MONEY – it’s a word that strikes fear in the hearts of many, however it doesn’t have to be that way!
Even worse than the word money is the word BUDGET. That’s like the swear word of money. I prefer “savings and spending plan” – it feels like money is flowing vs. being restricted.
In working with small business owners to help them with their finances, I’ve learned 5 key steps to start creating financial stability in both your personal and business lives. I firmly believe that one of the universal principles of money is that once you demonstrate that you can manage the money you have, that you’ll be able to attract MORE MONEY. And who doesn’t want more money?!?!?
Here are the 5 key steps to start building financial stability in your life and business:
Step #1: Separate your personal and business finances
Picture a visual in your mind with a “financial fence” between two houses. The house on the left is your personal financial “house,” and on the right is your business financial “house.” The fence is short enough to be able to stand on your tiptoes to talk with and coordinate with your neighbor.
Why should you care about this visual? If there’s no separation between your personal and business finances, you’ll never truly be able to understand how profitable (or unprofitable) your business is. And profitability is key to being able to make smart decisions about your business and to understanding the success of your business.
This essentially means separate bank accounts for your personal and business finances so that you can track financial activity separately. The ideal situation is for both “houses” to have their own solid financial foundation.
Step #2: Know your personal needs
It is critical for small business owners to know the monthly cash flow needs of their personal lifestyles so that they can build their businesses to support that lifestyle. Start with understanding the monthly amount that you need to pay the bills, to eat, and to have some fun in your life (your lifestyle expenses). This information will help you start to understand how you want (and need) your business to perform.
Step #3: Know your business needs
Now it’s time to understand the monthly needs of your business. The main piece of information you’ll want to get a solid handle on is what your fixed costs are. Fixed costs are just a fancy way of describing the costs that you’re incurring each month (i.e. costs for your email marketing service, rent (if applicable), medical insurance, etc). Determine what types of fixed costs you have and add up the total amount.
Then, if you take the monthly personal amount that you need (Step #2) and add on the monthly business amount, you’ll have a solid monthly revenue target to aim for in your business to cover your costs. (Note: This does not factor in the need to pay taxes on your business profit. If you want to go the extra mile for taxes, increase the total revenue target by another 30% to be conservative.)
Step #4: Pay yourself regularly
As business owners, we dream about positive change and transforming lives with our solutions. So we deserve to be rewarded for that, right?
I see many business owners forgetting to pay themselves regularly, or perhaps even at all. And while I can understand that when starting a business that there are sometimes more expenses than there is cash, it’s also important to give yourself some type of paycheck to recognize the value of your work.
My best advice if you’re not currently paying yourself regularly is to just start with a small paycheck. It’s not necessarily about the amount of the paycheck (at least at first), it’s more about the habit of paying yourself regularly. Every Friday I’m looking to give myself a paycheck, even if the amount varies weekly.
Step #5: Develop a financial routine
Financial matters can take up energy and require some thought, so it’s important to make sure you schedule regular time to handle your finances so something doesn’t slip through the cracks. Setting up time in advance to practice proactive money management is a key to success.
My #1 secret weapon with my clients is to schedule a weekly “money date.” Pick one regular time each week where you’ll commit to addressing money matters – paying bills, invoicing clients, reviewing your bills and any statements for errors (trust me, it happens more often than you’d think it does!), etc.. It’s amazing how much calmer you’ll feel about your finances when you know you’ve got time scheduled to address anything that you need to. In essence, it’s having time set aside to execute the financial plan that you put in place for yourself.
That’s it – just 5 simple steps to getting started on a life of financial independence! Just one step that you take today can empower you to start moving toward a life of financial freedom and stability so that you can attract more cash and abundance into your life. So what step will you take today?