When I see a company go out of business, I feel a little sad for its owner. I appreciate the passion and desire that fuel someone to pursue that dream. Unfortunately, a company can fail even if it offers an amazing product or service. Poor decisions, inadequate management, money problems and other factors can lead to a business’s downfall. However, you can take steps to avoid some of those mistakes.
Today’s blog is the first in a two-part series on actions you can take to position your business to thrive.
1. Live Below Your Means
When income goes up, some people adjust their lifestyle to match. They get a bigger house or a fancier car or a larger wardrobe. The problem with that is: An “upgraded” life requires a bigger income to sustain it. Another raise, another bump in your spending. If you don’t change your mindset, you’ll end up in a perpetual cycle of playing catch-up with your lifestyle.
Don’t get caught in this trap. When your income increases, use the extra money to make progress in other financial areas. Use it to pay off debt. Add it to your retirement fund. Set it aside for future purchases or an emergency. Sure, you can reward yourself a little. Put a little more money in your wallet. Just don’t get a bigger wallet.
2. Balance Your Thinking
Too many business leaders work just to be working. They focus on the next to-do list item and don’t step back to look at the bigger picture. As a result, the business operates but doesn’t move forward—like a car stuck in neutral. This kind of leader is focused on tactical thinking, but often ignores strategic thinking.
Where do you want your business to be next year? In five years? 10 years? That’s strategic thinking. It focuses on the big-picture stuff. It’s deciding on the outcome you want, whether you want it in six months or six years from now. On the other hand, tactical thinking focuses on the day-to-day stuff. It’s deciding on the actions you need to take to get that outcome. Simply put, you need to think about where you want to go and how you’re going to get there. A successful entrepreneur does both.
3. Stay Away From Debt
Entrepreneur extraordinaire Mark Cuban once said, “If you take a loan, you are no longer the boss . . . Your banker is the boss.” That’s because you don’t get to make decisions based on your company’s best interest. You’re making choices to ensure that you have enough money to pay on the loan every month.
Contrary to popular opinion, you can cash-flow your business. You might have heard of these large, debt-free companies: Chipotle, Bed Bath & Beyond, Garmin, Coach. Growing a debt-free company just takes patience and a plan. You start small and expand gradually with cash as it comes in. You’ll learn quickly that income and expenses come in predictable cycles. Once you learn the cycles, you can prepare for those fluctuations without borrowing money.
4. Remember Estate Planning
I get it. You’re a business leader, and you don’t have the time to eat lunch much less plan what happens if you die or face a serious illness. And maybe it feels a little weird. Take it from me and take time to do it—for the sake of those you love.
I’ve coached families whose loved one didn’t leave an estate plan, and the tension and anxiety made a painful situation even worse. The lack of planning left the company in chaos, too. Here are the things you need to finalize with a lawyer to avoid this turmoil:
• Will or living trust
• Guardian for minor children
• Trust fund for minors
• Durable power of attorney
• Living will (in case of coma, traumatic injury, etc.)
With these decisions in place, you can focus on your business instead of those pestering questions in the back of your mind. And your business won’t suffer if you become seriously ill or pass away unexpectedly.
In addition, you need to purchase life insurance and long-term care insurance. Both are tools to care for your family and protect your wealth. Take care of these pronto.
Which of these actions have you taken? Which do you need to pick up and do? Now that you know what actions to take, get to work! Knowing what to do doesn’t matter if you don’t actually do it!
Watch for the second part of our series which will cover emergency funds, exit plans, and one bad mistake many entrepreneurs make.