Are You Making This Money Mistake in Your Business?

by Kalinda Rose Stevenson

Published on this site: January 12th, 2006 - See more articles from this month

It's that time of year again. This is the time when business owners get letters from CPAs and tax attorneys announcing that it's time to get ready to file taxes. Getting ready to file taxes brings up one of the biggest challenges any business owner faces. What do you do about handling the money?

I once took a daylong course called "Accounting For Non-Accountants." The CPA who taught the class said that the biggest mistake business owners make is to hand over their accounting to someone else. His point was not that business owners have to do all of the accounting tasks, but that business owners need to understand what is happening with the money.

"Do what you love and the money will follow." - Marsha Sinetar

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 feels like a distraction from what they really want to do. This belief is nurtured by the hopeful notion that money will miraculously appear when you do what you love.

I once attended a seminar featuring a charismatic speaker. He could command the audience with the power of his personality. During the course of the seminar, he talked about his wonderful office manager. He talked about what a gem she was and what a gift it was to him that he had someone so competent handling his finances so that he was free to do what he loved to do.

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.

"The surest way to ruin a man who doesn't know how to handle money is to give him some." - George Bernard Shaw

Isn't it ironic that the one thing that stands between doing a hobby and running a business is money and yet the one thing many business owners find most distasteful about being in business is handling the money? When you stop to consider that the reason to have a business is to make money, it seems very shortsighted to surrender the most important part of your business to someone else.

The other extreme is to spend so much time keeping track of the finances, paying bills, and doing data entry that there is little time or energy left to do what you love.

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 way your power as a business owner.

"Where large sums of money are concerned, it is advisable to trust nobody." - Agatha Christie

There is no royal road to business success that will allow you to simply hand off all knowledge and responsibly about money to someone else. At worst, you will become victim to embezzlement or incompetence. At best, you will never feel in control of your business, because you don't understand what is happening with the money.

The solution is to understand that your business exists to make money. As a business owner, it is up to you to control the money coming in and going out of your business. You don't have to do the data entry, but you do need to understand the data.

Kalinda Rose Stevenson, Ph.D. Warning: Before you Invest in Real Estate... free"No Money Limits Consumer Guide to Real Estate Investor Training." http://www.nomoneylimits.com