Let’s talk about money stress because it’s something all of us have experienced in our life. There’s a nasty rumor going around that if we ignore our money then all our problems will go away. OR maybe it’s that if we ignore our money we won’t have any problems. Or maybe it’s that if we ignore our money the universe will take care of it for us.
Whatever form the rumor takes- it’s false. We can’t ignore our money and we especially can’t ignore our money as small business owners.
Your money is a compass for your business. It tells you what direction to go in and how to solve financial problems like overspending and poor cash flow.
But a compass can’t help you if you don’t look at it.
Imagine you’re lost in the woods and you know you need to go north. You have a compass but refuse to use it because you’re scared of what it might say. Instead, you keep it buried in your pocket and pick a direction- hoping it’s north. Maybe it is, maybe it isn’t, but just picking something at random is WAY easier than checking in with your compass.
Sounds pretty silly, right? But this is how most small business owners engage with their money. They choose to pick something at random instead of using the tool they already have.
You still might be on the fence about paying attention to your money because of…feelings. All the feelings that hold us back from engaging with our dollars. So I’m gonna get all high school debate club up in here. Here are 6 compelling reasons you need to start paying attention to your money.Your money is a compass for your business. It tells you what direction to go in.Click To Tweet
You need to pay attention to your money so you can…
Overspending is one of the most common problems for small business owners and it stems from not paying attention to your money. Usually, we think we have more than we actually have and, because our tendency is to spend money, that’s what we do.
The problem is that spend what we THINK we have rather than what we ACTUALLY have. There’s a big difference, especially when you’re estranged from your money. Not to mention recurring and annual bills that can totally throw off your cash flow.
When you’re aware of your money and interacting with it regularly, you know what you have coming in and going out to the penny. This means what you THINK you have IS what you have. There are no surprise bills or withdrawals.
The result? You make informed, intentional spending decisions that don’t drain your bank account.
Know if you’re profitable
There’s a big difference between making money and being profitable. Just because you have money coming into your business does not mean that your business is profitable.
I’ve seen a lot of people make this mistake and think that, because they have a lot of inflow, they’re doing great! The truth is if you’re spending more than you’re earning it doesn’t matter if you bring in $20,000/year or $500,000/year- your business is operating at a loss.
But how do you know if you’re operating at a loss if you don’t pay attention to your income and expenses? You don’t. And it can shock you when you eventually look at your numbers.
Understanding your business’ profitability is like sticking a thermometer under its tongue. You NEED to know if your business is healthy or not, and profitability is the first checkup. Continuing on with an unhealthy business can be financially and emotionally draining. You could go on like that for years if you don’t pay attention to your money.There’s a big difference between making money and being profitable.Click To Tweet
Communicate with your business
Have you ever tried to make a BIG decision in your business and just wished that your business could tell you what to do? Because true life, having to make every single decision on your own is EXHAUSTING.
The thing is- your business CAN tell you what to do. But, you have to learn to speak its language.
Your business has financial trends and patterns and those are its voice. Right now that voice may sound like gibberish but, if you take the time to learn your business’ language, you can communicate with it.
Like any language, you have to practice to learn it. You can’t just read a book once and be fluent. When it comes to money you have to pay attention to know what’s it’s trying to tell you.
If you open your bank account once every 6 months and try to read between the line, you’re going to feel like, “Wow, that was pointless.” But if you do it regularly, you’ll be like, “Ooooooooh- THAT’s what you’ve been trying to tell me!”Your business has financial trends and patterns and those are its voice.Click To Tweet
Ah- the elusive owner pay. This is THE number one question I get asked about and the answer always begins with, “You need to know your net profit every month,” You cannot pay yourself the right way, without knowing your numbers.
But why is paying ourselves even important? Can’t you just take money out of your business whenever you feel like it?
No! You can’t. And here’s why
First, pulling money out of your business with a whateves attitude will negatively impact your cash flow. It’ll also impact your personal cash flow. How are you going to make a budget if you don’t even know how much you have to live off every month? You’ll either always be scraping by or blowing all your money on the latest in My Little Pony couture.
But here’s the bigger reason you need to pay yourself- what’s the point of having a business if it isn’t taking care of you financially? And don’t tell me to help people. I want to help people too. But I’m not going to help anyone if I can’t pay my rent.
You started your business because you want to make a living doing something you’re passionate about. And that’s amazing! But the key phrase here is “make a living”- you actually need to get paid so you can live. And paying attention to your money is what’s going to make that happen.
Relieve the emotional burden of worrying
Having money troubles sucks, but to me, what’s even worst than actually having money troubles is WORRYING about your money non-stop.
When you have money troubles you have one very important asset- information. If you KNOW there’s something wrong with your money you already have a starting off place. What’s next is figuring out a solution.
But, if you’re completely estranged from your money, then instead of knowing that something’s wrong- you’re WORRYING non-stop about the big what if. And worrying without information, without a starting off place, is really tiring.
It’s a spin cycle. It doesn’t lead you anywhere constructive. You go around and around in your head with money panic. It wakes you up at night. It keeps you from focusing on your business. And it bums you out.
The landscape of worry is so vast that you can go in a million different unhealthy directions. You wander around aimlessly when you’re in worry. And you can get lost and stuck there.
Paying attention to your money stops the wandering, stops the what ifs and gives you a respite from all that emotional energy. There’s space to move forward when you stop worrying about your money and start looking for solutions…but you cannot find solutions if you’re not paying attention.
Plan for your business’ future
Even if you’re not a planner, you need to have some sense of where you want your business to go. If not, you’ll flop around for the next five years hoping that you’ll eventually find your way. I don’t know about you, but I do a whole lot better with a map than random flopping.
But how do you plan for your business’ future when everything seems unpredictable? You guessed it! You use your money.
There are two ways you can use your money to plan for your business’ future. First, look at the trends in your business and use those to predict what’s to come. For example, if for the last 3 years your business has grown 20% every year, you can safely assume that’s what’s going to happen this year.
The next way you can plan for the future is by setting measurable financial goals and using your money to track your progress. This puts you in control of your business’ future because you take specific actions based on your goals and then use your money to measure your results.
Each of these methods has a tremendous impact on their own, but when you combine them you’ll have your business’ future on lockdown. The catch? You need to know what’s up with your money for them to work.