Top 5 business money habits to free yourself from financial worries
Updated: Aug 22, 2019
What would you say if I told you, that your beliefs, myths and mindset around MONEY might be killing your business?
In this post, I’m going to show you how you can achieve financial balance, regardless of your situation. I am going to explore 5 of the most valuable money habits to create a successful, profitable business that is generating a lot of wealth for you and your business.
There are two MASSIVE benefits to making money.
If you’re profitable, you’re in business and you can continue to help people. If you don’t make money, you don’t exist. If you don’t exist, you can’t help them.
The more profitable you are, the more tax you pay. I personally am happy to pay tax. Tax is a system that gives money and support to services and people who need it. The more I make, the more I give.
Money mindset: My business can find its financial balance…whatever the situation it is in. My business can create a lot of wealth and I am morally obliged to make as much money as possible, so I can help as many people as possible.
We can switch our mindset to say exactly what we need it to say. Thoughts become words, words become our reality and the cycle goes on. If you want to run a successful profitable business, know that you’re morally obliged as someone who has the ability to make money, to make as much as possible.
Since our thoughts become words and our words become reality, then our reality is what we are thinking about, right? Now you can choose to think thoughts that make you feel financial freedom, or you could choose to think thoughts that make you feel worried about not having enough money. Whatever the case, you need to know that you will be creating whatever you are thinking about.
BUT if we were to tell you that the thoughts about financial abundance and financial freedom are the same as making money and the thoughts about financial worry are the same as spending money, how much of financial balance do you have in your reality? And are you willing to do something about it?
The single biggest thing stopping businesses from becoming cash rich or financially free is their current understanding about how to make money and how to keep money.
The reason that businesses are not rich with cash is not their price, the market, customers or people. It’s their philosophy of saving, keeping and investing money.
There ARE no shortcuts or missing pieces to creating wealth and financial freedom. There are only repeated habits over time. You can’t build momentum with “the next big thing”.
On top of all that, we know the REAL reason your business is struggling financially is because it is short of money, right? You don’t have anything to invest, so you can’t invest. If you had spare money, you’d put it away right?
Get better with money
Your past actions are the best indicator of your future. The biggest myth businesses have is that they think they can only start saving and investing money when the business starts to make more money.
This is like saying you’ll become a marathon runner after winning your first marathon. You have to start small and start now. If you can putting money aside, pay off your debts, spending less on liabilities and learning to make more profit, you’ll find you have more money faster than you might think.
Let’s look at some common beliefs, that you might have around practices and rules by which you want your company to run. How they distort the financial picture of your business AND what you need to do to adjust them.
1. I take home minimum wage so our profits look higher. It’s all right, because I make up with the shortage with dividends, for which I pay less tax, also.
If you do not know where you currently are, how can you tell if you are getting closer to where you want to be?
You must be able to understand the true profitability of your business model. If you are covering your ‘real’ profitability by compensating yourself with less wage than the average market rate, then you are distorting the true profitability picture of your business. You are putting a blindfold for yourself and all those who are benefiting from or serving your business.
A great example of this is a client of ours who decided to pay himself the minimum wage and take the rest of the ‘wage’ in dividend, therefore boosting the profitability of the business to 17%. When we adjusted the wage to the true market value, the profitability dropped to 2%! What happened next as a result of this shift was a complete change in our client’s mindset. He refocused his attention on what was possible, so he ended up making 20% profit and even took a ‘full’ wage home. We have seen this scenario happen to a lot of businesses.
2. We turnover £10 million. We have grown by 30% from last year! We are doing great….
Common belief is that the success of your business should be measured in revenue. Revenue is the indicator of the sales your business is making.
But how would you feel if I were to tell you that revenue is a major distorted accounting number? Revenue is vanity (and the weakest number) when it comes your P&L.
All direct costs that are not related to labour are simply passed-through your business. These NON-LABOUR direct costs are paid out of your revenue. Yes, you definitely want to buy at the lowest price possible, but often you cannot move the price LOW enough to make up for the deficiency in the profit your business model is generating.
This is especially true for businesses that use subcontractors, have high material costs or are operating as distributors. You cannot compare a distributor business turning over £4 million (that is earning 10% in commission) with a services firm turning over the same amount. The services firm is certainly ‘earning’ more.
As far as services firms are concerned, gross margin (in value) is the ‘NEW’ revenue you should be using when discussing your sales efforts. For this type of business, revenue is the total payroll that passes-through the business. The net money (after payroll) your business will have to operate are only a fraction of this amount.
Instead of obsessing about revenue, shift your FOCUS on generating and measuring GROSS MARGIN (in real value instead of a percentage). Gross margin should be your ‘real’ top line.
Set Profit targets that are appropriate for your business
Now that we have clarified how your common beliefs around your company financials are distorting your profitability picture and how you could adjust this, the next step is to set profit TARGETS that are appropriate to your business model.
To do this you need to make 2 decisions:
Decision 1: Do I define profit as a percentage of revenue or as a percentage of gross margin?
If your business generates profit margin below 40%, you should use gross margin as your ‘real’ revenue. The reason for this is that it becomes easier to compare your business with businesses from other industries.
Decision 2: What does a healthy profit margin for my business look like?
When you clear the distortions and you adjust how profit percentage is defined, you could start seeing your relative profitability in the following way:
At 5% pretax profit – your business needs help
At 10% pretax profit - your business is doing OK, but there is a lot of untapped potential.
At 15% and above pretax profit - your business is doing really well. Keep earning this whilst you can until your competition follows you and you get pushed back.
Business money habits that will set you free!
Did you know that a THIRD of all lottery winners declare bankruptcy. 33%. This means that of 100 winners, 33 of them are worse off than before!
It’s estimated that of all lottery winners, (almost 1%) have any money left. Most either loose most of it, go back to where they started or declare bankruptcy.
Why is this the case?
Money HABITS will set you free from your financial worries. We are giving you a set of 5 here that work for us and our clients:
1. Pay off your debt first
First, call your lenders and work out a payment plan. This is particularly important for those who have ‘termed out’ loans. It should be your intention to pay off your debt ASAP.
Most lenders are willing to reduce the payments if it means getting paid back. Put aside 10% of ALL your business income into your debt accounts and pay it off. Work out how much you need to make.
If you do not have debt, but you are considering a line of credit to deal with seasonality, we suggest that you borrow only when you are profitable. Trying to cover your losses with more debt will just make the financial situation worse.
Banks know that if you are losing money you will be unable to, eventually, pay them back.
2. Set aside money for taxes
Monitor monthly or quarterly the value of tax you are likely to have to pay. This will help you plan your cash outflow.
Then set aside cash each quarter for the tax bill.
3. Create your Core Capital
Core capital is the value of your operating expenses for 2 months. Included in operating expenses are all expenses you do not get terms on.
You should build your core capital before you start taking dividends. The reason for this is that if you harvest your profits before your debt is cleared, you are risking putting the business in undercapitalised situation.
We see many growing businesses fall into this trap. That is how they end up with cash problems during a bad quarter or they find themselves in a situation where they have to give away margins in exchange of cash.
And it shouldn’t take long for you to build your core capital. A business with a good profit margin will need on average 18 months to have 2-3 month buffer of operating expenses.
4. “1/10th of all I earn will be mine to keep” says George Glasson
But ANY money your business is earning, 90% of it should be used to operate and grow. The remaining 10% is put away and saved. It’s invested and kept for long term.
5. Pay dividends and bonuses
After you have satisfied all of the above 4 points, you can safely take dividends and pay your staff their bonuses. You have now created a profitable, cash flow generating business – the best of both worlds. You own a profitable, high performing asset that you may consider holding onto (as it generates higher returns for you), rather than selling.
To sum up….
These 5 rules make money more manageable and clearly show you that there is a system to the money mindset. One of the biggest things businesses struggle with is money feeling like water. They cannot control it, and those who can take control, can always do better.
Running a cash rich business and creating wealth comes from repeated, habitual actions. Small inputs over time create MASSIVE outputs. I don’t need windfalls now, they are a welcome bonus and, of course, I’d never turn them down. But my debts, payments and outgoings are managed.
Here’s the tricky thing, sometimes you will find yourself overspending. The key is however to focus on the important things (the core capital, your long term future finances, the credit score and your overheads), the rest can be worked on.
What do I mean by worked on? Well I’d rather find the money to pay for it, than cut it back. That’s the EXACT opposite of common sense and often taught practices on money management. If I’ve decided something is worth buying, I don’t cut back or get a refund. I work to find the money to pay for it. This is how I make sure the ‘pie’ grows.
You can’t grow a business by cutting costs. It doesn’t work. If I’ve bought software, advertising space, outsourcing work or anything else that the business needs, I’ll find the money for it.
Money mindset: We can create limitless wealth, pay off our debt and we don’t need the pure luck and chance of a windfall to have cash to sustain our growth. We can do that ourselves and we don’t even have to make massive sacrifices.
You’re not going to lose weight overnight in a windfall. You’re not going to read every book you want to read in one fell swoop. You’re never going to travel to all the countries you want in one trip.
Your financial problems won’t go away with one windfall payment. It takes discipline and habit to create a lifetime of monetary stability and success. Wealth is built over time with habit BUT! That will put you in better stead than you could have ever hoped with one single payment.
You can either have temporary pleasure now, but long term pain. Or short term pain and long, sustainable pleasure.
Are you serious about finding your financial balance?
Do you want to take control of the way your BRAIN uses and thinks about money? Imagine knowing that any Dollar, Pound, Yen, Rupee and Euro that came your way, was the result of smart thinking, not blind luck.
BUDGETS or balance are an interesting thing. They have 2 aspects to them you can take control of: one is what’s coming in and the other is what’s going out. If these 2 things are not in balance, you are out of balance. You spend more that you make…you are out of balance.
Same is with your thoughts – thoughts about financial freedom are same as making money and thoughts about worry are same as spending money. And on top of this, if you deprive yourself that is like intentionally blocking more money to come in.
The Money Multiplier for CEOs will help you focus your attention on money coming in. Using this very powerful tool will intentionally drive cash flow and profit…and consequently business value.
You can create strategies for OPTIMISING your business model so you can increase the profits it is making, the cash that is generating and the business value it is creating.
This will shift the balance to a completely new level. This new and improved financial situation will attract more ideas and thoughts about making more money and the cycle goes on. You will come to expect more….
You are now on your way to making more money. Have fun and let us know how it goes….We’d love to hear from you. You can also join us at the our next event. At these monthly sessions we are discussing topics relating to generating more cash, profit and business value. We guarantee you will discover your new financial balance when you attend.
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