Finances – The Truth about Your Business
Today I want to talk to you about money and finances.
Sometimes I hear entrepreneurs say
“Well I am not that into money” or
“It’s not that important to me” or
“I am not good with finances”, etc.
Okay, I understand that you did not start your business to become a billionaire. Maybe you started your business because you had a passion for something or you had a sellable skill that was in demand or you saw an opportunity in the market that would make a difference for others. Whatever your reason, good for you for having a business!
But here is the truth: Finances are important – not looking at your finances is the equivalent of not checking the fuel gauge in your car and hoping you have enough gas to get you to your destination.
The reality is that you need to be clear about them for your business otherwise you lose out!
When I say finances most people think about accounting, balance sheets, and P/L statements (Boring for most of us! Sorry accountants. 😉). I am not talking about that. Sure that is part of all the finance stuff, but when you are starting out that may not be important at all. I am talking about simple things that you can track and measure.
But, before we get into that, let’s start by talking about money. When we have asked any business owner what money is, we have gotten a myriad of answers, which vary from money is an exchange of value to “Money? Well I am NOT in business for that!”. In addition, people also have internal conversations about money that they inherited from their families, friends, society, etc. such as “Money is the root of all evil”, “Money does not grow on trees” and “You need to spend money to make money”.
When anyone talks about the money they are usually giving a social definition about money. The thing to note here is that social definitions are great for conversation, however, they do not give a practical application of the subject. What helps here is having the operational definition for money (another side note – operational definitions are practical and can be applied to day-to-day living). So are you ready? Here is the operational definition of MONEY:
Money is a tool to track promises and requests between two or more people, groups, or organizations.
Take that to the bank! (pun intended!)
Now, finances are an indicator of where your business is at and based on your business’s situation what actions you should be taking. The most basic activity that you should be doing is measuring income and expenses. Tracking income and expenses will give you clarity about how your business is doing relative to where you want it to be.
Not only does tracking these two indicators give you clarity about how much money is coming in and how much is going out, but also when income and expenses are tracked continuously over several months a pattern emerges. Based on this pattern, certain activities should be conducted. We teach you what the patterns are and what to do with them in the Business Executive Training (click here to find out more about that). But the important thing here is to track your income and expenses.
So the key takeaways here are:
1. Operate from the operational definition of money
Check-in often with yourself whether you are conducting financial activities, sales, etc from that definition or from a different perspective. Do the check-ins until you become unconsciously competent at it.
2. Track your finances!
Start with income and expenses and build from there.
Finances will always reliably give you a reality check as to where your business is, they will give you direction and what activities you should be focusing on. So for the health of your business do your finances!