Sometimes it’s healthy to be in the red for brief moments—for instance, investing in a product or process that will pay out or make your company run more seamlessly. But be careful! You have to really understand your budget before the risk is worth it. That means you know exactly how much income you are generating and how much your expenses are. How can you make strategic moves if you don’t know where you are starting from? To do this well, you need what I call Cash Flow Awareness.
On the practical side, this means you know what your typical monthly income and expenses are. You’ll need a system to get the information and possibly someone to translate that information for you. That doesn’t mean you aren’t aware or intuitive when it comes to business, just that you need to balance your budget and see it on paper. If you’re losing money, seeing it in print can feel more real, and it can help you understand how you got there in the first place.
The goal is to balance your spending—that’s going to help you make more money later on, trust me.
Four easy steps to balance the budget:
1. Gather up your most recent bank and credit card statements. The last three months will give you a nice overview.
2. Add up your total income from your business.
3. Write down the amount you spend each month and total it. Then, divide it by three to get the monthly average.
4. Finally, add up your business and personal expenses and subtract this from your income.
Everything in the green? Good, you’re aware of your cash flow. Nothing can get by you!
Find yourself in the red? This isn’t something to despair over. I see it happen all the time. True, you’ll have to sit down and figure out the Money Leaks, but that just requires a little commitment and dedication—and I’ve never met a business owner who didn’t have those qualities.