So many business owners find that they are SO busy doing their day job, they don’t ever really take time out to look at their financials.
And I get it.
There’s a reason why people never know their numbers on Dragon’s Den (you’d think going on national telly would be reason enough!).
I’ve been there when you’re keeping your head above water – serving the clients and posting on social media and juggling a million balls – and you’ve got all these exciting ideas about what could happen next and what you could launch, to grow and expand your business. Which is much more exciting to think about than looking at your numbers, paying your taxes or doing any of the other financial things.
So today is all about Money 101. We’re looking at #5 key things for your business and personal finances, that are simple and quick to do… but make a MASSIVE difference.
They’re the key things I do with all my private clients and when I say they make a massive difference, they really are the 20% of the work that creates 80% of the results.
So here goes!
#1. Know Your Profit AND Your Profit Margin
Do you know profit and profit margins right now? Could you tell me if I asked you?
Businesses focus on sales, because that’s exciting.
You see it all over social media, the “I sold a massive number of tickets to my event” or “I just had a £50k launch” or “I just sold this big shiny thing”. But what they don’t talk about is the costs behind that – the venue hire or staff costs or Facebook ads spend, that enabled them to create that result.
Don’t get me wrong, a 5-figure launch is a huge achievement. But that wasn’t actually the profit that was made out of the back of it. We can all have a £50k launch if we spend £40k on Facebook ads.
Profit is what pays the bills. Profit is what gives you the life and lifestyle you really want!
You can make all the sales you want but if you don’t make a profit at the end of it all, you just have a really expensive hobby.
If you don’t know your margins, it’s very easy for those precious profits to get eroded away, when costs creep up. You also can’t make informed decisions about where to focus your energy when it comes to what to sell or launch or create next, if you don’t know how much that product or service is actually making you.
So it goes without saying that it’s incredibly important to know how much profit you’re making in your business, both on a monthly basis and over the year.
2. Know How Much You NEED To Pay Yourself Each Month
You probably know by now that I’m a great believer in paying yourself the same amount of money each month – because while the income in your business is likely to be up and down, your bills at home are pretty much consistent from month to month.
Obviously there are some bigger things you might pay for a couple of times a year, like Christmas and summer holidays and lump sums like car insurance, but generally most of your bills and costs are the same each month.
So it’s really not helpful for you to pull £500 out of your business today; £1800 next week; £3000 in 6 weeks’ time and then nothing for the next 3 months.
Having that type of irregular cash flow is one of the biggest headaches that business owners struggle with and is typically the first thing that we sort out when we work together, because it’s the thing that gives you the most peace of mind.
The way to do this is with a budget planner.
I know that sounds boring but actually, it doesn’t need to be. You can get my budget planner here – the exact one I use with clients – which is nice and easy because it automatically figures out the numbers for you.
Once you’ve worked out how much money you need to pay for your essentials each month – and how much money you want for holidays and clothes and days out and other fun things you want – you then need to pay yourself that amount of money each month, from your business.
If you have other income coming into your household, you can work out what proportion you are paying and what proportion the other person is paying, which again is something I look at with my clients.
But this is about YOU deciding on an amount of money to pay yourself every single month, from your business account into your personal account.
It should be the same amount of money each month, so pick something that you know that you can do.
It will probably mean that you will want to keep a surplus in your business account during the months when you have big launch or a large client payment comes in, so that during the months where sales are lower, you can still pay yourself that same amount.
The same principle applies whatever number you choose to pay yourself, whether it’s £1000 or £10,000 each month, so that you can budget. You can always review the number and increase it every few months, as your sales grow.
But this is the one thing that my clients tell me makes a massive difference to their lives, when they have that regular personal income coming in, because you really do start to feel so much more control of your money!
3. Get Intentional With Your Surplus Income
Let’s say you’ve worked out that you’re going to pay yourself £3,000 each month from your business.
£2,500 will go on your bills and things that make life fun.
You’ve got £500 left over… what are you going to do with it?
This is where getting intentional comes in, because we all know how easily money just seems to disappear otherwise!
When you think about your short term goals – do you want to be saving some of this £500, for the things you want to happen in the next 5 years?
Would you rather be investing this money in something long term?
Or a combination of both?
If you’ve got credit cards or loans or overdrafts, you might want to use some of your surplus to pay off your debts first. Ultimately, they need to be repaid and it’s no good saving all your money for the future if then you haven’t got enough for your day-to-day costs.
But whatever you decide, it really is about getting intentional with where your money is going, so that you can proactively make it work for you!
4. Review, Review, Review
This is about taking the time to look at your personal finances, whether that’s once a month or once a quarter.
Are you paying more than you need to for your bills? Are there things that you’re paying for that you don’t use? And are there things that you can make little adjustments to, so that you feel better about the money you’re spending?
No matter how much money bringing in, we all know how easy it is for spending to get out of control. Before you know it, you’re paying £80 a month for Sky TV and not actually watching it or spending more on clothes than you really want to, and not really wearing them.
These things in themselves are not a problem. BUT you can only spend the money you make once!
It might mean that other areas of your budget then feel tighter, because you’re spending the money that you planned to spend on food shopping on that lovely jacket that you saw in Monsoon when you walked down the high street last week.
This might just be a question of adjusting how much money you’ve put into each of your spending pots (for bills, essentials, fun stuff and so on). It might be that you need to start pulling more money out of your business. Or it might be that actually, you just want to get that spending habit under control.
The point here is that if you don’t review your personal finances regularly, you can find yourself in for a nasty shock.
It’s the same as the way we want to look at the figures in our business each month or quarter. Are you still making profit? Are you spending too much on some things? Not enough on other things? Is your business moving in the right direction?
Giving yourself that regular opportunity to review your finances, track your progress and make those little tweaks can make a massive, massive difference.
And finally, the big one…
5. Have Fun With Your Money. Life Is SHORT!
Honestly, this is the one big thing that I passionately believe everybody needs to focus on, but so few people actually do.
Have fun with your money. Life is short.
Sit down and think about the things you want now; the things that are going to make life feel better and put a smile on your face. Then make sure some of your money each month is allocated to that.
Whether it’s saving for a holiday, paying for a cleaner, taking horse riding lessons, regular lunches or days out with the girls, or just lighting a posh candle with a good G&T in the bath – make sure that you are putting time and money aside to DO those things that are really important to you and bring you joy (the small things often turn out to be the big things, after all).
It’s not enough to just get to retirement or some future point in life, where we’ll finally have enough to do and buy what we want. We’ve GOT to enjoy the journey. Otherwise what’s the point?
When it comes to looking at how to spend your money, taking the time to ask yourself “what do I want in my life every day and every week?” is one of the most crucial things you can do, so that you feel the best that you can about your finances and where your money is going!
Ultimately, these 5 key things are all so simple to do and have really can transform the way you both manage your finances AND feel about it.
But they really are just the start (hence money 101!).
If you’re ready to get organised with your finances, like never before – to actively grow your wealth and your assets and make huge progress towards your big life goals and dreams over the next 9 months – then my Asset Accelerator™ is the perfect next step.
It’s my flagship 9-month wealth planning and integrated support experience, where we start wherever you are right now, and work together 1:1 to build on that and create the future you want.
In a way that ALWAYS balances the need for security and asset growth for the future, with money for fun right now!
We kick things off with a half-day planning session together, getting you clearer on your big vision than ever before, and then work backwards to create a bespoke step-by-step financial plan of action for you. Then, over 9 months together, you get all the support and dedicated time you need, to take action on your plan and review it along the way, so you know you’re 100% on track.
Honestly, if anything in today’s blog has resonated with you, I’d highly recommend checking it out… because just 9 months from now, you could be in a completely different place!
Until next time,