I once took a daylong course called "Accounting For Non-Accountants." The CPA who taught the class said business owners don't need to do all of their own accounting, but they do need to know what is happening with their money in the business. He said that the biggest mistake business owners make is to hand over the accounting to someone else.
Very often, business owners treat money as a distraction from their businesses. They got into business to do something they love and don't want to pay attention to their finances. In addition, often people act on the idea that, if they do what they love, the money will come.
At another seminar, a charismatic speaker talked about his office manager. He said that he was so grateful that he had found such a wonderful, competent person to take care of his finances for him, so that he could do what he loved to do. He spoke at length about the sense of freedom he had because he didn't have to think about money in his business.
The next time I took a seminar with the same speaker, he told a very different story. He talked about how heartbroken he was because his wonderful office manager had embezzled more than a million dollars from him. He treated the money as a distraction from his work, and so handed over complete control to someone else. This is the big mistake the CPA talked about. By treating money as a distraction, he missed the essential different between a business and a hobby.
The function of business is to make money. The IRS has criteria to determine whether you have a hobby or are running a business. The difference concerns whether or not you make money with what you do. When you have a hobby, you can do what you love and forget about the money. When you start a business, forgetting about the money can be the quickest path to business failure.
Think about it. Business owners go into business to make money, and yet they often treat money as the most distasteful aspect of business.
If the reason to have a business is to make money, why would you surrender control of the money to someone else? On the other hand, it is also shortsighted to become so involved in taking care of the finances that you have no time or energy left over to do the work you love to do. If you are spending much of your time doing data entry and paying bills, you are paying too much attention to your money.
This leads us to the question: What do you do about money in your business? The lifeblood of your business is money and knowledge of money is power. The fastest way to give up power in your business is to give control of your money to someone else.
Unfortunately, business success requires you to know what is happening with money in your business. You can never find the royal road to business success that will allow you to simply hand off all knowledge and responsibly about money to someone else. In the worst cases, you are at the mercy of embezzlers and incompetents. In the best cases, you'll never feel completely in control of your business, as long as you don't understand what is happening with the money in your business.
As a business owner, how do you solve the problem of knowing what is happening with money in your business? The most important point is to continually remind yourself that your business exists to make money. You don't have to take care of all of the bookkeeping details, but you do need to understand the books. This is your primary task as a business owner. It is up to you to control the money coming in and going out of your business.
