The difference between my money management attitude as a manager/executive and as a business owner can be summed up by a version of the famous ham and eggs breakfast-making fable: the chicken is involved but the pig is committed. As a young exec, frankly my sense of responsibility resembled that of the chicken but as a business owner am now much more like the pig.

This attitude difference, according to Sebastian Mallaby in his book, “More Money Than God,” played a key role in determining the fates of a number of investment companies in the financial crisis: “The smooth operators at the big banks were playing with other people’s money, so they borrowed up to 30 times their investors’ capital. The hedge fund guys usually had their own money in their fund, so they typically borrowed only one or two times their capital.”

Directors of most businesses try hard to create the owner motivation for their executives through profit sharing, commissions, and stock options, and rightfully so, but in my opinion they cannot replicate the feeling of complete personal responsibility that comes from having given all one’s assets as collateral to guarantee a loan.

As the only equity holder in Connoisseur of Time, every time the business spends on non-profit producing expenses, it is in essence spending my money. As business owners realize, the financial consequences are really not that different than when you and your wife go on vacation, buy a new refrigerator, or service a car. It doesn’t take too long before the emotional cost begins to add up, especially in a growing business.                           

Though it’s not easy, owners will usually find that once they can mentally separate how the company’s bottom line affects our personal income (at least as much as is prudent), we’ve taken a big step toward greater success and happiness.

So here’s what I recommend. Because mistakes are an inevitable part of business, soon after founding C.O.T., I created two additional “mental” line items for my P &   L. They’re self-explanatory and have worked well for me…I hope they will help you. The first: Costs resulting from employee mistakes. And the second: Costs resulting from customer’s mistakes, bad faith, or simply our not meeting their expectations.

Anyone involved in a high-touch service business knows that word of mouth from satisfied customers your company’s lifeblood. And keeping customers happy will cost a fair amount of money.

Just ask Horst Schulze. When he ran Ritz-Carlton, he authorized front desk employees to spend up to $2000 to keep customers happy and empowered sales managers to spend up to $5000.

Though it’s never pleasant to accept mistakes, by creating budget lines that already take them into account, I’ve found greater peace of mind in dealing with these categorically unavoidable events. And so can you.