You have been working with your business partner toward achieving the company’s goals. However, you start to notice something has changed, so much so that you now suspect they may be misappropriating company funds.
So, what signs should you look for?
Unexplained financial discrepancies
You should be concerned when numbers don’t add up. For instance:
- The business is generating sales, but the bank account balance is shrinking
- There is an unexplained drop in profitability despite consistent/increased work volume
- Employees/vendors are complaining about not being paid or late payments, yet revenue reports are healthy
- Large, undocumented cash withdrawals are being made
- Many expenses are being reported without receipts
- Payments are being recorded days or weeks after they were paid
- Payments are being made to unfamiliar vendors
- Business credit cards or accounts are funding personal expenses
You should also check if financial records have been altered or are missing.
Behavioral red flags
You might also discover your business partner is misappropriating funds from these behavioral red flags:
- Extreme secrecy – Your partner no longer wants to discuss finances or operations
- Excessive control over financial records – They restrict your access to financial records, for instance, they keep “forgetting” to share login credentials
- Refusal to be away– Your partner consistently being the first to arrive and last to leave or refusing to take vacations /time off may be driven by a fear that being away may result in a discovery of their fraudulent activities
- Resistance to financial audits – They refuse the idea of an audit or fail to cooperate by not sharing documents
- Unexplained lifestyle changes – Sudden unexplained wealth that does not match their income or profit distributions
Chances are, you will notice these suspicious behaviors before even identifying financial irregularities.
Misappropriation of funds can lead to significant financial losses. If you suspect your business partner may be engaging in such an activity, consider legal guidance to protect your business.
