if you are not currently tracking your Profit and Loss, Balance Sheet, or Cashflow - start immediately. Many business owners are masters at their technical area of expertise, but not masters at running a business. This article will cover the concept of Money Mastery. It is critical to understand the financial planning of our business so that we can avoid failure.
Most folks who have gotten into business for themselves have done so out of a desire for freedom, flexibility, and wealth. What many quickly realize after starting their business is that they are working way more and making way less money than they did when they worked for someone else. They have simply bought themselves a job and are controlled by their business, not able to leave at 5 pm, go on vacation, and are missing out on a lot of family things.
Many folks incorrectly believe that this is the life of a business owner, president, CEO, or founder - and so they just accept it. Unfortunately, this leads to burnout for many folks which can lead to closing their business. Around 80% of businesses go out of business within 5 years and burnout plays a large role in this. Fortunately, it doesn't have to be that way. Instead, as business owners, our goal should be to build a successful business - a commercial, profitable enterprise that works without us.
Running a business is hard and can be lonely and frustrating, so the only reason we should ever own a business is to climb the entrepreneurial ladder. From buying ourselves a job to becoming a manager of our company, to becoming a business owner of our company, to becoming an investor, to becoming an entrepreneur with multiple passive income streams. If we never move beyond the level of being an employee of our company, it would be much easier to just work for someone else.
For an overview of the 6 steps, watch this video.
Many business owners are masters at their technical area of expertise, but not masters at running a business. Like when building a highrise where they need to ensure the footings are solid; when building a business, we need to ensure the business foundation is solid We need to eliminate the daily chaos - we call this business mastery. Click here to read about the first area of business mastery (Destination).
It is critical to understand financial planning in our business so that we avoid failure. Eight out of ten new businesses fail primarily because of the lack of good financial planning.
Having a clearly conceived and well-documented financial plan, establishing goals and including the use of Pro Forma Statements and Budgets to ensure financial control, will show not only that we know what we want to do, but that we know how to accomplish it. This demonstration is essential to attract the capital required by our business from creditors and investors.
Financial management is the use of financial statements that reflect the financial condition of a business to identify its relative strengths and weaknesses. It enables us to plan, using projections, future financial performance for capital, asset, and personnel requirements to maximize the return on shareholders' investment.
Here is a list of the tools required to prepare a financial plan and financial tracking for your business:
The business owner who understands these concepts and uses them effectively to control the evolution of the business is practicing sound financial management, increasing the likelihood of success. This can overwhelm those who have not looked at their business this way before. I recommend the book below as a starting place - it is a simple, easy read of these principles.
If you are not currently tracking your Profit and Loss, Balance Sheet, or Cashflow - start immediately. Your CPA can help you get started and programs like QuickBooks make the exercise much easier. In a perfect world, you can outsource these activities to a CPA or Bookkeeper. The time they will spend is significantly less than what you will and it will be done correctly the first time.
If you’d like to learn more about how to practice sound financial literacy - reach out to us and we can help you identify areas that you need to address. Just schedule one of our complimentary coaching sessions or give us a call.
Here is an article on the third area - Time Mastery.
I am a certified Business Coach, providing business help, business advice, business coaching and mentoring services to successful and emerging business owners. I have a passion for helping businesses like yours grow and become profitable, so you, the business owner can enjoy the lifestyle you deserve.
As your Business Coach and advisor, I will help you deliver the results you desire using proven tools, methodologies and systems, tested and perfected over tens of thousands of businesses worldwide for over more than two decades. I will hold you accountable for your results and just like a sports coach, push you to perform at optimal levels. Let's schedule a complimentary Business Coaching session to get started.