Business Owners: Are You Making This Money Mistake?

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.

For many business owners, dealing with the money is the worst part of business. They got into business to do something they love. Paying attention to the money can feel like a distraction from what business owners really want to do. This belief is nurtured by the hopeful notion that money will miraculously appear when you do what you love.

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.

So what do you do about the money? Money is the lifeblood of your business. And knowledge of money is power. When you give up control of your money to someone else, you're giving away your power as a business owner.

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.

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