A ticking time bomb for business owners and shareholders

A ticking time bomb for business owners and shareholders

In our line of work, the very first port of call is the client’s financials. We need to confirm there is the financial strength in the business to underpin the aggressive growth plans we plan to execute.

In the growth projects we have initiated with clients over the past 10 years, a staggering 70% of engagements have unearthed issues with the accounting function – from plain ineptitude to in one case clear fraud. Most projects have resulted in the replacement of the head of the accounting function, some who have been insitu for years.

Then today I read that the Victorian Liberal Party is “gutted” by the fact that their State Director, Damien Mantach has allegedly defrauded the Party of around $1.5 million, presumably audited accounts.

I almost guarantee that the sum indicated will be more than $1.5m once the fraud is fully investigated.

So many private businesses (even those audited) are potentially sitting on a time bomb. We had one situation where the client was reporting the wrong metrics to its financiers. That took some negotiating to get the bank back on side once the issue was disclosed.

Private business owners (especially those not audited) would be well advised to have an external party (with the credentials) provide a health-check on their financials.

Both as assurance that the business is in good financial shape and to avoid embarrassment further down the track as the business grows and becomes subject to more scrutiny.

We have also learnt that diplomacy is key in this extremely sensitive domain. A CFO or FC who has been in the role for many years is unlikely to welcome such a look-see with open arms.

There is a wonderful German expression: ich würde die Hand dafür ins Feuer legen, which means: “I would put my hand in the fire for that.”

For any business owner they should ask themselves “Would I put my hand in the fire for < insert the name of the CFO or Financial Controller >?”

Article written by Jeremy de Constantin
deConstantin Business Advisory is a specialist exit planning consultancy based in Sydney, Australia. We are partners with the Business Enterprise Institute, a Colorado based think tank on mid-market private exits and transitions, headed by John Brown. On our team we have specialists in commercial, employment & contract law, investment banking, financial planning, forensic accounting, process improvement, HR, strategy and performance measurement.

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