Entrepreneurs: How Do You Spend Money?
by Miki Saxon
I am republishing this post, because it speaks to the recent questions of several entrepreneurs.
The problem is that entrepreneurs often read something like this and discard it as applying to larger companies or those further along in life or revenues.
They are wrong.
Sure, the information might not fit like a glove, but it can be tweaked; and the underlying philosophy fits any enterprise, large, small or micro.
Accounting Tools a Part of Corporate Culture
Gavin Cassar, a Wharton accounting professor, tested the prevailing wisdom of whether accounting techniques, such as budgeting, sales projections and financial reporting, would, in fact, help prevent business failures. In surprising results, he found that some accounting tools may actually lead them astray.
But he found the culprit not to be the tools, but rather the MAP (mindset, attitude, philosophy™) of those using them.
I sent the article to a long-time CEO who was s serial entrepreneur (now retired) and thought you would find his comments interesting and useful. I’ve changed names to keep the examples he mentions anonymous, but note that Corp A was part of a Fortune 500 company and Corp B was public with sales of several hundred million and a CEO who had been around the block numerous times.
There’s only one important accounting problem described in this article.
The other problems discussed are really problems in human psychology, such as being guided by hopes instead of realistic considerations and ignoring (widening) gaps between plans and results.
But the serious accounting problem described is the failure to collect and publish accurate and timely accounting information.
If you have a carefully worked out budget, unless the monthly accounting figures are available quickly and are correct, the budget is useless as a planning tool because it’s impossible to really judge whether the company is on plan or not.
To some extent, both Corp A and Corp B suffered from this.
Accounting was not held to high enough standards. Expenses were misclassified and weren’t posted in the months in which they were actually incurred.
Managers initially tried to sit down with accounting and straighten out the discrepancies. But it was impossible, either because of poor accounting tools or probably just gross incompetence.
After a time, managers stopped trying to correct the internal financial reports. They thought it was just wasting their time.
They also stopped trying to control their expenses. Why bother? The financial reports were so inaccurate they didn’t show up even large and willful expenses outside budget limits.
This, of course, led to increasing attempts by higher management to exert personal control over expenses.
At one point, the Corp B CEO was signing all expense reports. You had to receive his personal permission to go on a trip or to even take a client to lunch.
The budget meant nothing. And there was a line of managers outside his office asking permission to buy essential test equipment or fly an applicant in for an interview.
Stuff that should have been decided instantly by the managers concerned was delayed, frustrated and often cancelled altogether.
The Corp B example is very close to what is going on with one of the entrepreneurs mentioned at the beginning.
He is micromanaging every dime spent in his fast-growing startup.
So far, his impulse to exert control has cost his company two excellent recruits and two of his senior staff are in revolt.
He needs to let go, trust his people and give them the authority to do their job.
If he doesn’t there probably won’t be a company for him to micromanage.
Think about it.
Flickr image credit: Paul Downey
