Owning a business offers so much reward. It feels good to ditch the cubicle lifestyle, the 9-to-5 grind, and the annoyances of coworkers and bosses. However, as most business owners know, although it can be rewarding, it is definitely a lot of work. You’re still hustling, but you’re hustling on your own terms.
Many business owners are unaware of how to build their wealth as a small business owner. This is an exciting topic as most of us want to live that financial dream. But the most common area that business owners are struggling with is how to manage their business finances. A business finance coach can help you.
How much money you bring in does not make you rich
I often write and speak about this topic and will likely never get tired of saying this. How much money you bring into your business does not make you rich. It is all in how you manage that money that will build your wealth.
Money can bring up a lot of emotions for people. There is a lot fear and overwhelm when it comes to understanding how to manage finances. Some even feel shame and embarrassment because they feel they should know better.
My question to you is how would you know better? As an entrepreneur, you started your business offering a product or service that were passionate about and believed in, so you jumped in as all entrepreneurs do.
You likely learned about marketing, generating sales, and all the good stuff that marketing experts are teaching. But who taught you about the money management?
Likely nobody. Few business coaches are talking about that. It’s not the sexy subject that sells easily. It’s practical. Some may even say boring. Yet, it is vital to the survival of your business.
Did you know that 82% of businesses fail due to financial MISmanagement?
Imagine how much you would reduce that statistic if you were to invest the time it takes to learn how to manage your finances.
How your business can help you build your wealth
As a small business owner chances are you own your business 100%. What that means is that as you grow the value of your business, your personal net worth grows as well as you are the owner of your business. You need to think of your business as a financial asset.
The basics of business finance management
You need to have a team of people who support you. A good bookkeeper is essential to ensuring the financial data in your business is accurately recorded.
Make sure you keep separate bank accounts for your personal and your business finances. Do not combine your finances for several reasons.
- You want to leave a good audit trail
- You want to be viewed as a professional business
The 5-Step Cash Confident Framework
As part of my program, I created the 5-step Cash Confident framework to help guide my clients through the stages of understanding how your business finances operate. As a business finance coach, I teach my clients what they need to know at the high level of their business. I don’t teach accounting and I don’t tell them to get into the weeds of financial management. I teach my clients to be better business owners through the understanding of financial management in their business.
Step 1: Money mindset
Mindset is by far one of the most important steps of creating your wealth. Everyone has a money story and those form our relationship with money. Having a negative relationship with money is detrimental to building your wealth as a business owner. If you want to create wealth for yourself, create generational wealth, and realize your financial dreams, the first step is by addressing any money mindset issues that may hold you back.
Negative money mindset issues are not uncommon for business owners but addressing them and releasing the negativity is essential for making space for a new financial future.
Step 2: Financial Reports
Knowing, understanding, and using financial reports is vital in business. Your financial reports are giving you meaningful feedback on the financial performance of your company, so to ensure that you read and understand the story that they are telling you will help you course-correct when the business is going in the wrong direction and capitalize on what is going well.
Business owners often avoid looking at their financial reports because they fear the results, however how will you ever improve performance if you don’t know what isn’t working?
Step 3: Creating a Financial Plan for Your Business
When you create a financial plan for your business you are creating a roadmap to success. Financial planning for business is one of my most favourite activity to do with business owners. I feel the business owner gains a lot of clarity when they understand how their business generates profit and sees the possibility of growing their business as their profit levels increase.
Growing your business without a financial plan in place is a risky move, as the financial plan offers direction on how to grow profitably.
Step 4: Monitor your progress
A business financial plan will only collect dust unless you monitor your progress against those goals that you created. You need to run reports and check in each and every month to monitor what your business achieved against its goals. This feedback is crucial for the growth and success of your company to ensure you are moving the business is the right direction while maintaining tight profit margins or increasing them.
Step 5: Cash Management
Cash is the lifeline of a business, and financially healthy businesses have cash flowing in and out of their business. You need to monitor your cash management and prevent against cash shortages. Cash shortages can kill a business, so regardless of how much revenue you are bringing in or profit that you are producing, if you are short on cash that can lead to bankruptcy very quickly.
These five financial management steps for your business all work together and help you manage your business as a whole. When you learn these five steps you will see your business at a high level and better monitor any key performance indicators (KPIs) that you should be monitoring.
These steps help you grow the wealth in your business. But managing your business finances is only part of building your wealth. You also need to ensure that you are managing your personal net worth as well. It all works together.
There is a misconception that spreadsheets are boring. But, when you count your money on your spreadsheets it is a lot of fun!
I have put together a 7-Step Personal Finance framework for my clients to follow to manage their personal finances.
The idea is to pay yourself through your business but ensuring you are managing your personal finances as well to help build your personal net worth. It goes the same for personal finances as it does with business finances. It’s not how much money you make, it’s how you manage your money that determines how wealthy you are.
Secrets of the rich
Rich people know that you need to protect your wealth. Having your money make money for you is the secret of the wealthy. So, you don’t spend what you are making, you invest that money and then you can live off the returns of those investments. Protecting your capital is of primary importance. That’s how you build generational wealth.
The 7-Step Personal Finance Framework
Step 1: Budget
Even millionaires’ budget. The key to wealth is to live within your means, and that means to spend less money than what you bring in. To do this, it helps to have a budget in place that clearly shows how much money you need to pay yourself to ensure your personal needs are met.
As a business owner, you have the responsibility of paying yourself a salary. Be sure the salary you pay yourself will cover your personal needs.
Step 2: Debt repayment
Debt kills wealth. Debt is expensive, as it costs money to borrow money. The best thing you can do for your finances is pay off debt, especially expensive debt like payday loans and credit card balances.
Step 3: Emergency fund
Emergency funds are savings that help you feel financially secure so that if an emergency presents itself such as a car expense, your furnace breaks down, or some other type of urgent expense that wasn’t planned for, you’ll have peace of mind knowing that you have planned for it and taken care of yourself.
Step 4: Insure against risks
You are your biggest financial asset as you generate your income through your business. You need to insure that against risks. What would happen if you were no longer able to work, whether that be temporarily or permanently? Have you insured yourself against those risks?
Protecting yourself and your family against financial risks is an important part of your financial plan. You don’t want to regret not having done this should you need it.
Step 5: Set Value-based goals
Values-based goals are important to keep you motivated and know what you’re working for. If you are working or investing against your values, your money will not feel good to you. Much good can be done with money. Money does not buy happiness, but it buys opportunities. If you have always dreamed of philanthropy work a business is a great way to fund that dream.
Step 6: Retirement and investment plans
Business owners are responsible for their retirement planning and investing, and whether you plan this through your personal portfolio or business portfolio, you need to be planning for it. The earlier you start planning, the better your investment portfolio can be.
Step 7: Pay off that mortgage
Interest rates were at a historical low for quite some time, but now we are seeing them creep up again. Mortgages are debt and you pay to borrow that money so the less debt you have, the less it erodes at your net worth.
In all your financial planning, don’t forget to plan when paying off the mortgage makes sense.
Having these systems working together will help you build your wealth. Not only are you protecting your money that is coming in and getting it to work for you, but you are protecting your financial security against risks that can be mitigated against.
The bottom line is money management is key to being rich. Wealthy people protect their investments and get their money working for them.
If you are an entrepreneur or business owner who wants to build wealth and pass on generational wealth to your family and you need help getting your systems organized and in place, you are invited to reach out and book a consult call with me.
In a consult call we talk about your goals and dreams and see if we are a fit to work together.
