Chapter 9

Managing Money Principles

What makes you profitable as a business owner?  In the next chapter, we will look at the ways in which you must manage your cash flow and assets if you plan to have money in your pocket in the long term.

Do you have the ability to think about, analyze and then finally decide on business related decisions? 

As we have discussed, your ability to do these things is what will hold you back or launch you forward today as well as well into the future. Now, take those ideas and determine just how well they fit into your ability to make decisions about your business success where it counts:  the profit margin.

Throughout this chapter will we will talk about several aspects in detail, allowing you to fully understand what you need to do to be successful in regards to your business’s profitability.

Controlling Your Money, Correctly

Do you have what it takes to manage your money?  If not, it is time to find someone that can and will do it for you. Without tight control over the finances in your business, there is no telling what the future may or may not hold. That does not mean that you can not spend money. This is a huge mistake that people make.

Instead, as the entrepreneur and business owner, you need to learn to spend money the right way instead.

The first thing for you to do is to determine a budget for your business success. This should be an overall budget at first. Things to consider include:

  • Managing expenses that will continue to keep the business up and running well.

  • Managing your business’s debt due to growth or to start up costs (to pay them down successfully.)

  • Managing profit to if available must be done with an idea of how much will be spent on investing back into the business and what will go towards other beneficial needs the business has.

The budget should be done carefully, with a good deal of thought placed on each of these areas. Instead of a dollar mount, the budget of the business should be done by percentages.

Perhaps 20 percent of the profit will go towards investment back into the business whereas the rest of the profit will go to paying down debt. Whatever percentages you are comfortable with should be taken into consideration here.

Beyond the budget aspect of managing funds is the strictly organization aspects that need to be taken care of. Good quality, detailed accounting and bookkeeping needs to be done to manage the business’s overall success and funds to a T.

In addition, there needs to measures put in place to manage unexpected expenses and even just making sure that everything is accounted for.

Although this seems obvious to note, plenty of businesses fail because of poor money management in the beginning stages. Do not get caught in the “I don’t have time now, I will do it later” scam. Without doing this from the beginning, it will not happen throughout your business.

Don’t Think You Need To?

If you do not think that you need to do this type of detailed accounting of your business, you are setting yourself up for a big failure. Now, that is not to say that you can not make a profit by being sloppy, but remember, we are talking about the long term here.

Even very large, international companies are very careful about where every penny that they spend goes. After all, this is money that could be doing something for the business, right?  It does not matter if you have hundreds of dollars to budget or billions, tight money management is the key to successfully funding any business through good and bad times.

In addition, make sure you are monitoring these numbers as well. It does not do you any good to put in place a system and to use it but not to utilize it to the fullest extent. The fact is that you should be doing these things:

  • Determine where money is going and if it is being done accurately.

  • Determine where you can cut back in costs and expenses.

  • Determine what you can do differently for less funds so without jeopardizing the actual quality of your business.

Being a bit tight wadded with your business is not a bad thing, assuming that you take care of all aspects of the business’s need including reinvesting and growth potential as well.

Your Cash Flow

The next money management principal that you need to take into consideration is that of your cash flow. Without having a good amount of cash flow in your business, it will sink.

If you are a small business owner, it is even more important to do this simply because there is nothing and no one behind you to support that bad year or that big accident that has happened. Loans are only so good and they are not any good if you can not get them.

The ability to maintain your cash flow is the key to having a successfully and long term business. Without your careful management of cash flow, your business will not make it through leaner times or even the better times for that matter.

How do you do this?  There are several things that you need to take into consideration here.

First off, you should make sure that as the entrepreneur you have a good strong hand in the cash flow of your business. You should be able to personally monitor it each and every day.

Does this sound like too much?  If you do not do this, you can not possibly know where your business stands on any given day. That can lead to potential long term problems with your success.

Carefully consider each and every expenditure that you make. As an entrepreneur, you need to make these decisions wisely. Just as growing too fast can hurt you, so can not having the cash flow to support your business in the short or long term can.

In addition, you should personally monitor your budget, your expenses, your profit and your ability to use every dollar that you have wisely. That is what you have those budgets in place for, after all. Use them, keep at them and work each dollar to get the most out of it.

Two Principles To Remember

When it comes to business success, you will need to consider these two principles as far as how money management goes.

First, consider this:  You should only be spending money when there is a potential to earn money from that expense.

It is self explanatory, isn’t it?  You should not be making an investment in your business, especially a small business owner, unless it will allow you to make more money as the end and direct result.

Secondly, consider this:  “If it is not revenue, it is an expense.” 

How does that play into the business that you are currently running?  Does it offer you the ability to make ends meet successfully?  Do you make purchases without careful thought about those dollars?  If it is not revenue to you, it is an expense.

Managing your cash flow successfully will allow your business to bank funds instead of to loose funds. When you do this successfully, your business has the potential to be a long term success. If you want to be there in the future, manage your cash successfully, with an eye on just about every dollar you have.

Its Not Being Cheap, Its Being Smart

Although it may sound like we are telling you to be frugal or cheap with your business, you need to insure that the funds that you are spending will be funds that are spent wisely, without waste.

How should you be frugal (that’s a better name for it!) so much so that you will be able to find true success from doing so?

  • Determine how you spend every dollar of your business’s budget.

  • Is that dollar being spent the best way that it can be?  Does whatever it is being spent on benefit your bottom line?

  • IS there a better way to spend that dollar?  Can you get more for it with another company or service or another opportunity?

  • Is there a way to save your money better, with a better return on it?

These are questions that any business owner should be considering each and every day that he owns his business. What can he do better to save more in his business for his business?

Why do this? 

How many millionaires or even billionaires have you heard of that still drive their old, beat up cars?  Why do they do that when they can afford to have much more beautiful and expensive cars?

It is not because they do not want to spend money or that they like being cheep. The benefit here actually comes from the fact that they like to save. Saving cash for your business is a great way to find true success because you will have those funds to use time and time again when you do need them.

The founder of Wal-Mart, Sam Walton, was worth $25 billion dollars at one point in his career. Would you believe that even with that type of worth he still drove his old, pick up truck into the job each day?  Being frugal has its rewards as this is obviously what led him to having a net worth of $25 billion dollars.

When you are frugal, your business will prosper, year after year. If you are a spender, you won’t have the funds to allow that to happen year after year, will you?

All of these money savings and cash handling tips may not seem like that big of a deal to you. If that is the case, you are already doing them and finding success with it, or you are actually wasting money and not achieving the success that you already want.

Yet, managing your funds wisely is one of the key components to your success in a small business. Every entrepreneur must take the time to do this or they will find themselves without the benefits that they need so badly.

In the end, is it worth being a bit frugal to reach that huge, multi billion dollar net worth?  There is no car in this world that can make that type of promise to you, can it?

Make sure you install these money managing benefits and principals into your daily routine and long term goals within your business.

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