Your money makeover guide for 2020: Part 1
Taking action on your money to be financially-free can help you fulfil your needs while enjoying a less stressful life. These financial principles can be applied by different people at different stages of life.
You could be a small business owner looking to extract more freedom and value from your business, or a pre-retiree starting to test the waters on your readiness for retirement, or a retiree wanting peace of mind that they won’t outlive their money.
Being financially-secure is empowering
Being free from debt, having a cash reserve, owning your own home and knowing how to make your savings multiply holds the key to financial freedom.
The best part: Financial success is within reach of every person, regardless of income or age. In fact, these ‘secrets’ are based on sound financial principles.
The secrets to acquiring money, keeping money and making money earn more money have been around for a long time. The success secrets of the ancients were first revealed in a timeless classic, written in the 1920s, through Babylonian parables.
This is part 1 of a 3-part series on money makeovers for small business owners, pre-retirees and retirees. We take a look at their dreams, their goals, and the sacrifices they had to make.
- For a small business owner. Some people start successful businesses one after another while others fail to succeed in their first. We look at some of the reasons why and how to fix it.
- For a Pre-retiree. If you’re in your late 50s and early 60s, you’d probably still be working. No doubt, you’d be wondering whether you’ll have enough money to retire and whether you can have the kind of lifestyle you want when you stop working.
- For a Retiree. Retirement comes faster than you think. So, it pays to be prepared. Would you have enough money to live on during your retirement years? How much you can draw out of your retirement savings each year? How can you manage it to make it last as long as possible.
Overhauling a plumbing business
Meet Dave. He runs and operates a small plumbing business, which recently celebrated its 7th year. Susan, his wife, jumped into the family business after 5 years. She figured Dave would do the physical work and she would answer the phones and maintain the books. Money will roll in and they’ll be rich. Simple, right?
Wrong.
They dug a deep hole of debt and barely had enough funds to pay wages. Eventually, both Dave and Susan didn’t get paid because while money came in during the month, by the end of the month, there was no money left. Where did the money go? They were planning to retire in 15 years, at age 60, but that seemed like a distant dream.
When the pain of almost losing the business became big enough, they decided to seek help. Something wasn’t working and they needed help to get their financial house in order.
Dave’s father, Harry, convinced them that if they want to turn their business around, they should consult their family’s financial planner. We’d been looking after Harry’s family finances for the past 10 years.
At our first meeting, Dave and Susan discovered their plumbing business was anything but organized. No business plan, no systems, and most decisions were made based on gut feeling.
The business was making money but it also had debt and costs were going through the roof. What went wrong? We sat them down in our office to explain that businesses fail for many reasons and the 4 most common reasons are:
- Lack of planning. Businesses fail because of the lack of short-term or long-term planning. A plan should include where your business will be in the next few months to the next few years, with measurable goals and results.
- Leadership failure. The leader must be able to make the right decisions most of the time. Leadership failures will generally trickle down to every aspect of your business.
- Poor financial management. Decisions should always be based on the information you get from real data. This also includes being on the pulse and knowing how much goes in and out of the business at all times.
- Lack of systems and processes. Businesses struggle and worry about getting things done on time because there are no systems and procedures in place.
3 ways to give your small business owner a money makeover
If Dave and Susan were serious about turning their business around, they needed to focus on the following action items:
- Make a plan. It all begins with planning. It doesn’t require a 100-page formal document. Sometimes when a business has been running for a few years, it becomes too easy to lose its startup energy. Get back to basics and outline why you’re in business, how you will pay the bills, how you will make a profit and how you will market the business. No amount of planning can be a substitute for action.
- Know your numbers. Don’t confuse revenue with profit. If numbers are not your thing, hire a financial professional to explain and train you to understand what you need to measure each day, every day to ensure your business continues to be profitable. Staying profitable will solve many problems. A lack of profit could put you out of business even if you have record-breaking sales. Bankruptcy is still possible even with record cash flowing into your business. Be sure to:
- Know how you spend your money.
- Know how you use credit.
- Know what your margins are.
- Know if you’re spending money to make money.
- Implement systems and processes. A system is the overall core element you’re looking to have and/or implement in your business. It’s something that helps your business run. Processes is everything you do in order to make any given system work most efficiently. For example, systems are crucial to recovering from a disaster. So, identify the key parts of your business and think about what it would take to recover losing any of them.
Re-capturing the spark
3 months later and we’re pleased to say, Dave and Susan have implemented the above money makeover tips and are making better financial decisions based on data and their business goals. They’re tracking over 10% more in sales in the competitive service market. They now have better financial habits, are familiar with a Profit and Loss, and are no longer racking up debts that they can’t pay back quickly.
Final Note
Every small business can benefit from a money makeover from time to time. Planning for small business is much more than spreadsheets and investment risk models.
Whether you choose to do it yourself or engage the help of a professional financial planner, know that owners who lead businesses to success understand that it takes a carefully planned and executed strategy, not luck.
So, pick one or two of these tips to take action on your money for your small business; it will make your business more efficient and profitable over the long term.
Chat to the JBS Financial team how we can help you take action on your money!