How to Confront Employee Theft and Selling Your Business

Mike Kelly and Elizabeth Larkin

Should you confront an employee who you suspect is stealing from you if you don’t have any evidence? And what should you do if you are ready to retire and your kids don’t want to take over your business? Listen now to hosts Elizabeth Larkin and Gene Marks.

Show Notes

Welcome to another episode of the Small Biz Ahead Podcast. Sign up for the weekly newsletter so you never miss an episode. Do you have a question you’d like Elizabeth and Gene to answer? Submit your question to the Small Biz Ahead Podcast.


Security Systems:


Elizabeth: Okay, welcome back to another episode of the Small Biz Ahead Podcast. Gene, how are you today?

Gene: I’m doing fine, Elizabeth.

Elizabeth: Did you read anything interesting on your way up here?

Gene: No, I did not. I slept actually on the way up here.

Elizabeth: Nice.

Gene: We were talking before, I just have to bring this up, about our dogs. You were saying your dog had a problem with barking, right?

Elizabeth: Yeah.

Gene: My dog is a rescue, doesn’t bark.

Elizabeth: Doesn’t bark?

Gene: Doesn’t bark.

Elizabeth: Ever?

Gene: No. I know she can, because if you step on her by mistake or whatever she’ll yelp out.

Elizabeth: She barks?

Gene: Yeah. She’s the sweetest little dog and she’s like five years old. She’s a Cavalier King Charles Spaniel. We got her about a year ago.

Elizabeth: What’s her name?

Gene: Well, her name is Lavender. Sometimes we call her Penelope. Don’t ask why. She’s awesome. We live in like an apartment building in Philly, so obviously concerned about dog does not bark as well, so that was …

Elizabeth: Is she your dog or kids’ dog?

Gene: Our dog. Our dog.

Elizabeth: Oh, nice. Nice.

Gene: I mean, our kids love it and all that, but our kids are in college now.

Elizabeth: You didn’t have the dog for the kids and then they left?

Gene: We did. We had a dog before. She was actually an insurance dog. We had the world’s greatest dog ever named Fudge and we had him for more than fourteen years and we had to put him down in the spring. It was awful. It’s just horrible. Fudge our dog, we knew he was on his last legs and about six months before we put him down, we got this other dog, because we knew that we’d be crushed when Fudge went down and we were. At least you have this other dog then to sort of help with the pain.

Elizabeth: You work from home. Does she work with you?

Gene: Yeah, she’s around.

Elizabeth: She hangs out in the office?

Gene: Oh yeah, she’s around.

Elizabeth: What is your home office set up like?

Gene: It’s all a desk and a sofa. Separate room in the apartment. Very quiet room and that’s it. I have a laptop and a landline. I get questions about landlines now and that’s another topic for another day about communications in a business. I’m coming across more and more companies, don’t have phone systems.

Elizabeth: Yeah.

Gene: No phone systems at all. They have like a virtual hosted system, and again we can talk about this later.

Elizabeth: Google Phone.

Gene: Then everybody has cellphones and smart phones and that’s how they … Even in my home office though I have a landline, because I need that. I think the reception is still better. The clarity is better.

Elizabeth: Yeah, I totally agree. We just tried it before. We were calling someone from a mobile phone inside a building and they could not hear us speaking.

Gene: Right.

Elizabeth: It’s like, “Wow. I’d really like a landline right now.”

Gene: Yes.

Gene: There’s still a reason to have landlines nowadays. Depends on your business and what you’re doing.

Elizabeth: It’s good to be old school once in a while.

Gene: It is. It is. Old school is still okay.

Elizabeth: For the most part, you’re out on the road.

Gene: Yeah. I have ten people in my company. Everybody works from home, but if you look at my calendar, I’m out just about every day at clients, because we have projects going on, so I’m out and meeting … Or perspective clients as well.

Elizabeth: You don’t need an elaborate home office?

Gene: No.

Elizabeth: You’re not meeting there.

Gene: No.

Elizabeth: Have you ever considered a co-working space?

Gene: No. No. I don’t know why I’d want to spend the money on it. I’m cheap. I’m a penny pinching … We once thought about, “Oh, maybe I should have an office.” Even in like my home office I can get like rent a office somewhere for myself. I’m like, “Why would I be paying few hundred dollars a month in rent even when I can just as well do this from home?”

Elizabeth: Yeah.

Gene: Again, for all business owners, I’ve learned this from smart people. My whole life is about trying to keep my business overhead as low as possible.

Elizabeth: Yep. Keep the cost down. If you work from home …

Gene: If the you know what hits the fan, you’ve got flexibility. It’s hugely important.

Elizabeth: Another recession or …

Gene: It’s coming.

Elizabeth: All of the sudden people decide they don’t want CRM Systems.

Gene: It’s true. Every business owner walks around worrying about when that cliff is going to come. Even the most successful clients that I have, you ask any of them, and they’re like, “Well, we’re pretty good for the next four to six months, but after that I’m hoping the customers keep … ” You know what I mean? We all walk around with a little bit of panic. One way that you can [alleviate] that panic is by keeping your overhead as low as possible. You just know that if things really hit the fan you can still operate inexpensively.

Elizabeth: Exactly. All right, we’re going to get to questions after we hear from our sponsor.

QUESTION #1: How do You Catch an Employee From Stealing?

Elizabeth: Okay. First question. Benny from Brooklyn.

“I have this employee who seems like a really good guy. Hardworking family man, you know the type, but lately I’m beginning to feel like he’s stealing from me. I don’t have any hard evidence, just a sneaking suspicion. I want to confront him but my wife says that’s not a good idea. How should I handle this situation?”

Elizabeth: Very, very carefully. Gene, you have a trick to catch people.

Gene: Yes. This trick I learned back in my accounting days. Here’s the trick, the trick is vacation. That’s the trick. Everybody in your company should be required to take vacation. Particularly those that are in a financial role with inside of your company as well. If you go and you look in the newspaper, and I have this morbid fascination with people that steal from their companies. I find it fascinating like how they can do that and then sleep and not be freaking out they’re going to be caught and all that. If you look in the newspaper about the bookkeepers that get caught stealing from the company, the accounting managers, the payroll clerks or whatever, it’s always because they were away on vacation. When they’re away on vacation somebody else had to fill in and do their job.

Elizabeth: That’s like what they call an elegant solution. Like just put someone on vacation. Just require people to go on vacation.

Gene: It’s required, so when you have a financial person say like, “Oh, I’m working hard. No need for me to take a vacation. You can rely on me.” Whatever. “No, no, no. You’re taking a vacation and we’re having someone …” You’ll see within a few days you’ve got the bookkeeper saying, “Well, you know, since Elizabeth’s been on vacation I’ve noticed there’s this vendor called Elizabeth Co. I’ve never heard of this vendor before and we seem to be sending checks to them every month.” It uncovers certain things.

Now, back to Benny’s question. We don’t know what role this person’s in, so if this person is in a financial role, that’s easier. Say the person is in a warehouse role or like maybe stealing inventory, you know, or whatever. First of all, don’t be stupid. Lock up your stuff. Don’t give any employees any incentive to walk away with materials if you keep it away. Go around and lock it up so that you don’t have this stuff lying around. Finally, most companies that I know, particularly if you’re in retail, where you are exposed to not only theft from people walking in your store but also from employees, you get security cameras laying around in systems. Right now, not the spur my mind, I do have a few good security systems, inexpensive, I can recommend. Let’s check the show notes and Elizabeth remind me.

Elizabeth: Okay. Yeah, definitely.

Gene: I’ll give you a list of a few good security systems. Everything is recorded. Nowadays, all security systems that you get now, not only are the inexpensive like a few thousand bucks, but you can watch everything going on in your business from your iPhone. They’re all cloud based. It’s fantastic. They’re recording what’s going on, so if you have suspicions that this person’s still stealing from you, even if you tried to safeguard your assets, you’ve got another backup to try and catch them in the act.

Elizabeth: Now, what kind of position would it be really hard to figure out someone’s stealing?

Gene: It depends. If somebody is around assets, financial or inventory, that’s the easiest ones. If they’re not around any assets, like a customer service person. Somebody like what would they steal other than office supplies?

Elizabeth: Office supplies.

Gene: That would be probably the hardest position to figure out.

Elizabeth: Now, would you confront someone about office supplies?

Gene: Yeah, I mean, when it comes to office supplies that happens in all of our … Everybody steals office supplies.

Elizabeth: People do it not even thinking it’s stealing. They’re just like, “Oh, I’m going to take this pen home.”

Gene: Yeah. Everybody steals office supplies. It’s just a fact. It’s almost like a perk of the job, is that you don’t have to pay for pens anymore. First of all, I think as a business owner you’ve got to give a little bit of leeway to that. If you’ve got some of your employees that’s walking out of the company with a printer, you know what I mean, then okay maybe you kind of draw the line there. Look as far as office supplies are concerned, same deal, it’s a value to you, keep it locked up in a closet. Have the office manager with a key. It’s the only person that can get access to it. People have to request their office supplies. That will help reduce stealage of office supplies.

Elizabeth: I would think the office manager would be the most difficult person to catch.

Gene: Yeah, people in authority are very tough to get them.

Elizabeth: Yeah, because everyone always assumes that person, “Oh, they got it. They got it.” If an office manager goes on vacation some offices totally fall apart.

Gene: Yeah, that’s true.

Elizabeth: I mean, they can’t find anything.

Gene: That’s true.

Elizabeth: It would be very hard to catch that person.

Gene: That’s true.

Elizabeth: I think as the business owner you’ve got to be on top of that. What do you think is a good amount of time for vacation? When I worked at a bank, I worked on Wall Street, and there was a law that people at a certain level had to take two weeks of, so ten consecutive business days.

Gene: Wow.

Elizabeth: For this reason. It was mandated.

Gene: Right.

Elizabeth: You have to take that time off.

Gene: Right.

Elizabeth: In a small business, like a lot of people aren’t taking ten consecutive business days off.

Gene: I would recommend three months consecutive. Doesn’t that sound good?

Elizabeth: I think you could probably figure it out in that time.

Gene: That’d be awesome. That’d be awesome. No, first of all you have to be reality in a small business. You’re not going to require someone to take two consecutive weeks off. I mean, that’s really tough for any size business. Look, I think you got to require a vacation being spent, but I do think it is important, you bring up a good issue, there should be a minimum number of days. People say like, “Oh, I’ll just take a day here and a day there,” or whatever. I actually think, again, it gets back to the role that the person’s in your company. I think requiring at least a week consecutive, five business days consecutive, I think is a good internal control to have.

Elizabeth: Now, once you have your evidence that this person is indeed stealing from the company and you’re going to confront them … ?

Gene: You push them against the wall and pummel them repeatedly until they beg for mercy. Always seems to work.

Elizabeth: I mean, is that the kind of conversation that you should bring a lawyer into?

Gene: Yeah, that’s also an interesting conversation. Listen, if you’ve got evidence of a person stealing from the company. I mean, literally, like video tape evidence where it’s irrefutable. I’m assuming you’re going to have a policy in your handbook that that kind of behavior is immediate termination. I don’t know if you have to have an actual lawyer come in if you’re going to terminate somebody under those circumstances.

Elizabeth: You might consult one.

Gene: You would certainly consult one. I also think that you don’t want to have that conversation alone. Not only just for the protection of your own physical well-being, you don’t know how that person is going to react, but whenever you’re going to terminate anybody actually under any circumstance you always want to do it with your HR person, your controller, your accounting manager, somebody else. There should be at least two of you guys that are having that conversation.

Elizabeth: Okay. That’s definitely not an easy conversation to have, Benny, so I understand your wife saying it’s not a good idea, but if you have evidence, if you’ve done your due diligence, you owe it to your other employees and yourself and your company to definitely terminate that person.

Gene: Yeah, true. Benny, you want to reduce the risk. Take away all incentives and motivations for this guy to be stealing from you. Lock this stuff up. All right? Require vacations. If you still think it’s going on, you’ve got to get evidence though.

QUESTION #2: Should You Close Your Business Or Sell It?

Elizabeth: All right, great. We’re going to be right back with another question after we hear from our sponsor. Okay, we’ve got Barbara Anne from Santa Barbara, California. There should be a song about that.

Gene: I remember there being something …

Elizabeth: I believe it’s the Beach Boys?

Gene: Yes it is. Yes it is.

Elizabeth: Her question is,

“For twenty-five years my husband and I have owned and operated a surf shop in Southern California,” That’s like the dream. “But lately we’ve been talking about retiring. We have one child, a daughter, who has no interest in taking over the shop. She’s a fancy  lawyer in LA. Do we just close it up or should we try to sell it?”

Elizabeth: Well that probably depends on if you have a CRM system or not.

Gene: Well, I mean do we close it up or try to sell it? First of all, my inclination is if you can sell it and get some money for it, then freaking sell it. Come on, you California hippies. Time to make your money. It really depends on the business itself. I mean, if it’s a viable, sustained business. If it’s got a brand and a name. If it’s got fixtures and inventory. Also if you’ve got a lease that goes on for a certain period of time. For goodness sake, there could be very much somebody else that is interested in going into that business. I would sell it. I would look up and Google business brokers in the Santa Monica or the Los Angeles area, because there are plenty of companies that do brokerage services. There’s a great service in a site called Biz Buy Sell. It’s B I Z B U Y S E L L. That will be in the show notes as well.

Elizabeth: Show notes.

Gene: Biz Buy Sell is a service for business owners looking to buy and sell businesses with information, blogs, education, and of course a network of brokers and services that can help you do that. Yes, try and sell it. If you can’t sell it, sell pieces and parts of it if possible. If that still doesn’t work, then shut it down.

Elizabeth: I mean, definitely sell the inventory, right?

Gene: Sure.

Elizabeth: I mean, that’s probably your most valuable asset.

Gene: Sure.

Elizabeth: If you do have a CRM though, what would you price that at?

Gene: You can’t. If you have a CRM system, we’ve talked about CRMs in the past, about how Customer Relationship Managers Systems there like a day to day … If all the customers and prospects in your community for your store. If you’ve got a nice database of all that, that is a value to somebody, but it’s an intangible value. That’s really going to be up to the buyers to how much extra they’re going to pay. It depends on how good your database is. It depends on how much you’re trying to sell the entire store for. It’s a good chip to throw into the transaction.

Elizabeth: Great. Okay, we’re going to hear from our sponsor one more time and then we will be back with Gene’s word of brilliance.

Gene: When do you think this podcast is going to go out?

Elizabeth: I don’t know. Why?

Gene: Before the end of the year?

Elizabeth: Oh yeah.

Gene: Okay.

Elizabeth: Are you going to talk about slack or are you?

Gene: Can I talk about it next time? I’ve got another word of brilliance.

Elizabeth: Yeah, yeah, yeah, yeah.

Gene: Okay.


Elizabeth: Okay, we’re back with our word of brilliance from Gene.

Gene: Okay, so Elizabeth, I’ve got a really good word of brilliance. I think you’re going to like this word of brilliance as well. The word of brilliance today is Dyson.

Elizabeth: Dyson?

Gene: D Y S O N. Have you-

Elizabeth: The vacuum?

Gene: Yes. The company that makes those great vacuum cleaners, but do you know what else Dyson is up to? Are you familiar with this?

Elizabeth: No. No.

Gene: You’re a woman. Right? Who very much cares about her appearance. Dyson is coming out this fall, and in fact it might already be out for all that we know, with a hairdryer.

Elizabeth: What?

Gene: A fantastic hairdryer that they have already announced. They’re going to launch it. They’re selling it, I think, in Japan, but it’s going to be coming up in the US this fall, it’s going to be launched. $400.

Elizabeth: What?

Gene: For a hairdryer.

Elizabeth: What does it do?

Gene: $400. Now, let me ask you, you were asking the big question is, what does it do for $400? The typical hairdryer that you can buy today ranges between twelve and thirty-five bucks.

Elizabeth: No, no, no, no.

Gene: More than that? Are you saying more? I did searches on Amazon recently.

Elizabeth: There’s a market.

Gene: Listen, I don’t have much hair. So maybe I’m not the wrong guy to talk about …

Elizabeth: There’s a market for hairdryers that’s in the one to two hundred and fifty dollar range.

Gene: Okay, that’s interesting. I’d say, is it a fair statement to make that the most popular hairdryers are probably between twelve and thirty? Your typical …

Elizabeth: Yeah, I think the typical ones-

Gene: How much do you pay for your hairdryer?

Elizabeth: I think mine was like one twenty five.

Gene: Really? Wow, okay.

Elizabeth: Yeah.

Gene: Geeze, I got to check on what Hartford’s paying their people. This sounds like a pretty good company to work for.

Elizabeth: I bought mine a while ago. I don’t remember what the brand is, but it’s great and it cuts my hair-drying time down in half, so to me that’s worth it.

Gene: What if I told you that this is the best of the best of hairdryers. It is light weight, runs great, will last virtually forever. Even with all that, does it still not sort of entice you a little bit to find out more about what is a $400 hairdryer? If it interests you.

Elizabeth: Yeah, I mean, is it plated in gold?

Gene: Yeah, it sparks your interest. Not only that, but Dyson, not only did they announce this, this $400 hairdryer, they’ve also, remember their Dyson vacuums are priced very expensive as well.

Elizabeth: Oh, very expensive.

Gene: Very, very successful vacuums, because they entered in to a market where there’s a bunch of vacuums already there and basically they just produced a better vacuum. The lesson is … I think Dyson is going to completely succeed with their hairdryer. I think people will spend $400 on a hairdryer, particularly if they know that they’re going to have it for a couple years and they feel good. I mean, you blow-dry your hair everyday, it’s a thing that you do. What did Dyson do that was really important that we should all know as business owners? Number one is, they picked an existing market. They’re not trying to recreate the wheel or come up with something that nobody’s ever heard of or have to educate the consumers. There’s zillions of hairdryers around, many people have them. They picked an existing market and they said, “You know what? We’re going to make a product that’s just better.” Right?

Elizabeth: Mm-hmm (affirmative).

Gene: We’re not in there anyway, but we’re going to be the best at this thing.

Elizabeth: It’s like what Apple does.

Gene: Yes. That’s right, because there were smart phones that were going way before that. Apple for the iPhones …

Elizabeth: They were fine.

Gene: They were fine. Nobody was saying, “Oh my gosh, we’re missing all these things.” It was Apple that was innovative enough to do that. Dyson is just looking at just the simple hairdryer and saying, “You know what? This can work faster, cleaner, be more environmental, be lighter, be more of an enjoyment and a pleasure to use for our customers.”

Elizabeth: Blow-drying your hair is the worst.

Gene: The worst. I see my wife does it every morning. She looks miserable when she’s doing it. Everybody hates it. It entices. It would entice any person who blow-dries their hair. They picked an existing market and said, “We’re going to come out with a product that’s just that much better.” The second thing that they did is, they’re not discounting it. They’re not trying to be competitive. They are taking the BMW route and basically saying, “Listen. You want the best? You’re going to pay for the best.”

Elizabeth: I’m probably going to buy it.

Gene: And you’re probably going to buy it. Why? You’re going to treat yourself. You, Elizabeth, a very rational, smart person, are going to make all sorts of reasons why it’s worth it.

Elizabeth: Yeah.

Gene: Because it makes you feel good and better buying it. Your boyfriend, significant others, will buy for their significant others because it’s a very special thing to do. Don’t be afraid to price your product up higher than all the competition. Don’t be afraid to come out with a product and say, “This is the best product in the business and here’s why.”

Elizabeth: The thing is, it does have to be the best. If I spend $400 on a hairdryer and I end up going back to my previous hairdryer.

Gene: So true. You’re going to be annoyed. Aren’t you?

Elizabeth: Yeah.

Gene: There’s a gamble that you’ve involved. You know, Dyson spent millions. They spent four years in engineering this hairdryer. By the way, they’re using this same technology, I forget what it’s called, but it’s the same technology that’s behind the vacuum cleaner.

Elizabeth: Wow.

Gene: The whole air filtration blower.

Elizabeth: I guess that makes sense.

Gene: Yeah. They leveraged off of what they already did. You’re right, it better be worth it. Now listen, people pay a lot of money for a BMW and everybody I talk to who owns a BMW says, “Yeah, we get it. It’s worth it. This is like a great driving machine.” I think, as long as they meet up to what their expectations are, it will be a big success. My brilliant word of the day is Dyson.

Elizabeth: Dyson. All right, so for all the business owners out there developing products right now, don’t be afraid to charge a lot for them.

Gene: That’s right. Also if you’re thinking of developing a product, go to an existing market.

Elizabeth: And just do it better.

Gene: Make something better.

Elizabeth: All right. Great. Well thanks for joining us this week on The Small Biz Ahead Podcast. Gene, thanks for being here.

Gene: Thanks for having me on.

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