Would you rather retain complete financial control of your company – or make more money from it?
That’s the “founder’s dilemma,” says Harvard Business School professor Noam Wasserman[1].
He studied 212 start-ups that were determined to grow large (not ‘lifestyle businesses’ that simply made their owner comfortable).
What he found is that owners could optimise for being “king” – that is, retain complete ownership of their company and bootstrap their way to growth. Or they could optimise for being “rich” – maximising financial gains by raising outside capital, but diminishing their own equity.
Owners very rarely managed to be both “king” and “rich”, or wealthy and powerful, because their own financial resources, ability to inspire people and passion weren’t actually enough “to enable their ventures to capitalise fully on the opportunities before them.”
Now, I’m not going to be writing today about how to fund your growth – that’s another email!
Still, there’s a lesson here about financial management of your company.
I see a similar dilemma amongst many of the company owners who approach us.
They’re used to controlling every aspect of their finances. They have a bookkeeper or an accountant, but often they’re spending a lot of time at the financial coal-face, managing much of the day-to-day finances themselves.
For example, they’re reviewing the bookkeeper’s work and even re-doing parts of it.
They might insist on approving every little expense themselves.
I’ve even seen business owners who spend every weekend doing their own accounts!
In short, they’re optimising for being “King” of their company’s finance function.
They usually feel that this gives them a lot of control over their future.
But if you work that way, you need to appreciate that this is holding back your business, your revenue and your profitability…
And you’d become “rich” faster and easier if only you let go of it.
…First, because you’re an entrepreneur, not a financial expert, so you’re not the best person to do this work.
A good team of bookkeepers and accountants will always be able to produce numbers and manage the cash more reliably than you…
…Just like expert marketers will promote your company better, and a good IT team will deal with your computers more efficiently.
If you don’t feel your team is doing a good job, upgrade them – don’t do the job for them!
Second, because it’s a waste of your precious time.
As CEO, your role is to focus on strategic issues, like planning how your company is going to evolve and take advantage of opportunities in the marketplace.
This is what leads to substantial growth – not messing around creating spreadsheets. If your time is spent on the latter, you’re sabotaging your own success.
And finally, because when you’re managing a lot of your finances yourself, you only have the illusion of control over them.
True control isn’t about approving every tiny invoice that crosses your desk. That’s just technical work.
True control is knowing exactly where your company stands financially.
For example, which parts of our business are most profitable? What do we need to invest to break into a new market? How much money will we have in the bank in 3 months’ time?
Then, use that knowledge to make better decisions about your company’s future…
…Investing in the places which make most financial sense…
…So you can maximise your growth and your profitability.
That means surrendering day-to-day financial work to a competent team…
…And focusing instead on the analysis of your numbers and what they mean for your business.
I know that can feel difficult. It takes a lot to really trust someone else with your cash, especially if you’ve built your company from scratch and this is your “baby”.
It can be hard to believe that anyone else will be able to do the job as well as you, or care as much as you.
But with apologies to Prof Wasserman, you can be king of the spreadsheets, bills and invoices – or you can be rich. It’s very difficult to be both.
So which do you prefer?
The good news is that when you work with us, we can help you with both sides of that equation.
With our team of outsourced bookkeepers and accountants, we take all the day-to-day financial work off your hands, managing your cash, producing timely and reliable management accounts, doing credit control, overseeing payments, producing budgets and cashflow reports and even running payroll.
You don’t have to worry about the details ever again!
But as finance directors, we can also help you use the financial information we produce to plan for the future and grow faster.
Ready to optimise your company for “rich”?
Contact me today on 01279 647 447 or hit ‘reply’ to this email.
I’d love to help.
Warmly,
Garry
