Most business owners and entrepreneurs want to get rich. That’s the reason so many of them leave the corporate grind—they have realized they won’t obtain real wealth if they let someone else dictate what they are worth. But many entrepreneurs limit their income potential by making tragic mistakes. To build a business that doesn’t keep you trapped and delivers the income you truly deserve, consider the following three rules:
1. Stop lying to yourself. This is a tough one for us entrepreneurs, because we always believe that tomorrow will be better. We understand that it costs money to make money. The challenge comes when the entrepreneurial spirit turns to blind optimism.
One of the first steps to getting on track with your financial life is to be totally honest with yourself. Take a hard look at your debt. If you have debt across multiple credit cards, business lines of credit and even personal loans, tabulate them now. Next calculate your expenses—not some of them, all of them.
Most business owners only have a rough idea of their expenses and debt. As they increase their income, their expenses increase, but when their income decreases they often don’t decrease their expenses. Stop lying to yourself about your economic situation, take a hard look at what you are making and your expense structure, and get on the right path right away.
2. Understand the real numbers of your business. Entrepreneurs tend to avoid the details because they are “big picture” thinkers. They leave the details for someone else to deal with and that can cause problems. Understanding the real numbers behind your business comes down to asking yourself questions that most people seldom (and sometimes never) ask themselves.
Consider asking yourself the following questions: How much do I make per client? How much is a client worth to me on average (lifetime value of a client)? What is the amount of marketing I am spending to get each client? How long does it take me to acquire a new client?
As you review these questions, don’t hedge (no answers such as “Well, it depends.”). The more precise you can be with the numbers of your business, the more opportunity you will have to grow it. While answering these questions may feel like you are diving into annoying details, but these are the details that will get you on the path to financial freedom. By understanding the core numbers that drive your business, you can systematically grow not just your gross income but also your net income.
3. Develop an accounting system to build wealth. Most business owners struggle with accounting systems. Sure, they have a business account and even a personal account, but they can’t figure out why they are always broke. A good system doesn’t require you to be a CPA, but it does require vigilance. Regardless of the type of business you are in or how your customers pay you, you must do your banking weekly. It doesn’t matter if it takes 30 days for a sale to close in your industry or 180 days. It is essential to do your banking weekly.
One simple system involves five separate accounts, with transfers to each account when appropriate. They are taxes (20 percent), savings (20 percent), lifestyle (25 percent), debt reduction (20 percent) and cash account (15 percent). Too many entrepreneurs wait until tax time to scramble for money and discover they are short. Too many business owners don’t have an aggressive plan to pay down their debt and end up becoming a slave to it. This simple system will help you to avoid classic pitfalls that ruin otherwise good businesses.
Applying these rules to your business will take a shift in mindset. It’s easy to make excuses about why these rules won’t work, but it’s not easy to look at an empty bank account after working a 70-hour week. Take the time to go through each rule, apply it carefully and reach financial freedom.
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Todd Bates is a leading business consultant, speaker, author and president of Todd Bates Systems. Over the past 20 years, he has shared his proven techniques with more than 25,000 individual business owners. For more information, go to http://www.toddbatessystems.com/