fraudulently, costing his company well into the $100,000s.

We discovered his bookkeeper, when running payroll, had withheld income taxes from employees’ paychecks but wasn’t sending payments to the government institutions on behalf of employees, nor was she submitting the required employer portion of payroll taxes. Instead, the funds were being used to benefit her personally. This put both the business and Ken’s employees in a position of owing significant amounts in back payroll taxes.

We also uncovered Ken’s credit card was used for personal expenses, including a night at the Ritz Carlton.

Ken had been running the business for many years and should have been only a few years away from retirement. But the financial losses resulting from the multi-year theft scheme were crushing and would take him a long time recover from.

However, it wasn’t just about money. Ken was devastated to learn that someone he had trusted for so many years had betrayed him in such regular and insulting ways.

We were ultimately able to get Ken and his business on a path to recovery, but it would still wind up costing him considerable amounts of money.

There are several lessons that small business owners can take from Ken’s situation, to help improve their financial security:

1. Don’t rely on a single person for finances

As a business owner, you should be aware of the receipts and expenses that come in and out of your bank account on a regular basis. I also understand that it can be difficult to find the time, or that you may have difficulty comprehending how some taxes and payments work. If that’s the case, get an outside accountant to review your books regularly. Progressive accountants will offer fixed fee pricing at affordable rates. In Ken’s case, had I come in and reviewed the bookkeeper’s work to make sure it was at least reasonable, many of his losses could have been mitigated and his investment in an accountant would have paid for itself many times over.

2. Use a proper payroll system

Payroll is scary and complicated. There are many payroll solutions available that take the mystery and complexity out of the process. Some are more cost efficient than others. Ken allowed his old bookkeeper to manually calculate his payroll and tax filings and this is how he got into trouble.

3. Create a team for success

Ken prides himself on being a hard worker and as a result probably felt he could take on the responsibility of the business all on his own. He was wrong, and has paid extensively for that error. The strongest business owners I have met during my career assemble a team of advisors, mentors and confidants to whom they make themselves accountable. This increased transparency, combined with a different and detached perspective, helps ensure your success as a business owner.

4. Protect the downside while allowing for the upside

Professional investors may differ on many points but will agree on this: It’s important to have a strategy that protects your downside risk. As a small business owner, you are an investor in your business and work hard to gain new customers, sales and profits. Once that capital comes across the register to your business, don’t lose it. Make sure you have sufficient insurance, inventory controls and other protective measures in place to ensure your hard earned dollars stay at your disposal in the event of a theft, natural disaster or other catastrophic event.