5 Ways to Protect your Business Finances

The financial health of your business is important to you, so naturally you have a desire to safeguard it. Having a risk management and/or loss-prevention strategy in place to protect your business' finances is one crucial first-step toward financial independence you can take. Employing any or all of the following five strategies will help you protect your business, its assets and its financial health.

Avoid Self-Destructive Start-up Financing Traps 

Some businesses are doomed to fail from the start because of badly negotiated seed money financing agreements. Sometimes, over-optimistic business owners agree to accept seriously onerous terms in exchange for badly needed start-up capital. The kinds of arrangements that doom new businesses to fail tend to involve these kinds of situations: Advances of capital that feature highly restrictive loan covenants, and capital stock sales that end up shifting control of the business to outsiders. To avoid these situations, you should always seek the advice of a competent business attorney prior to agreeing to accept outside investor money. 

Rely Only Upon Registered Professional Service Providers 

For certain functions such as legal representation and professional accounting, serious entrepreneurs will retain registered, professional service providers. These providers should be expected to carry a sufficient amount of errors and omissions insurance that protects clients against losses brought about by professional malpractice and misconduct. As a general rule, your professional services providers should be licensed by the professional associations and boards that regulate those professions.

Maintaining Back Office Security

Common risks to small and medium-sized businesses involve back office fraud, sloppy record keeping and weak financial controls. Internal fraud schemes include fraudulent checks, invoicing for non-existent provisions, "ghosts" on the payroll and vendors with an agenda. Using computer checks can help a company avoid some of these losses. These checks will help prevent fraud by keeping a check's payee and dollar amount safe from tampering through the use of exclusive security measures that instantly and plainly expose any evidence of tampering.

Remain Vigilant Concerning External Fraud

The long list of financial scams private industry falls prey to each year forever grows. The most effective protection against financial losses brought about by external fraud flows from exercising vigilance against the many variations these scams mutate into. Needless to say, having a fraud policy in place will do your organization no good at all if you fail to inform and train every one of your employees with respect to your internal loss-prevention policies.

Respect Cash Consciousness

Complacency concerning cash-flow management and a general disregard for securing cash on-hand opens the door to common risk factors that threaten the bottom lines of many otherwise healthy businesses every year. One of the things that you can do to defend against this type of risk is to remain cash-conscious. This means taking cash to the bank frequently, conducting background checks on employees that handle cash, and undertaking frequent audits of your cash control systems. Other things you can do in this regard include limiting online banking activities to senior company officials only, and having a policy to review cash flow statements frequently. These reviews should include frequent looks into your organization's accounts payable and aging statements in order to obtain an early warning of any impending cash crunch.

Every private business however large or small needs to determine how effectively management's policies meet the changing needs of its operations with respect to protecting, defending and ultimately improving the organization's financial position. As the business environment changes so must management's response to such changes. Any policies and procedures management chooses to put in place must always be the equal to such challenges. While today's business leaders are driven to always seek growth and expansion, so they should also seek to protect their organization's capital, the lifeblood of any business enterprise.