Can you think of a time in your life when money played a factor in an important decision you made? Or, maybe you couldn’t make the right decision because you did have the money to do so?
My mom got pregnant with my older brother while she was still in high school. Because my dad’s family was Catholic and lived in a small Kansas town where having a baby out of wedlock was unheard of, the two had to quickly get married.
My mom raised three kids and sacrificed all of her dreams to be a mom. Before she turned 40, however, my dad had an affair and left her. My mom had stayed in the marriage longer than she needed to because she needed financial support. With that support gone, she found herself with no degree or work experience — a single mom of three kids needing to get a job.
From then on, I saw money dictate her life decisions. I was in 7th grade at the time and vowed I would never rely on anyone for money. Instead, I would be self-sufficient, and if I needed to pack up my kids and move somewhere to have a better life, I would do it.
I recently read a quote that reminded me of that story: “Money, or the lack thereof, will put you at the mercy of someone else.”
When you don’t have your own money, you’re at the mercy of whoever is paying you. If you work for a boss, they dictate how much money you make and how often you work — it’s not up to you, unless you’re commission-based. If you’re a stay-at-home mom, more often than not, your husband will dictate how much money you spend. That idea never sat well with me. Once I started making my own money, I felt like I was way more in control of my destiny and could make the best decisions for me.
If you’re a business owner with one or two clients who make up the majority of your revenue, you might find yourself in a tough spot down the road. It’s so exciting to get a new high-paying client, but what happens if that client backs out and all of your resources are dedicated to them? If you’re not diversified with your revenue, that big client will control you, and you’ll be at their mercy.
We have a diversified client base at D2 now, but we didn’t start that way. Having a diverse client base allows us to make smart business decisions, like letting a client go. It’s never fun to ‘fire’ a client, but sometimes it’s necessary, and if you’re too tied to them financially, you won’t have the freedom to do so.
The same principle applies to your team. If one person has all of the expertise in one area, they are harder to replace. You need to have good systems and processes in place so in the event one team member leaves, it’s easy to train a new hire.
A past client of mine had 75% of what they do is in the head of one person who’s worked there forever. Nothing is documented and there are no processes in place, so if he left, the company would be in a world of hurt. The more streamlined processes and systems you have in place, the better off your business will be down the road.
Here are 6 principles to help you manage your money in your small business:
- Separate business and personal finances: Create distinct bank accounts and credit cards for your business to avoid confusion and ensure accurate accounting.
- Maintain a profit and loss statement: Keep track of expenses and revenues, enabling informed decisions on investments and expansions.
- Implement upfront payments: If you provide services, encourage clients to pay upfront for the month, streamlining your cash flow.
- Efficient inventory management: For businesses selling products, investing in an inventory management system helps maintain optimal stock levels and prevents you from sitting on too much product.
- Analyze and optimize expenses: Periodically review expenses to identify cost-saving opportunities and increase profitability.
- Establish a cash reserve: Create a business savings account to set aside funds for emergencies or future investments, securing the company’s stability.
Money can determine the course of both your personal and professional life.
In your day-to-day life and in your business, financial independence allows you to make sound decisions and find success without being at the mercy of external factors. By following these six strategies to manage money effectively, entrepreneurs can take charge of their financial destiny and live the life they want to live!