Show Money Who is Boss in Your Business

Don’t let money run the show.

I’ve spent most of my adult life around money. So I don’t sound like a complete pompous ass here, let me clarify: I’ve spent my life around OTHER people’s money…Lots of it. I’ve been a stockbroker & Financial Representative, I’ve been a bank manager in charge of lending money to individuals and businesses, and I’ve been a Chief Financial Officer – in charge of the financial workings of a small to midsize private company.

If there’s one thing I’ve learned in all those years of managing finances it’s this: Money, like alcohol, is a wonderful servant but a terrible master.

It doesn’t matter if you are a company of one or thousands. It doesn’t matter if you are a non-profit or a manufacturer or a retailer. The basics are always the same. Money can either be a servant or it can be a master.

People are generally much too intimidated by finance stuff. Accounting seems like some secret art with arbitrary and confusing rules. It doesn’t help that most many finance professionals love to perpetuate the b.s. notion that it takes a real master to read your financial tea leaves.

Nope.

What I love most is when I meet with a client who is mystified or intimidated by the financial side of their business…. Then helping take the sting out of it for them. They’re often embarrassed to admit that they have no idea what their own reports even mean. If they’re a small business, they sheepishly turn over a shoebox full of receipts to their accountant every so often and then wait to be told how much tax they owe. You can change that and put yourself back in charge.

I’ve consulted with $50 million companies that felt the same way. The receipts weren’t in a shoebox­–the software is usually more expensive and capable at that size, but the psychology is the same. Company boards, presidents and senior managers are just as intimidated. This leads to trouble way too often. I love accountants, bankers, and the like, but they shouldn’t be running your company. You should.

Make the accountants give you information that MEANS SOMETHING. That’s what they’re there for. When you’re setting up your small business with some reports to know how you’re doing, keep it simple.

Think about what it is that you need to know at a bare minimum as an owner. You can let your accountant worry about fancier stuff, but as a manager or business owner, have just one or two key measurements you keep an eye on weekly or at least monthly. Here are some basics that will keep you out of trouble:

• Cash. How much is:
  • Here now?
  • Next 30 days on the way in? (Accounts Receivable)
  • Next 30 days on the way out? (Accounts Payable)
• Profit. How much do you earn on each:
  • Product or Service
  • When do you break even each year?
• (optional) Key measures. If you love this sort of thing or if you are just curious, I like to look at a few key ratios to understand how your business is performing. Much like getting lab work done at the doctor’s office, these numbers tell a story. Here are a couple measurements I frequently look at:
  • Efficiency. How hard is your business working for every dollar of profit? – in other words… If you barely broke even this year and had to work your tail off to get there, then it’s not likely you’ll be able to maintain that pace. Just like a car engine that’s been running with the pedal to the floor, eventually, it will break. Your business will do that as well if you don’t make a change. You need a bigger engine or a lighter car.
  • ROI. What is the return on investment that your business provides? If you think about it, your business should generate a return (or a loss sometimes). If you have 100,000 invested in the business and you make a 1,000 profit each year, that’s a 1% return on the money that’s invested. If you do that every year, you should reconsider. A bank will pay you more than that just for doing nothing.

These are just a few examples. Different types of businesses will naturally benefit from looking at different indicators. The point is that you can develop a dashboard­–just like your car–with a couple of “dials” to check from time to time. This dashboard will give you (at a glance) a quick idea how your business is operating.

Just don’t get carried away.

Remember that you’re here for a reason. What is it?

Let that reason be your guide. Don’t let money dictate how you run your business. Yes, you have to behave responsibly if you want to stay in business, but money should be a tool to accomplish your mission–not the other way around.

Once you identify what it is you’re here to do, go crazy. Get creative. Dream as big as you can possibly dream. What could your idea be? How many people could your business help? Once you have dreamed big enough, we can fill in the blanks and figure out how to put money in its proper place: as just another tool in your toolbox.

Remember: Money is the servant. YOU are the master.