A sad, but true story:
Three siblings own and operate a company. Each sibling has his/her area of expertise and is good in that area. They make joint decisions about the direction of the company. Each trusts the other two siblings to do their job well. I repeat – the trust was there between the three.
One of the siblings got hooked on drugs. The other two siblings knew this sibling had a drug problem in the past. But, they had been promised that this sibling had “kicked the habit.” Obviously this wasn’t the case.
This sibling slowly started taking money out of the business checking account to fund the drug habit. It wasn’t caught by the other two siblings until they started having cash flow problems.
What would you do?
Your husband, wife, or other relative, or long time trusted employee is siphoning money to fund a drug habit. And, what’s worse, that person may own a part of the company!
Implement these four procedures:
1. Immediately take that person’s check signing privileges away. This means going to the bank and signing new signature cards. No more money gets siphoned out of the company.
2. Remove check temptation from that person. Put them in another location, under lock and key, unless they are being used.
3. Tell that person that he/she no longer has check signing authority, the signature cards have been changed, and that he/she must get help.
4. All siblings must be involved in the financial side of the business. They all have to keep an eye on cash. This would have been caught more quickly before the cash flow problems began.
Company ownership is a sticky situation. Hopefully you have a contingency plan in place for what happens when an owner gets divorced (can be very nasty), dies, is disabled, has an illness, or is doing illegal activities, and more.
Assuming that you have an agreement in place, enforce the agreement. I promise you it’s not fun, especially with a family member that you love. However, it must be done for the long term survival of the company.
The worst day – ever – in my career was firing the son of an owner because he needed to go and the owner couldn’t do it. The second worst day was telling two owners of a three owner company that the third owner was embezzling at least $50,000 per year from the company. And, I had to fire my husband’s daughter. I’ve been there. I know how gut wrenching it is. I also know it has to be done.
Think hard before giving anyone check signing authority. Have a contingency plan in place, put it in writing, and make sure everyone who has the authority to sign checks on behalf of your company, agrees to and signs the paper work explaining the plan.
And, always keep an eye on cash – even if a trusted sibling has the day to day financial responsibility.