Owning a business creates a lot of opportunities for you to get screwed over. In the post-Bernie Madoff era, I thought it would be helpful to offer a few suggestions of ways you can protect yourself and your business.
You need to stay on top of everything: The only person 100% focused on your best interests is you. Even if you have a trusted lawyer, advisor or family member in charge of a specific set of tasks, you need to understand each component of everything that is going on related to your business, from every contract signed to every dollar invested to every purchase order written. You need only to look to the media for examples of what not to do. Dane Cook’s half brother is accused of embezzling from him. Countless other artists, athletes and businesspeople have had trusted advisors steal from them. Only you can make sure that everyone is doing what they are supposed to be doing (and not putting their hands in the cookie jar). If you don’t understand something, ask questions until you really do understand it. If you still don’t understand it, then don’t sign the contract/invest in the opportunity/etc.
Institute a system of checks and balances: Always require at least two unrelated parties to sign-off on anything critical, including writing checks and withdrawals of funds, signing purchase orders and major contracts. Your lawyer should never do your accounting and vice versa (and those functions should not only be given to two different people, but two different firms if outsourced). I reviewed a contract for a major NFL athlete two years ago that had conflicts of interest everywhere, including his agent acting as his accountant and lawyer. Big red flags there!
Speaking of contracts, write everything down: A lot of people like to do business on a handshake, but I advise against it. If there is any potential for a misunderstanding down the road or if you are doing anything that is important, put the terms into writing (preferably into a legally binding contract). While people have good intentions (well most people, some are just scumbags), circumstances change. First, people interpret discussions differently (and a lot of people don’t listen very well), so putting your verbal discussion into writing will ensure that everyone is on the same page. Other things happen from management changes to greed that alter the game in the future. Having a written contract will keep everyone in line (or at least give you recourse). If the value of the contract isn’t very much (i.e. less than it would cost you for a few hours of your lawyer’s time), then don’t bother, but if anything major is at stake, write it down.
Hire people who are hungry, but not starving: Desperate men will sometimes take desperate measures. It is great to hire scrappy people (either as employees or service providers) that will hustle and work hard. So, look for someone hungry, but if they are starving (i.e. in major financial or other trouble) you may want to pass. Doing background and reference checks (and even credit checks) are a critical part of being prepared and doing your homework.
If something sounds too good to be true, it probably is: There are no shortcuts in business; it requires hard work. If something sounds too good to be true, it probably is. Trust your instincts and don’t let yourself get suckered by huge promises or exploding offers (“I am not supposed to let you in, but if you give me the money today I will”). Make decisions made upon solid research and specific return-on-investment or other financial benchmarks and criteria. Again, if you don’t understand something, stay the heck away from it.
If you take the time to constantly look out for your best interests, I am sure you won’t let yourself down.