Are You Stealing From Your Business?
You are playing at a significant disadvantage if you don’t know the rules of a game. If you showed up for a rugby match and tried to play the game using soccer rules, not only would you lose but you would most likely get hurt.
Business is a contact sport just like rugby. It’s a tough game and your competitors are battle-hardened and ready to take you out to protect their success. Many entrepreneurs are trying to build businesses and wondering why they can’t win no matter how hard they try.
Here then is one basic rule of the business game;
Rule number 1: Business money is not your money; even if you are a sole proprietor. There must be a clear distinction, including different bank accounts for the avoidance of doubt. Without this clear distinction, we have found that many entrepreneurs steal from their businesses to survive.
This means that the company will have no ability to sustain itself or grow, leading to frustration for the entrepreneur. Now, what do I mean by stealing? If you hired a manager to do the work you do in your business would you allow them to simply take the money they need from the business the way that you do? I would guess the answer is no.
“But they do not own the business and I do, there is a difference.” I hear you say. Yes, there is, kindly let me explain. If you are directly involved in the running of the business, you are like an employee. You are a factor of production and the business needs your work to function.
Therefore you need to be paid for that work, and the method of compensation for work is called a salary or wage. The salary or wage will be the cash you need to take care of all your personal needs.
Paying yourself a salary or wage will also prove whether that business is profitable or not. If I build a bicycle for sale, there are costs of producing that bicycle. The first is the cost of the raw materials (metal, rubber, and plastic), let us say KES 1,000. The second cost is my labour.
It took me 4 hours to build the bike and I had to use very specific skills to do so. My time and skill costs money in, this case KES 250 per hour and so the total cost of my time is KES 1000 to build the bicycle.
The bicycle could not have been built without labour. Therefore if I sell the bicycle for KES 1500 I have made a loss because I did not account for my time and skill.
Even if you are not directly involved in the production and simply manage the team, the business should pay you for your time and skill. When you do not pay yourself you tend to take money from the business randomly and as needed which leads to poor cash management and eventual business failure.
Article Written by Waithaka Gatumia (CEO, Centonomy Ltd).