Money Mistakes that Keep Your Business Broke
I'm going to tell you here - I've made all of these mistakes in the past, and sometimes I still do. Some of the things I'm going to talk about will also relate to your personal expenses as well, but a lot of this comes down to mindset.
We, as entrepreneurs, maybe when we were growing up even as kids, were taught certain things like ‘money doesn't grow on trees.’ I tell my kids that all the time, and we start developing a mindset around money. Sometimes it's good, and sometimes it's bad, but those things that we think about money really will contribute to how you can take control of your finances, or you don't at all.
So, I've broken these down to the top five mistakes that I've seen.
#1: Shiny Object Syndrome
I call this SOS as well. And this is a real deal! I see it often and I even struggle with this sometimes, especially with technology. My father, when he was alive, would always tell us that, in business, you need to have the best tech. If you go and buy something, always buy the best because it's probably already out of date anyway by the time that you buy it.
So, I have shiny object syndrome around tech items, whether it be webcams, computers, different software - that type of thing, and it is a real issue. And if you struggle with this, you're not alone. You want the new thing - the new gadget, the new software, the new tech, whatever it may be. On the personal side, it may be the new purse, it may be a new car, even some people have that as well.
It's really hard to resist these new things sometimes, especially when they're on sale. We just went through the holiday season, and I know you know you see things ‘oh my goodness, it's on sale.’ We're seeing that again now that the holiday season is gone, and things are already on sale again.
I want to give you three steps that you can go through when you're faced with a shiny object syndrome:
The first thing I want you to ask yourself is: Do I really need it? Or do I want it? Is what I have working, or is it broken?
Then, I want you to ask yourself: Is the price drastically reduced? Look at it that way because the sale is normally what gets our attention, that it’s 25% off or what have you.
If it is drastically reduced, I want you to ask yourself: How do you plan to recoup the cost of the item?
For example, if you are in the service industry and you sell your monthly service at $500, and you need to buy a new computer. Well, that computer maybe costs $2,000, so I'm going to tell my client, that computer is equivalent to four monthly clients. I want you to break it down and look at it that way. How much is it going to take for me to recoup the cost? Because you're in business to make a profit. So you need to at least figure out how long it is going to take to pay for itself and give you a return on your investment.
#2: Penny Pinching
This second one is the opposite of shiny object syndrome - you have the scarcity mindset. The ‘money doesn't grow on trees so I can never buy anything’ mindset. You spend too much time trying to do things that a product or software could, which would save you so much time doing because you don't want to spend the money. This could be as simple as a task management software. Maybe you're a penny pincher and you're like, ‘you know what, I'm just going to go the free route. So I'm going to search and search and search to find the lowest cost item or the no-cost item.’ And you spend so much time doing the research that you're really not getting the work done because you're trying to save $1.
Maybe you are too scared to outsource because you don't want to pay someone else to do something. I have been there, I've been that penny pincher. But I will tell you, the things that I have outsourced have paid me back tenfold. Not only am I helping another entrepreneur by giving them revenue and helping them in their business, so that they can help other entrepreneurs as well, but it saved me time, which saved me money.
I want you to think about those things that maybe you don't like doing or are not your zone of genius, and you're just too scared to outsource because of the money. If that's the case, I want you to really track how much time you're spending doing that particular item every month. Since I'm in bookkeeping, I'm going to go with bookkeeping. So if you're doing your own bookkeeping, but that's not your zone of genius, and you spend your time Googling things and trying to figure things out on your own, then you may be spending more time than it's worth.
So maybe your hourly rate is $100 an hour. If you're spending more than two to three hours per month on bookkeeping, then it would be more beneficial for you to outsource your bookkeeping. Then that time that you're spending doing that bookkeeping, you could be producing items that you're being paid for.
Just think about those things and it may not be bookkeeping - it may be marketing, it may be all types of different things. But think about the time that you're spending on it versus the money. And not just the money side, also think about time because time is money when you're in business for yourself.
#3: Falling for the Sunk Cost Fallacy
Sunk cost means that I've already spent so much money on this particular item, or I have spent so much time on it, that I can't get rid of it now. Here’s an example: Maybe you made the mistake of shiny object syndrome - a new product came out and it was a subscription. You went through the scenarios and you decided that you needed it. It was a software that was $50 per month that’s originally $100. Well, you paid for those subscriptions six months ago, and you haven't touched it yet, but you bought it because it was on sale. And now you've spent $300 over the last six months, but can't get out now because then it would be back to $100 a month.
So that is what I'm talking about. One of the first things that I talk about when I'm onboarding a new client is to look at the subscriptions because they add up super, super fast. Just think of that one subscription that was $50, over a six-month period of time that was $300, and then that would be $600 for the year. If your hourly rate is $100, you just worked unpaid for six hours of your time - that's how I want you to look at it because time is money.
So go through those subscriptions and see if there's anything in there that you haven't touched. It would have been better for you to purchase later at full price, and we all know it's going to go on sale again anyway!
#4: Not Having Any Savings
I want you to save for the rainy day. I want you to save for those months when cash flow is low because we all have those months. Our businesses ebb and flow - some months you have a lot more income than others. So if you are living the paycheck-to-paycheck mentality within your business, your business is going to be broke and no time flat.
So if you have a great month, you have $20,000 in the bank up, you may be thinking that you can just go buy something. No, you need to be consulting with your budget. Remember, we don't make business decisions based on what's in our bank account because that's not the true picture. We make business decisions based on looking at our budget, looking at our financials, and looking at our projections for the future. That is how we need to spend money on our business so that we don't end up broke. You need to have a budget and projections so you can save for those low-income months.
One thing I also see that most businesses don't do is saving to pay Uncle Sam. So, I don't want you to end up at the end of the year and you don't have any savings set aside. These savings should be at least 30% of your profits. You need Profit and Loss numbers so that you'll know what your profit is and then you will know how much to save for Uncle Sam.
#5: Not Paying Attention to Your Finances
You're not tracking your income or expenses and again, having that mentality of living from paycheck-to-paycheck with no plan for the future. Those things will end up making your business broke. It's all about the cash flow, so please get in the habit of tracking your income and expenses, and it doesn't have to be difficult.
You don't have to purchase QuickBooks. Yeah, it'll help you, but if you know that you're not going to go into QuickBooks every month or take the time to set it up, then it's pointless. Maybe a spreadsheet is a better route for you! If that's the case, I have a spreadsheet you can use called the Calculated Tax Planner that will simplify everything! I've had many people use it who love it and they say it's not time-consuming. You can do everything really quickly.
But in some capacity, I need you to pay attention to your finances. And that doesn't just mean the tracking. That means reviewing them, making sure you understand them. If you've been tracking your finances, whether it be in the planner or in QuickBooks on your own, and you don't understand it, reach out to me! Just say ‘hey, I'm not ready to outsource my bookkeeping yet. I've been doing it on my own, but I really don't understand the numbers that I'm getting at the end of the month.’
I want you to understand how your profit and loss came about - how the income number ended up there, how things work within your business to come up with that profit or loss at the end of the month, and understand how to make educated projections for the future. I'm here to help you give you clarity! Click here to get in touch.
