Lessons Learned is an educational series of webinars on financial management for your solar business presented by Leslie Shiner of The ShinerGroup and Annie Kendrick of Kendrick Business Services, LLC. The stories are fictional, and are used for illustration purposes only. They do not depict any actual person, company or event.
John opened his business, The Sun Always Shines Solar, after working as an electrician for 20 years. He saw the potential of solar energy and decided it was time to go out on his own. For the first two years, John worked in the field during the day and saved the bookkeeping for weekends and evenings.
John eventually hired Linda as an administrative assistant. Although she did a great job of handling customers and keeping information organized in the office, John didn’t trust handing over the financial portion of his business to anyone else. Instead, he continued working long hours.
During the 3rd year, John’s solar installation company grew to 10 employees with a backlog of several months’ work. John was doing extremely well, but performing both accounting and project management duties was putting a strain on his family, as he rarely took a day off. John was also having difficulty keeping the books up to date and was falling behind.
It was a perfect opportunity to hire an office manager when John learned that his sister-in-law, Susie, was returning to work after being a stay-at-home mom for several years. Her previous experience as an office manager was a perfect fit for his office, and John knew he could trust her to handle the books. She was excited to be offered the job and agreed to start the following week.
Susie started on a Monday and by the end of the week she had completely taken over customer invoicing, vendor payments and payroll. John was thrilled that he was now able to focus on projects and working with his team in the field.
With Susie’s help, John was able to grow his business over the next several years, and not only did he take weekends off, he was also able to go on vacation! Susie managed the entire office from opening the mail to processing the payroll and reconciling the books. John was very happy, and he rarely even looked at the accounting system anymore. Susie was a superstar and John knew he could trust her.
Susie became indispensable. She never took a vacation as no one else knew how to do her job. Susie didn’t let Linda or John help with the books because she said they “might mess something up” and she would have to clean up after them.
One Friday, Susie received a call from the school that one of her children was sick, so she rushed off to pick him up and take him home. John noticed Susie’s trash can was completely full and decided the least he could do was empty it for her as she had done so much for him over the years. As John was emptying the contents of the trash can, an envelope fell on the ground. As he picked it up, he noticed that it was from the Internal Revenue Service and was unopened. He opened the envelope and found a notice that said “Final Notice of Intent Levy to seize your assets and notice of right to a hearing.” The amount due immediately was $50,343, with a failure-to-pay penalty of $5,034 and interest of $1,434. John stood there in shock. His first thought was to immediately call Susie as there had to be some kind of mistake. Instead he started searching through the rest of the trash can contents. He found a bank statement with a copy of the cleared checks and noticed several made out to Susie with his name on the signature line – but he knew he hadn’t signed these checks! The comments on the checks read: “reimbursement for office supplies”.
John spent the entire weekend with an expert he called in to go over the accounting system. After the two of them compiled all of the suspicious transactions for office supply reimbursements, credit card charges for personal items and unauthorized payroll bonuses, they estimated that Susie had embezzled over $300,000, while not paying payroll taxes for many months – possibly a year.
It took weeks for the expert to compile all of the information and months for John to pay the back taxes, unpaid vendor bills and 401K accounts that had not been funded. Susie was indicted by the local district attorney’s office and settled one day before the case went to trial. She was ordered to make payments, but the chances of John even seeing a dime were slim to none. He had to chalk it up to experience, and said: “Well, at least I was profitable!”
What did John do wrong in this story? Was John’s mistake taking weekends off and going on vacation? Was Susie’s mistake not using a shredder? Does your company need to set up internal controls?
This story is an extreme example of Lessons Learned, however the lack of internal controls can cost solar companies thousands of dollars every year and cause financial hardship. To learn more about setting up internal controls view the pre-recorded webinar online.
You can find out more about the financial management program for Solar trade allies and other business development opportunities for your company online.