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Finance: The Secret Fear Holding Entrepreneurs Back

By Mike Miliard
Plumber? Web designer? Florist? It doesn't matter what business you're in, it's your financial acumen that will determine whether you flourish or fail. A scary thought for business neophytes. After all, you go into the bakery business because you make a mean white chocolate macadamia nut cookie, not because you know how to read a P&L statement. But William S. Hettinger, PhD, and John Dolan-Heitlinger, MBA, say not to worry.

Their book, "Finance Without Fear: A Guide to Creating and Managing a Profitable Business," aims to show owners and managers that basic finance is nothing to be afraid of. We spoke to Hettinger recently about these fears and how to overcome them.

BNET: Explain the fear of finance. What drives it?
Hettinger: I've taught a fair amount of graduate-level finance classes, and I've noticed that many students come to class absolutely petrified. So I started to look for the reasons why. It boils down to a couple different things.

First, people are number-phobic. If I walk into a room and say I'm going to give a math test, immediately everybody's heart will start racing. Moreover, the industry mixes the terminology all together. A great example is "profits." It means income, earnings, and the bottom line. Same with sales and revenue; they're the same thing.

Second, traditional finance books often come from an accounting perspective, and I view accounting and finance to be two different things. Accounting is a mechanical process that you can hire a bookkeeper to do. Finance is the analytical piece that explains what those numbers mean.

The third thing is that most finance is taught in an abstract way. We've tried to show how it relates to the real world. And what real examples other books do have, primarily cover manufacturing. Yet two thirds of the economy is either service or retail. Manufacturing examples -- including producing goods and expensive inventories -- don't really apply to the local plumber or an advertising agency.

BNET: "Fear" may be a strong word, but in a tumultuous economy isn't a bit of caution about money warranted?
Hettinger: The fear in our title is fear of the unknown: You're not familiar with it so you're scared of it. But with knowledge of finance comes a better ability to manage it. I look at some of the decisions people made in the mortgage market, and often I think, "If you actually understood what you were doing, you probably wouldn't have made that decision." That's the step that's missing for a lot of people. They trust, but they don't understand.

BNET: If you had to boil your advice down to a few golden rules, what would they be?
Hettinger: The first rule is that cash is king. That's central to the book. The second is that profit is not the same as cash -- we have an entire chapter focused on that. And the third rule would be that you should get a handle on your numbers. That means you shouldn't be letting your accountant make the financial decisions -- you only see him or her every three to six months, or even every tax season. You should have the basic understanding of simple financial calculations, like percent change and growth rates, so you're able to understand what's going on.

BNET: Do you think fear of finance is a significant barrier to more small businesses opening up?
Hettinger: I think it's a barrier to more of them being successful. I see a lot of people who are willing to start a business without really understanding what they're doing or the financial commitments required. In the book we talk about competitive advantage. You can be either operations-centric or customer-centric, but you should pursue a strategy. If you're not pursuing a strategy, you're just drifting around. And getting a handle on the finances helps you understand that.

BNET: Is your book only for beginners in business?
Hettinger: "Finance Without Fear" is for people doing everything from starting a business to running a business, or even people in middle management. But as we're finding lately, it's also being read by guys in senior management. It's really surprising how many people have left a career to start a business, yet they don't really understand the element of finance. That's how you keep score in a business.