Fraud has the potential to disrupt the activity of any business, be it small or big. However, smaller businesses are usually hit harder when employees or management engage in fraudulent behaviour. In some extreme cases, fraud can threaten the survival of the business itself by limiting the confidence partners and clients have in it or by promoting mistrust inside the workplace.
The effect on your business
The most obvious way in which fraud can influence a small business is financial loss. The simplest example is that in which employees are interfering with the normal flow of money in a way that makes it less obvious for the business owner. With businesses getting more and more complex, it is harder to track down where each cent goes and bad faith tempts everyone at a given moment.
A company dealing with fraud is usually painted in black for investors and other business partners. No one wants to deal with entities that have a bad record and therefore cannot be fully trusted. Bad news usually reaches the clients faster than anything else does. While your businesses might still offer the best price/quality ratio and engages clients with clever marketing, the smallest slip downwards can put a significant percent of your clients directly in the arms of your competition. Brand loyalty might stop or slow down the process but if we are talking about serious and recurrent fraud, there is close to nothing you can do.
The effect on your team
Fraud affects morale inside the company and can disrupt the normal momentum a small business relies on to access growth and cultivate stability. However you put it, fraud is embarrassing for any of the parties involved. If one of the employees is uncovered as the one behind the fraud, the rest of team will feel bad for not sensing the danger coming from the inside. On the other hand, fraud discovered at management level can have devastating effects on morale.
The effect on your audits
Fraud makes business audit harder and more complicated. Auditors will look more closely at the company books before signing the financial statements and will most likely ask for information that is hard to get. In more extreme cases, partners to which the accounting was outsourced to, might even decide to end the agreement. To put it in simpler words; once you do something wrong in the business world, everyone will double-check you.
The effect on your financial cred
Most small businesses need bank loans to get going, at least in their first years of existence. News about fraud travels faster than anything else and you might be surprised to find out that some banks are considering the risk and requesting a higher price for credit. In most countries, banks share a common black book of companies that create problems and complications, and you might be surprised to find out that all banks adopt the same position about your need for credit.
Fraud in the digital world
The digital era is one in which fraud is easier to make and perpetrate. It is enough to look at reports coming from all over the world in order to see that digital fraud is increasing in incidences year after year. Even if security measures are taken, the online environment your company is connected to is largely a Wild West. With enough hacking knowledge and skills (which are not exactly hard to get), almost everyone can steal sensitive information or disrupt your normal activity.
Hacking is usually traceable, but this is not an easy process. If you find yourself to be the victim of hacking, you will most likely need to access specialised services that offer improved protection. For a small company, this increases operational costs and can add a dose of bureaucracy.
Whichever way you look at it, dealing with fraud is one of the worse situations a small company can go through. Eroded confidence, complicated relations, loss of growth momentum – all of these are side effects of businesses who do not manage to keep it straight. Fraud usually triggers a rethinking of the business strategy with the attached costs in terms of money and time.
At the same time, fraud can make a company more mature and aware of the potential risks that are out there, waiting to happen.