Previously published in the Phoenix Business Journal
Business owners, individuals and entrepreneurs can all agree that now is a critical moment for reevaluating financial habits to ensure future success. With a global pandemic, and an increasing amount of uncertainty in the world, the one thing you can control is your ability to create and maintain healthy financial habits.
Here are a few tips to ensure the financial vitality of your business, and your own.
Start with your mindset: The first step in becoming a better financial manager is to eradicate any thoughts or beliefs you have created that you are bad with finances. If you can handle your household finances, then you can handle your business. Build up your self esteem and maintain a different perspective. Create an achievable goal and work to attain it, visualize it and believe in yourself. Perception is the most critical component when beginning on your financial evaluation. With every action you take, whether making a purchase or drafting a budget, you are either working for or against your financial health.
Change your financial habits: Of course, it goes without saying that habits create your character. So, if you’re building bad financial habits, they need to change. Create habits that you know you can easily implement and grow upon. Begin by taking a critical look at your financial situation and highlight habits which need to be removed.
The top three damaging financial habits that cause entrepreneurs to lose money are: not budgeting, not accounting for costs and not maintaining industry margins. So, start by budgeting and sticking to that budget. To avoid financial mishaps or other easily avoidable blunders, build new habits in small increments. Small changes in your financial behavior can lead to financial stability.
All entrepreneurs have the same goal: to be financially successful. But arriving at financial independence will come down to the systems by which you operate from. It’s not a New Year’s Resolution, which you do for roughly three months and then push it off until next year. It’s a daily habit of maintenance, critical evaluation and implementation.
Try these three things to get on track:
- Apply a 1% improvement method. By doing just a little bit every day, you can dramatically change your financial trajectory. From making and keeping a budget, to cutting everyday costs, and actively engaging in your financial activity daily, you can attain any goal you set for yourself.
- Forecast costs and margins correctly. Predict your quarterly costs and even keep track of them in an app or with the help of your advisers. You need to know where the money is going in order to prepare and budget wisely.
- Decentralize. Good financial habits for the company begins with an employee driven accountability which can take many forms, such as department budget for middle management to operate within or employees’ incentives for reducing labor hours or increasing sales margins.
Build your business on fertile ground: Like having happy employees who make happy clients, you can do things with clients and vendors to improve your business. Start with:
- Encourage clients or customers to pay sooner by giving out a small discount for cash payment. Send out newsletter offers and deals to incite early payments.
- Always try to negotiate with vendors for better deals or arrangements for products.
- Brainstorm with your staff to see if they can offer more services/products to their current customers and what suggestions can they come up with. Encourage achievements, incentivize results and goals and make targets for teams to reach.
Make sure your accounting system is effective: First, evaluate if your existing system is useful. It’s not just about crunching numbers. Your books need to be tailored to your business so that you can see at a glance what matters to you. Also ask yourself, is it accurate? There are accounting principles and rules for a reason. They are meant to ensure that you are founding your decisions on rock-solid information. And finally, ask yourself, is it up to date? Real-time accounting is a treasure trove of useful insights to inform you on the path forward.
As you can see, creating financial freedom may seem daunting, but it is more of taking the time to critically evaluate your status and build positive habits. Accurately understand your situation, so you can build from there.