Big--and costly--mistakes happen when the creative or sales focused entrepreneur ignores the less exciting, more mundane aspect of business--the company's finances.
I have a general belief that you can't save someone from him or herself. But for this column I'm throwing that belief out the window. I'm going to give you some advice that will save you from yourself in business.
You will especially benefit if you hate the idea of losing lots of money, find pain and suffering in your business a revolting idea, and are generally the kind of person that prides yourself in making smart decisions.
Here we go.
There is a natural tension between business leaders and managers within a company. Finance and accounting types work hard to create predictability, controls, accurate and orderly financial records, etc. The more creative and sales types are turned off by that approach and work hard to foster speed, creativity, flexibility, etc.
Both mindsets are necessary. The big--and costly--mistake happens when the creative or sales focused entrepreneur or CEO decides to fix the problem by starving the finance and accounting side of the business.
I have seen this happen over and over again in my consulting practice.
Here's how it unfolds--and how you can avoid its costly implications.
With the mantra "nothing happens until somebody makes a sale," the CEO says "The last thing we need to do is have accountants running around slowing us down."
So the finance and accounting function gets minimal attention, poor leadership, and staffing is cut. Over time the staff begins working only on those things that, if they are not done immediately, will cause them the most pain and suffering--meaning the ones the boss will give them the most grief over.
The accuracy and timeliness of the books and records slowly get worse and worse as the company grows. After six months or so, the problems become big enough that they begin showing up in lots of ways, such as:
The financial statements have glaring issues in them and take longer and longer to complete.
The accounting staff grumbles about workload and turnover begins to increase.
Vendor payments slow down.
Accounts receivable goes up.
Customers complain about the accuracy of their invoices and statements.
At about the 12-month point you are sick and tired of all the problems and frustrated at the incredible amount of your time being spent dealing with the problems and putting out the fires. You hire a controller or CFO to fix the problem before the company comes to a grinding halt.
The first thing he or she does is hire a few contract accountants to help fix the mess and deal with the backlog of work to be done. It takes about six to nine months to get it back into a manageable state. In the process, you will spend about two to three times as much money fixing it as you would have had to by doing it right initially.
You swear you will never make that mistake again. You have learned the hard way that a company has to have a sales culture and a finance culture to be successful.
If you want to spend as much of your time as possible focused on the areas of the business where you are uniquely gifted, make sure you put a person on the team to take control of the financial side of your business.
Otherwise, you will end up as the CFF (Chief Firefighter) rather than the CEO and you will waste thousands and thousands of dollars in the process.