Cultivating Income & Expenses

Doing your business is part of your purpose and continuing to fulfill your purpose means paying attention to your income and expenses. Your passion for your business may fade when you think about the income and expenses part of running your business and I understand that, especially if you aren't a "numbers person."

Do you ever feel like you just can't get ahead in your finances, yet somehow your business stays open?

You can control your cash by cutting your expenses or increasing your income. The more space you have between your income and expenses the more comfortable you'll be within your business. From experience, I am more balanced, peaceful, and feel more in my purpose when I am financially ahead than when I'm behind.

Look at each line item in your expenses and confirm it gives you the best return on your money. Your income and expense statement shows a series of expenses. Do you use software to track your expenses or do you use a bookkeeper? If you don't keep track of your expenses using a software I often point my customers toward Mint.com because it integrates with your banking system easily and it's intuitive. When you don't track your finances it's hard to keep control of your finances. When you don't track you're left with just gut feelings and instincts. You spend less on groceries, hobbies, your children, etc. because you enter a space of doubt and deprivation. People also get rid of things like marketing because they don't think it's worth the money but marketing is one of the two things that will quickly close your business.

Fixed expenses- Things you've agreed to pay usually a year at a time like rent, insurance, utilities, phone or internet that's under contract. When you're viewing your expenses, take all of your expenses, print out your profit and loss statement, and go through and prioritize. There is only 1 number 1. What's the single most important thing that you must pay? Is it your rent because if not you won't have an office or is it your insurance because if you aren't bonded people won't hire you. Whatever it is, be clear on the first, second, third, and so on. For how many items are on your P&L rank them. Look at your fixed monthly costs and then consider the priority ratings you gave them. The ones with the lowest ratings I want you to consider those fixed costs first. What can you do about cultivating those? Are those things actually serving you? Are you happy with your POS? Can you let go of your car lease and buy something more practical? 

Be disciplined. You'll want to decide that everything is valuable and that you need to keep it. But be honest with yourself. Does it give you a solid return on your investment? Does it give you value? Look at other providers for your services and see where you can replace or cut cost by changing services. 

Be able to answer the following three questions about each line item:

1. Is it giving me everything I want it to give me?

2. Am I getting a real return on the money I'm paying for it?

3. Is there a better way I can do this now that I know more?

Variable expenses- Things you can change the cost of month-to-month (unlike fixed costs that you can usually only change once a year). Postage, taxes and refunds, repairs and maintenance, newsletters, bookkeepers, etc.  You can choose your tax bracket and how you're taxed, you can choose how often and when to make repairs, you can decide what supplies to buy and what trips to take. Go through all of the line items again and make sure you're getting everything you want, that you're getting what you're paying for and review whether there's a better way to do it.

Direct costs- There are costs that go directly into your product called cost of goods. If you sell books, how much does it cost you to buy them? If you're a plumber your direct cost is what you pay for pipes and fittings. You can change these but it affects the quality of goods and that changes your brand. Pick your goods based on your brand integrity. You can choose your employee pay rates, the amount of marketing you do. The more products you sell the more direct costs you have but it remains the same percentage of each product you sell or service you offer. 

If you buy a book for $10 and sell it for $20 you have a clear $10 margin. If you sell 100 books you'll have to spend $100 but you'll still earn $100. 

You can make a choice about your expenses and your cost of goods. Start with the lowest priority first and answer the three questions above. Raise your business and your purpose to a higher level.