Over my career in financial management, expense control has been a continual focus in order to maintain and grow a business. The Third Law of Wealth and Abundance from Ron Willingham’s book “The Ten Laws of Wealth and Abundance” is a direct and no-nonsense approach and insight into personal and business budgeting and planning.
Third Law of Wealth and Abundance: “Trim your expenses to weigh less than your income”.
The first two sentences in the description of this law are: “Write each expenditure you make. Develop a plan to pay off all debts.” As Ben Franklin also says in his Poor Richards Almanac: “Wise Men do their incomes know, and where all their expenses go.”
In the book, Ben Franklin says to his young apprentice, “Our spending can mysteriously increase so as to devour all our available income. Budgeting our income and expenses and refraining from spending money we did not possess, truly laid the foundation for our accumulated wealth”.
Can these quotes be any more direct or clear to a business owner? How many times have you or someone you know experienced an increase in income, only to find at some point in the future there is more debt and tighter cash flow issues? Having a clear picture of expenses and planning them to not exceed income is the most basic of financial management techniques. Oftentimes, business owners know this, but do it “on the back of an envelope” and by looking at their bank balance each day. If there is cash in the bank = everything is good, right?–NOT!
When the economy begins to turn around, many businesses will enjoy growing sales and better times. It is in these growth times where cash flow can be even a larger issue. The need to buy inventory, sell on credit and buy new equipment, vehicles and assets all cause cash needs that can exceed income. PLANNING AND BUDGETING is the way to manage this.
Business owners are often very involved in the day-to-day activities of the business and don’t have time to take time to step back and assess the overall levels of income and expenses and projecting their cash needs. Their expertise is not in working with numbers, so it is natural to put the planning task on the back burner “because we are too busy”. This causes stress to the owner, unexpected cash flow issues and a move toward what B2B CFO calls “The Danger Zone” (Books by Jerry Mills, CEO of B2B CFO), where cash requirements exceed cash coming in. (see the link on my website to read the first chapter of these books and a message).
B2B CFO partners are well equipped to help business owners plan and address the budgeting and cash flow needs of a business. Working with the business owner, we free up their time so they can find more business establish new relationships; develop new ideas and products and markets. This ultimately leads to sales growth and the opportunity to avoid or escape The Danger Zone.
I hope this law ignites your enthusiasm to take control of your cash flow. Also know that there is help available from B2B CFO!