What Is the Biggest Money Mistake In Business?
By: Kalinda Rose Stevenson, PhD
I once took a class called "Accounting For Non-Accountants." The class was taught by a CPA who said that business owners often hand over their accounting to someone else. He identified this as the biggest mistake business owners make in their businesses. Business owners need to understand what is happening with their money. He didn't mean that business owners need to do the accounting tasks.
Many business owners get into business to do what they love to do. Paying attention to money feels like a big distraction, and they are eager to let someone else take care of it. People who get into business to do what they love can also be influenced by the idea that money will come if they do what they love to do.
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.
Less than a year later, I took another seminar with the same charismatic speaker who talked about how heartbroken he was. He had recently discovered that his wonderful office manager had embezzled more than $1 million from him. This brilliant speaker had made the mistake so many business owners make. He had handed over complete control of his finances to someone else, thinking that money was a distraction from his real work. In the process, he missed the fundamental difference between a hobby and business.
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.
From this perspective, it seems very shortsighted to hand over control of the money to someone else. If you are in business to make money, the money is the most important part of your business. The opposite temptation is to get so involved in taking care of the finances that you have no time or energy left over to do what you love.
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.
What happens when you hand over knowledge and responsibly over money to someone else? In the worst cases, you are a potential victim of embezzlers and incompetents. In the best cases, you will never be completely in control of your business as long as you don't understand what is happening with money. Regrettably, there is no royal road to business that allows you, as the business owner, to leave money to others.
So what is the solution? The solution is to understand clearly that control of the money coming in and going out of your business is your responsibility. You don't have to get involved in doing the details of bookkeeping, but you do need to understand the data. If you are in business, your business exists to make money.