Applying Money Making Principles To Your Business

It stands to reason that people who have tight control over their personal finance will probably also have tight control over their business finances.

If you're not one of those people, here's a quick reminder of what a solid personal financial plan might look like:

1. Pay Yourself First - if you receive an income from your business, drawn as a salary, then make sure that you Automatically Save at least 10% of the gross amount that you are paid - put this money aside into a separate bank account, Roth IRA or company 401k.

2. For any Future Pay Rises - pay yourself first at least 50% of the INCREASED income as per 1. - this also applies to any 'found money' (tax refund checks; small lottery winnings; spare change found in your pockets; etc.)

3. Use any Pay Yourself Money (that is not invested into a company 401k) to first Pay Down all Consumer Debt (credit cards, cars not directly tied to - hence paid by - the business) and resolved to pay cash for all future such purchases.

Those are the foundations of a solid personal financial plan (we could add things like: insurance, building up a 3 month salary emergency fund, seeing a financial advisor, etc) ...

Now, what about your business? Have you looked at your business statements lately? Have you controlled spending as well as increasing sales?

Aha!

Here is how you should look at your business ...

... exactly as you would yourself!

Here are what I call the three Making Money stages of your business:

Making Money 101 - where your business is struggling to get ahead; not making as much as it should.

You need to apply exactly the same money-saving and budgeting techniques as you would for yourself:

1, You need to create a monthly budget in addition to your annual budget ... and stick to it!

2. You need to build a Working Capital Cash Reserve - large enough to survive the seasonal swings in your business in additional to allowing a buffer for emergency expenses.

3. Only buy what is on your budget and only what you have already built up a cash reserve for - this means that you have PLANNED THE EXPENSE.

4. Stop thinking "it's OK ... I can write this expense off" and start thinking "Even with a tax write-off, this item is going to cost me 70% of Sticker Price ... do I REALLY need it?" 

But, here is where I draw the line ...

Remember that your prime business objective is to GROW your business.

So, you should NOT be shy about incurring any expense that you CAN find the money for that DIRECTLY helps you to grow your business.

To me, that means that you can track the $1 that you spend today to at least $2 to $3 earned within your current financial period, say, no more than a few months to a year.

Because it is this thinking that will take you into:

Making Money 201 - where your business is doing better than breaking even ... now it's full steam ahead!

You are saving money and watching costs, sure. But, you have realized that there is something that you can - and should - be doing that produces a far better result than mere cost-cutting ...

... that is, accelerating your income!

 Why?

Cost-cutting is limited in scope ... you can't cut more than 100% of an expense.

Income-earning is unlimited in scope ... the sky - nay, the stars - are the limit!

But, when the income is the greatest, you need to watch your costs even closer because bad habits - leading to hidden gotcha's - creep in.

But, it is the Making Money 101 cost/spending-control habits that you have worked to hard on that will help you to survive the increasing drain on your cash-flow that uncapped growth can bring.

If you do, you may just be one of the lucky few business owners who make it all the way to:

Making Money 301 - that idyllic stage where the business is floating in orbit, spinning off cash, controlling costs and just being ... well... damn profitable!

Watch out for stagnation, though, because this is where product life-cycles wind their course, competitors come in, commodity pricing appears.

The secret to Making Money 301 is NOT to sit there for too long ... having been there a number of times, I recommend that you either:

1. Put yourself back into Making Money 201 - create new ideas, new products, new markets, go off shore, become a franchisor ... OR

2. Sell! 

If you do sell, then what? Retire or start all over again ... believe me, it will be refreshing to start out with a new business idea and do it all over again! Just don't overcommit ... you may not be as successful the second (or third) time.

But, it all starts with a business that survives the Making Money 101 stage ... unfortunately, the odds are against you.

But, who said business life was meant to be easy?