Financial Foundations, Part 1 – Make Money!

24 May 2015
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Categories: Dollars & Sense

This is the first in a series of posts on the most important principles of finance, small business or otherwise. In preparing them, asked myself the question: “If I knew that I was going to die tomorrow, what would I say that would allow decades of work to carry on without me?” This, and subsequent posts, are the answers to that question. They are the lessons I’ve learned from working with clients, and they are the lessons I’ve learned myself—so much so, that many times I refer to “us” rather than “you”.  They are the guiding principles that would apply to any business at any time, with the caveat that discretion is of utmost importance. And while some may be obvious, I think it is worth reiterating this principles anyway. I hope you enjoy reading them, that you will find them beneficial, and I hope that I don’t die tomorrow!

We have to make money!  Obvious, yes.  But this is the bottom line.  Every business needs to make more than it spends, spend less than it makes… a business simply must have a positive bottom line. While this may seem as plain as the nose on my face, the fact of the matter is that I’ve seen many cases where this was lost in the busyness of daily operations.  In fact, that is how I was in the early days of my business. And, as best as I can tell, it comes from a sense of unguarded optimism that shows up in statements like:

  • “I just know this is going to make us rich.”
  • “Sister Francine was telling me at church that God would bless me for all the hard work that I’ve done.”
  • “Next year has got to be a breakthrough year!”
  • “If that idiot Jones did it, I can do it too.”

Now occasionally there are situations where someone goes deep in debt, later to have spectacular turnarounds.  Those make great news stories, but aren’t the norm.

With this in mind, I want to suggest these ways in which it applies to our day to day affairs:

  1. Right now, income is what it is, not what we think it should be, not what we want it to be… it is what it is. I’ve met people who have false faith and need to become prudent. I’ve also met people who have a sense of entitlement that need to be humble and be willing to sacrifice current comfort for future rewards. It sounds harsh, but they are words that I had to tell myself years ago and I’m much better off now as a result.
  2. Since income is what it is, then we have to make sure that the business’s expenses are below income.
  3. If expenses are more than income, then we need to reduce expenses. We need to do the work ourselves, find cheaper labor, find it cheaper suppliers, etc. Expenses can increase later, and in fact expenses should increase as we invest more money back into the business.
  4. Breaking even is not good enough. If we are going to thrive later, then we are going to have to sacrifice and save money now.
  5. As a ray of hope, yes, we can influence our customers and come up with new products and pricing to increase your revenues, but we have to operate with what we have now.