Have you ever heard someone describe something as “simple but not easy.” You want to lose weight? Eat less than you do now. Simple. Then Thanksgiving happens. Not easy. In fact, it seems like the simpler a thing is to understand the more difficult it is to do.
Managing your money may be the best example of something being simple but not easy. Spending less than you make is an insanely easy concept to understand. I mean there are really only two parts to the equation. Income and expenses. Increase your income and you can save more. Decrease your expenses and you can save more. Do both and you can save even more. Simple, not easy.
The difference between what you make and what you spend is called your margin. Personal finances are all about that margin. The more you can increase that margin the more comfortably you can live. This same margin applies to a business as well. Whether its a side hustle or a full time business, margin is important. However, I see all too often small business owners focusing so much on the margin in their business while they completely neglect the margin at home. They work their tails off to increase their profit in the business only to break even or worse at home.
As the business grows, the take home pay grows. As the take home increases, so do the expenses. It’s called lifestyle creep. Then before you know it, the business has to produce this higher income just to make ends meet at home. This leaves no room for a down year in the business much less any room to reinvest money back into the business to help it grow. The same discipline that goes into running a business’s finances should go into running a household’s finances.
Having a good understanding of your personal finances is crucial to running a business. The pressures that come from disorganized personal finances will eventually pour over to the business. Employees will see it. Customers or clients will see it. Business decision can become desperate instead of wise. On the flip side, when the personal finances are in order there is a since of peace that will pour over into the business. How employees are treated will improve. A shift in focus will occur when dealing with customers or clients. It will be more about “How can I best serve this client?” instead of “How much money can I get out of this client?” How clients or customers are dealt with will become more relational and less transactional.
No matter what stage your business is currently at, a good hard look at your personal finances can do wonders for both it’s survival as well as its growth. Look to see where you can ‘cut some fat.’ Get to know your personal spending like you know your business spending. Be prepared because it wont be easy. But the results will be life changing.