Running a business is tough.
When you think about it, very few business owners have a background in business.
They’re bakers who make amazing cakes and decide to open a bakery.
Or therapists who started a practice to help more people.
Or teachers who decided to start a business teaching others about money (yep, this guy).
It’s no wonder that such a high percentage of businesses fail due to cash flow problems. They don’t have an accounting degree or years
of experience in finance!
And here’s the thing. They shouldn’t have to. Managing the finances in a business can actually be pretty simple (if you have the right system).
Step one is avoiding the common mistakes many small business owners make. Here are 3 of the most common money mistakes I see in business.
They think bookkeeping replaces money management
“I don’t get it, Craig,” a business owner will often tell me in our first meeting. “I keep Quickbooks updated. I log all of my transactions. Yet it still feels like I never have money.”
This problem is more common than you think. Most business owners think good money management is simply updating their books.
Let me start by saying you need to have updated books. It’s essential that you have your accounting numbers in order.
But here’s a secret that most people don’t know. Accounting and money management are two very different things.
Accounting is documenting what has already happened. It’s the story Bilbo Baggins writes at the end of his adventure, recounting every detail.
Money management happens in real time. It’s the adventure itself.
Most business owners don’t have a system for handling money as it enters their business. And that’s where things go wrong.
It’s important to know what you will do with every dollar as it comes in. I use and teach a system called Profit First.
In this system, you divide money across four core categories:
- Owner’s Pay
- Operating Expenses
When money flows into the business, a percentage of it goes to each of these accounts. This allows you to be proactive with how your money is spent.
Want to know how much to put in each category? This free quiz will show you.
They budget based on their highest income month
You closed a record number of clients this month and just completed a launch on that new product.
You open up your bank account and your jaw drops. You just had a record month. I mean, you made your last record look like the sales from a lemonade stand.
If you’re like me and every other small business owner, something in your brain changes. You now think this is the new normal.
Unfortunately, more often than not, it’s not the new normal. It’s nothing more than just a really good month.
I remember having a meeting with a client a couple years ago. He owned a business that made about $250,000 per year in revenue.
That month, however, he made close to $40,000 (close to double his average month).
He came with a laundry list of things he needed to do. Hire a couple new employees, find a bigger office space, invest in new equipment, etc.
Because he had one good (okay, incredible) month, he suddenly was under the impression that $40,000/month was the new normal.
It was important for him to slow down and wait for $40k to become a trend, not an anomaly. Once he had 6 consecutive months of $40k+, then we can assume that’s his new normal.
Instead of basing your business budget on your best month, try basing it on your lowest month in the last 6 months. Or, consider doing an average of your last 6 months.
They make money decisions alone
Your business is your baby. That means you’re the one up at night worrying about it. You’re the one crafting the vision and ensuring it becomes reality.
It also means you’re the one in charge of profitability.
That’s a huge weight to bear alone. Think about it. Your customers depend on the profitability of your business. Your employees depend on it. Your employee’s family depends on it.
Did that hit you like a wet blanket?
If your business isn’t profitable, it won’t survive. That’s the facts.
And the mistake most business owners make is carrying this burden alone.
I’m a believer that every CEO, whether they make $100 or $100 million, needs someone in their corner helping them make money decisions.
As business owners, we are often too close to the problem to see all the possibilities. And many times our money decisions are made based on emotion, not logic. Which makes sense; like I said, the business is your baby.
If you are carrying the weight of profitability alone, that needs to change.
We specialize in helping business owners, like you, get organized with your money.
We help you set up a simple money management system that works.
We help you get clear on where your business stands and where it needs to be.
And we walk alongside you so you’re not dealing with the finances alone.
Let’s Talk About Your Money
Looking to improve the cash flow in your business?
Book a free consultation and we’ll help you tame that money monster.
Ready to kick the paycheck-to-paycheck cycle?
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