Your Financial Information Is Your Business's Lifeblood

A business's financial information is probably the most important aspect of its function. If you don't know, or can't find where your business is financially, then the best business plan, business product and/or sales team in the world won't make your business's heart beat. Yet time and again I meet people at conferences who insist on doing their business's bookkeeping because they either don't see the value in hiring a bookkeeper or they don't trust a bookkeeper to "get it right."

It may be hard to hear this from someone who isn't a trained bookkeeper or accountant. It's frustrating to see people nodding their heads in agreement about the need to take themselves out of the business in order for it to grow, then dig in their heels on this issue. But I firmly believe your business will NEVER reach Level Three if you hang onto the bookkeeping.

Accurate and timely bookkeeping is critical to your business's success. It's also time-consuming and detail-oriented and, as the business owner, a complete waste of your time. Those hours you spend trying to enter receipts and balance the business's checking account are hours you aren't spending growing your business. And, in all honesty, unless you're a trained bookkeeper you'll probably do something wrong.

I’m not suggesting that you bring someone in to handle your business's financial side and completely withdraw, but that you:

• Bring someone in to handle the books or outsource to a contract bookkeeping service
• Have at least a working knowledge of bookkeeping
• Understand how to read basic financial statements and information
• Establish strong financial controls
• Implement the systems you need to keep your business's financial information secure

Perhaps one of the best educational steps you'll ever take is a night class in bookkeeping and basic accounting. Just having an understanding of double-entry bookkeeping (for every amount entered on the debit side there is a corresponding amount entered on the credit side) and what each of the three main financial statements (balance sheet, profit and loss statement and statement of cash flows) represent can put you miles ahead. This will allow you to monitor your business's financial records without being bogged down by actually doing them.

At this point, learning how to prepare your own financial statements isn't the lesson. Learning how to read and interpret the story behind the numbers is.

At the advanced stage of Level Two, most business owners move from an outsourced bookkeeper and hire a full-time controller. The controller generally has more education and experience and has the ability to design systems whiling seeing the story behind the numbers. For Level Three, it’s best to get a CFO who can forecast the intricacies of multiple businesses and investments and how it relates to a business owner’s personal financial statements. An analogy is that a bookkeeper knows how to play checkers, the controller can play chess, and the CFO can play 3-D chess. The differences have to do with perspective, ability and talent. 

The final element of your business’s financial pillar is systems and financial security, which is the place where you can create safeguards that allow you to let go of financial recordkeeping and still sleep at night. It is reasonable to have concerns about an unscrupulous controller or CFO raiding your business's finances. However, the answer isn't trying to control the risk by doing all the financial work yourself. The answer is creating, implementing and maintaining financial controls to protect yourself.

For example, even the smallest business should make a distinction between who writes and signs checks, and who creates deposits and who makes them. As the business owner, signing checks (at least in the early stages) and making deposits are two things you should be doing personally. Separating the money-handling tasks is key to preventing fraud and embezzlement.

As your business grows you will reach a point where it is necessary to bring additional people onboard to assist with finances. As people come on board you will need to separate tasks for people looking after money coming in and those who look after money going out. By always separating the process so a minimum of two different people would have to collude to steal, you are minimizing the chance of that happening. You can add a second layer of defense by establishing consistent audit procedures and other financial checks and balances. A great way to learn how your business should be structured is to talk to your CPA, or have your CPA work with you to design and implement your business's financial safeguards.

David Finkel is the best-selling author of over 40 books and courses, including The Maui Millionaires for Business. He is a successful business owner who has bought, built, and sold several multimillion companies over the past 10 years. To learn more about his tools for business owners, visit him on the Web at www.MauiMillionaires.com.