Definitely not the sexiest topic. It makes many of us cringe. We signed up for this to be a Rock Star coach, not to look at financial reports.
Let me warn you that if you neglect some of these ideas, you’re headed for trouble.
What qualifies me to give financial advice?
When I started my business over 6 years ago, I was in such a bind. My net worth (What I had minus what I owed) was in the negative by a long shot. I was behind several months on my mortgage, had my car repossessed, and was in debt up to my eyeballs with the IRS and many others.
Fast forward to now. No business or personal debt aside from my mortgage. Fully funded “emergency funds” for both.
I now have the financial freedom to do what I choose, not what I have to because I owe someone.
It was a lot of hard work but it was more than worth it. While I’m still working the plan, the future is looking brighter and brighter.
So, how did I do it? Mainly, I got intentional. I was mad about where I was at and committed to do whatever it took to win financially. I read books, consulted with experts, and signed up for courses. Most recently took a college accounting course.
Most importantly though, I took action on what I learned.
Here are seven keys I’ve learned that I think will help you tremendously. Start thinking about which one you can implement, improve, or teach someone else. These principles are simple and apply to both personal and/or business. Be careful not to fall into the “I know that” trap. You only know it if you are doing it consistently.
1. Keep Your Business and Personal Finances completely separated
If you have one account for both it will be too hard to track what is what. Your business income should NOT be going into your personal account.
2. Life Insurance
Nobody thinks it will happen to them but we hear these tragic stories every day. Would your family be protected if something were to happen with you? You could probably get a million dollars of term life for $50-$100 bucks per month. Get it now.
3. Have an emergency fund
Every business has times when cash flow is down. It could be from an event happening or just a seasonal dip. If it hasn’t happened yet, it will. Save up at least one month of operating expenses in reserve so you’ll be able to handle any curveballs. You’ll eventually want to save more.
4. Pay cash
If you need new equipment or any other large expenditure, save up the cash for it. I’m not sure what makes people think they’ll be able to afford monthly payments for something when they don’t have the cash up front.
5. Save something for the long term
Get into the habit of saving something each month for the long term. Some people think they’ll be able to save only when they have a certain level of income. That day never comes because people have a way of increasing their expenses proportional to their income. It’s like our prospects who say they’ll workout when they get in shape.
They key is to start, even if it’s just $50 per month.
You can increase it over time. Just get into the habit for now. Your best bet is to make in automatic so you don’t have to think about it. Trust me. You won’t even feel it.
I used to avoid budgeting because it was overwhelming to me. I would just look at my income statement at the end of the month.
That’s when I realized I was only looking through the rearview and not the windshield.
I also realized how simple it actually was and started by looking at my history and projecting from there. Discipline is needed to look at it each month and stick to it but if you want to grow, this is a must.
7. Pay Yourself Properly
I see two common but opposite problems here. Some people don’t pay themselves because they are always “re-investing” in the business.
What’s the point of having a business where you don’t get paid?
The other extreme is the person who takes too much pay. Then they starve the business of capital and are unable to grow or worse can’t keep the doors open. The key is paying yourself a fair wage for the role you play and then keeping more as profits go up.
After many mistakes in most of these areas, these 7 keys have served me well.
They are all simple and for the most part common sense!
Just like anything else that is worthwhile, it takes time. But if you commit to these and other similar ideas then you will reap big rewards over time.
Which area do you need to implement or improve? What are some other insights you having regarding finances?
By William Hofacker
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