Bulletproof Principles for Money, Debt and Funding Your Future
In this session Dave applied FPU principles to the business. They are solid, great reminders. Here are some of the principles:
1. Do the Accounting.
Be diligent to know the state of your flocks and herds. People that don’t do accounting and can’t figure out why they can’t win are going to fail.
The EntreLeader has separate checking accounts for personal and business and never uses the wrong one.
to separate your business from your personal.
At least 25% of monthly net profit should be set aside in a separate tax savings account to cover the cash needed for quarterly estimates to the IRS. Book keeping leads to cash flow problems and they get behind with the IRS. That is the #1 pro
blem for failure in small business.
The EntreLeader knows that, to win in business, you must plan money on paper, on purpose, before the month begins; it’s called a budget. You have to project ahead of time.
Don’t build a tower without first coating the cost.
3. Act Your Wage.
Rationalizing the purchase of expensive luxuries in the name of “business” is a common mistake of small business owners.
The EntreLeader never uses his/her business as a rationalization to buy something not needed to make a profit.
EntreLeaders don’t fall for the tax deduction myth of purchasing something that is not needed purely for the tax write-off.
The borrower is always slave to the lender. Even in business! Cash flow problems are created when you lease everything and finance everything.
Borrowed money drastically increases risk. Borrowed money also magnifies our mistakes. We are going to mess up. Borrowed money hurts or even destroys cash flow.
Myth: Borrowed money is needed to start or expand a business.
Truth: Starting or expanding more gradually and with cash lowers risk and minimizes mistakes. When you trip and fall, you won’t break your neck.
Myth: A line of credit is need to cover cash flow fluctuations. Plan for it! Predict it and prepare for it!
Truth: Cash flow fluctuations can be predicted with good forecasting and budgeting. Plus, having cash saved in the business causes the EntreLeader to cover their own needs.
Myth: A credit card is needed for online/phone purchases and for travel.
Truth: A debit card will do everything a credit card will do, except create 18% debt.
Myth: A credit card will help me keep my expenses categorized.
Truth: A EntreLeader uses an accounting system, so a debit card does the same thing.
Myth: Large equipment or real estate purchases require a business to use debt. (A lot of businesses run debt free and grow at the speed of cash.))
Truth: The EntreLeader does four things to avoid risk and mistakes on large purchases:
- Pays cash.
- Rents. (What’s my back-hoe? What’s the thing I think I HAVE to buy, but could really live without? You are not in the back-hoe business. What business are you in?)
- Outsource. (There’s a guy with a back-hoe that will work for cheap.
- Often buys used. (Buy a used back-hoe.)
5. Savings Make the World Go ‘Round
Wise people save money.
Having cash saved is vital for the EntreLeader to survive and prosper. Saving in business is called retained earnings. (Emergencies, opportunities, etc.) It is really hard to stay out of debt in business and it’s really hard to save money. This helps you be prepared for cash-flow fluctuation.
Retained earnings can be used for:
- Invest back into the business
- Capitalizing on Opportunities
A good rule of thumb is to retain 50% of your annual expenses in a money market type account.
Each month, a percentage of profits should be set aside for growing retained earnings consistently as business grows.
6. Be Generous
Be generous is the hallmark of people who live successful lives and who operate businesses with soul.
Be generous with your products and services to the community and to your team.
The does not specifically say to give or tithe on business income.
However, the Bible does say to tight and give from personal income, which includes profits from business.
The tax implications are the same, and there is more privacy and anonymity when giving the majority of cash gifts from personal funds.
7. Applying the Principles
If the business already has debt, develop a three-to-five-year strategy to eliminate it by allocating a percentage of monthly profits to debt reduction.
When an EntreLeader operates his business using these financial principles, it greatly insulates them from risk and increases the probability of success.
The EntreLeader allocates a percentage of profits to:
– Debt reduction (if you have debt)
– Retained earnings for emergencies or opportunities