Making the transition from employee to an entrepreneur and small business owner involved one of the biggest reality checks – giving up that regular, ever-reliable pay packet.
Can you remember when you first started out as an entrepreneur and small business owner how frugal you were watching every dollar and making sure it was spent where necessary?
Some of us used a credit card to bankroll our businesses because we didn’t have ‘enough runs on the board’ to get a loan or bank overdraft from the banks…
… they deny us money when we need it and yet hand it out so freely when we don’t – what a paradox!
So we start off, and remain so for many months (maybe even years) cutting our expenses to the bone to survive – and survive we did by living modestly off our business profits.
And yet, when we find our business growing, employ team members and experience a more profitable business we still appear to have cash flow issues or none at all when the tax bill is due or an unexpected expense appears out of left field?
When managing your cash, it’s easy to spend more, if we have more money available to us. Parkinson’s Law explains how our available resources (for example time and money) expand to fill any space made available for them. It’s a natural behaviour that is witnessed in all kinds of scenarios. As revenue increases, expenses increase.
What if you began to divvy up your incoming revenue into smaller accounts (like using smaller plates to reduce your portion size when trying to lose weight)?
In doing this, you’re forcing yourself to operate your business more efficiently, on a smaller operating budget.
When done right, you can gradually transition your business’s habits from overspending on operating expenses, to streamlining your operations to run more efficiently.
This will leave more money left over to increase your own pay, set aside money for taxes due, grow your ‘rainy day fund’ for upcoming investments, and increase profitability.
How does taking your profit share every quarter sound to you, rather than waiting to see what’s leftover?
By working out your key numbers from a couple of years average figures you can take a pre-determined percentage of each sale as profit first, before leaving what is left over to operate your business. The Profit First method from the #1 bestselling book Profit First by author Mike Michalowicz is a very clever strategy that works for nearly every business type that we’ve worked with.
This simple strategy reinforces the need to operate your business more efficiently, which is the key to sustainability.
It requires discipline the type of discipline most of us would have mastered in our early days when we started out on a frugal existence – sleeping in a shared house, eating cornflakes for lunch – yep that is what I did way back then!
It starts with understanding the numbers behind your financial statements.
Let us know if you want to work out your key numbers to get started on a much leaner way to run your business to make sure you never have cash flow problems again. It’s all about taking a smaller piece of the pie.