A lot of people handle their business finances the same way they handle their personal finances. They may know that the two are different, but they aren’t sure how they differ. They revert to doing things in the way with which they are most familiar. When it comes to running a business, this is an unhealthy mindset.
Here are some tips that will help you develop a healthy money mindset for your business.
Separate Your Business and Personal Finances
In order to develop a healthy money mindset for your business, you must become aware that the money for your business and your personal money are separate. Even if you have your business structured as a sole proprietor, you need to keep the finances separated. You also can’t run your business like you do your personal finances if you want to be successful.
In your household budget, if you find that you are overspending each month, you just look at your budget and figure out what you can cut. You may get rid of your cable bill and make sure you don’t leave the lights on in unoccupied rooms.
In a business, you can’t take this simple approach. For example, if you cut your staff, it affects your customer service, or using cheaper components affects the quality of the products you produce.
Sometimes, instead of cutting expenses, the best solution is to increase your marketing budget and get more customers. You don’t want to waste money, but your expenses may not be the real cause of your shortfall.
Good Management for Optimal Results
Business decisions are more complicated than just looking at your bank account and deciding what to spend. Decisions on purchasing the tools that make your business operate more efficiently are different than deciding whether or not to buy a new blender for your kitchen.
We know of a family that sunk their entire life’s savings into a Mexican restaurant. After a few months, they still were not profitable and continued to lose money. Their solution was to cut their waitress staff in half. When customers had to sometimes wait almost an hour to get their meal and couldn’t get their drinks refilled, they stopped coming. A few months later, they were losing more money each month than they were originally.
A saying you often hear in the restaurant business is, “More sales will cure everything.” This is partially true, because sales bring in more revenue and revenue makes a lot of things better. However, it's important to take a balanced approach, and also watch the nickels and dimes spent for overhead and expenses. Businesses require good management to be profitable.
“Free” Is Not Always the Least Expensive
Businesses, especially online businesses, often try to reduce expenses by using the free 30-day trial offers for various services. When the trial is over, they simply move to another service provider for their free 30 days. This can be counterproductive at times. The inefficiency of continually learning new software and processes is often much more expensive than the monthly subscription price of a service that fits your needs.
The medical field reports that all the products on the shelves that are fat-free, dairy-free, gluten-free, etc. has led to more foods that are actually free of nutrition. More of their patients are showing symptoms of malnutrition and over deficiencies because they stopped eating “real” foods.
It’s not enough just to eat to stay alive and, in business, you need to do more than just keep the doors open. Your body and your business should be healthy and growing, and in order to do so, you need to break free of the “free” mentality.
The Bottom Line
Smart business owners don’t open a business without the necessary resources to make it thrive. “Bootstrapping” means you work hard to keep your costs down, control your overhead, and grow slowly by reinvesting your profits. However, if you can’t buy the tools you need or spend what you must for the necessary services, it is better to wait to open your business until you can.
Have you fallen into the trap of trying to do everything for your business for free? Let us help you out with some business coaching to get you on your feet!