Business Management – Your company’s money isn’t yours

Old 4 Comments on Business Management – Your company’s money isn’t yours 19

This is another installment of my Business Management posts, geared towards those of us who are business owners and/or consultants.

I’m often amazed at how people manage their company’s financials. The industry doesn’t even really matter, because there are some fundamental rules that must be followed in order for a business to be successful, beyond personally “making you money”. Today, we’re going to take a look at one of the top rules that you need to understand and follow: your company’s money isn’t yours.

As you know, my business provides 3rd party IT support services to clients. I manage my company’s financials, so I’m responsible for payrolls for staff, marketing budgets for advertising, and billing for clients. When I see other small businesses and how their owners manage the business’s financials, I typically see a repeating trend. When these owners invoice clients, they assume that money is ‘theirs’. In other words, any revenue made by the company, in excess of expenses, belongs to them. This is wrong, and you cannot grow and operate a successful business in this fashion.

Now, keep in mind here, we need to qualify the term ‘successful’. To me, a successful business is one where the business is growing in size, both in terms of clients, staff and revenues. This does NOT translate simply into owners making more money in their pockets.

For example, a small business owner I know very well runs a maintenance company. In 2012, his company took in $280,000.00 with $60,000.00 of that being profit. In 2013, those figures grew to $315,000.00 and $75,000.00 respectfully. At first glance, these look like the figures of a healthy and growing company. The issue is, the company has $0.00. The profit, regardless of what amount it is, goes right into the owner’s pocket immediately and that’s that. The company itself doesn’t actually make any money.

The problem with this is that without leaving money in your business, you can’t reinvest in your business. How do you grow ? How do you execute a marketing budget ? How do you pay for a mistake ? What happens if you lose money on a job ? In the above scenario, and because I know this owner, I know that if ANYTHING happens, his company will go under. A $500.00 loss on a job will render him insolvent. This is because he takes the profit right when his customers pay him. He leaves nothing, absolutely nothing in his company’s bank account that isn’t required for immediate expenses.

This is not the way to run a business if you want to grow it. Take some of the most successful companies out there and their founders / CEOs. Larry Page from Google. John Mackey from Whole Foods. Mark Zuckerberg from Facebook. Even Steve Jobs from Apple. What do they all have in common ? At one point or another, they all had $1 annual salaries. That’s right, these multi-million and multi-billion dollar companies paid these founders / CEOs a salary of $1 per year. Why ? Because these people realized that leaving the money fluid in their companies would benefit the company in the long run (which inherently would personally make them more money in the long run as well). It also shows a commitment from these people to their businesses, which never hurts stock prices.

The bottom line is, we need to stop thinking of our companies as ourselves. As former US Presidential candidate Mitt Romney famously said, “corporations are people too”. We can argue about the merit (or lack there-of) of the context he was using that comment in, but in all seriousness, if we think about that philosophe, we can use it to create that separation between our businesses and ourselves. If we start thinking about what’s in the best interest of the business, rather than what’s in the best interest of our personal pocketbook, then our company will have the best opportunity to grow and flourish.

Remember, we need to look beyond ourselves if we truly want to create a successful company.

Author

Martin Lehner

Martin Lehner is an technology professional working for an IT services firm in Whitehorse, Yukon (Canada). He has been working in the technology field for over a decade. With a degree in Business Admin and numerous industry certifications, Martin leads a team of IT professionals that provide third party support for clients. Originally starting a company to offer web development services, Martin quickly realized that clients wanted the entire spectrum of technology services. When Martin is not at work (which is not often, since his company offers 24/7 support), he is busy at home spending time with his family.

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4 Comments

  1. Bobby Arneth July 24, 2014 at 10:37 am

    Nicely done, and interesting tidbit on current and former CEO’s of some global giants. I can relate seeing this, for example I knew someone close who owned a hair Salon and after 2 years were driving a BMW. After 8-10 years she gave up because the work was to much and because they didn’t focus on growth properly and employees, the payoff was not a high enough incentive.

  2. Nicholas Fusco July 24, 2014 at 5:16 pm

    Always enjoy your posts, well done as always

  3. Martin Lehner July 24, 2014 at 5:56 pm

    Thanks guys! Good to see my less-geeky posts also get attention 🙂

  4. Alif Chowdhury July 26, 2014 at 2:16 pm

    Nice post!! Learned a lot thanks!!

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