When I was at a conference in San Diego last month, I had an epiphany about most new business owners and their business money stuff. Typically, when I work with a family on personal financial management there is a history of making financial decisions that became habit. When we work together, we have to often change years of money habits so my clients can reach their goals.  Business money management is different. Entrepreneurs are not generally “taught” how to manage their money. Rather than a habit to change, there is some learning that needs to happen.


In personal finance we are generally dealing with a set amount of money that consistently comes into a household as a regular paycheck on regular intervals. So, we can start from the income. Knowing how much you have to work with makes planning easier. You know how much it will take to cover all of your expenses.  When we have a deficit, a second job can be a solution, and once again we adjust to the new income.


Business isn’t that way. You may have income in the first week of the month and nothing in the second. We may have extreme income differences each month, and we may not know how much we will have to work with when the month starts! This difference is what often leads to cash flow emergencies in business, and stress when you are running negative cash. You must know how much you need to make to cover all of your expenses, but you may not know exactly which week you will make what you need.  Business money management is more dynamic and requires at least a weekly look at how things are going. 


Here are three simple steps to managing your business income as it comes in, and to keep cash on hand.


  1. Know your B-Number. You must know what you need to make, and you must prioritize the B-Number expenses first. Pay these above all other expenses to keep the business operating and able to keep generating income. If you do not have it, get your free worksheets at www.entremoneycoach.com.


  1. Track your income as you make it. You don’t need to obsess over your money each day, I had a client who did that, and she never enjoyed being an entrepreneur. Just write down what you make every day you make money. For simplicity, go ahead and write the totals on a calendar the day it comes in.


  1. Pay your expenses when cash flow is positive. You can pay the bills weekly or bi-weekly but know when you have made your B-Number, and when you are funding other things such as marketing, debt, and growth. Other coaches may disagree with me, but I have held the water bill for an extra week to ensure that my cash flow was positive, meaning I had more left over after I paid the bill, and didn’t let it run dry. I tend to be a little nervous about not having cash on hand, so I wait until I have sufficient cash to pay my expenses.


Finally, as you are making more and more over your B-Number each month, make sure you are funding an emergency fund. A good rule of thumb is three times your B-Number to keep on hand to protect against cash crunches. Just open a free checking account and start to put some money away.

This question coming from a financial coach probably seems a little odd. But the fact is, you may be losing business by being too cheap with your company. Perhaps you have been holding off finding a VA or new software or marketing support. As entrepreneurs we sometimes tend to count pennies and ignore the bigger benefits that we would receive by investing a little money.

I don’t think that you should throw your money around willy nilly, however. I want to give you a quick and easy process you can use to help you make the decision to either invest in new products and services, or to find the places to trim products and services you no longer need or use. The Cost-Benefit analysis for this is simply a tool to examine whether the benefit of something in your business will outweigh the actual cost of having it.

The easiest way top do this is to sit down and write, yes hand write all of the benefits of adding the new product or service. Be specific. For example, a Virtual Assistant will save you time that can be better available for money making activities. Email Automation can make sure nobody who opts in for your newsletter falls through the cracks. And continue to list the benefits that you will personally receive in your business. Then look at the cost, financially, to your business. Many times, when you write it all out, the investment is a “no brainer” and your business will benefit so much you need to add whatever it is, now.

On the flip side, if you are wondering whether to keep something in your business, you can use the same approach. If the benefits (be honest) are not enough to justify the cost, you can likely remove or replace the product or service. I do this periodically because software and platform products evolve and add services, and it is possible that I no longer need a particular product because the function is available in something else, I am already using. I find this process especially helpful when I am trying to decide, “what goes next?” in my business.

I use a cost-benefit analysis almost every time I make a decision to spend money. I keep a list of products and services I would like to have that would make my life easier or would make my client’s experience better. When I have to choose between two services, because I want to make every change financially sustainable, I write the benefits of each service, relative to the cost, and decide which one gets me closer to my goals faster, or the one that makes back my investment quicker.

It’s critical to spend the “right” amount of money in your business every month to allow you to sustain your current level and facilitate growth. If you haven’t used this process before and need to make a next investment decision (or to remove a service) set aside some time before the start of 2020 to try it.