If you ask a group of business owners to name the worries that keep them up at night, money is sure to top the list for most. Paying off debt, increasing profitability and achieving financial freedom are topics that come up time and time again with my business coaching clients. This was true before the pandemic, but now there is even more urgency for entrepreneurs to overcome money challenges.
Research from a 2021 small business survey, conducted in October 2020 as a joint effort among all 12 U.S. Federal Reserve Banks, shows the scope of the pandemic’s financial fallout:
• 95% of businesses surveyed said the pandemic had affected their bottom line, and 53% estimated that 2020 revenue would drop by more than a quarter
• 80% of businesses reported experiencing financial challenges in the previous 12 months, and 62% of these used personal funds in response to these difficulties
• 79% had debt outstanding, compared to 71% in 2019
Business owners often tell me, “I’m so badly in debt I don’t know what to do.” So I’ve put together a five-step plan to help eliminate debt and start building financial freedom.
1. Transform Your Money Mindset
How you think about money has a direct impact on how you spend and save. Examine your current money mindset and how it affects your beliefs, decisions and actions. Do you tend to
have a saver’s mindset, budgeting and planning for the future, or a spender’s mindset, only keeping up with your short-term needs? Can you identify any mental blocks that are preventing you from making progress in your financial goals?
Bad money habits in your personal life often translate to bad money habits in your business. If you didn’t learn how to manage money and build wealth in school or from your family growing up — and many of us didn’t — you have to do it on your own. Read books, take courses and find resources that help you learn new ways of thinking about money to break unhealthy patterns.
I grew up in a poor family, with immigrant parents who instilled in me the belief that you have to work hard for your money. For many years, I worked tirelessly and lived paycheck to paycheck. Don’t get me wrong, hard work is valuable. But I think “work hard for your money” is a flawed mindset; a better question to ask is: “How can you make your money work for you?” When I started my coaching business, I began reading books about building wealth by authors like Jim Rohn and T. Harv Ecker that completely changed my perspective. Now I focus on getting my money to work for me instead of the other way around.
2. Be Disciplined
In order to get rid of debt, you need an enormous amount of discipline — which can be tough in our culture of instant gratification. Too many entrepreneurs run their companies on credit cards, spending money they don’t really have and not knowing how to break this pattern.
If this is your situation, take a step back and look for the root of the problem. Why do you need to keep charging your expenses to your credit card? What is contributing to your poor cash flow? Is it because you’re not making enough profit? Are your customers not paying you? Are you not invoicing on time? Is your team not working productively? Uncover the reasons behind your behaviors to figure out what you want to change.
3. Provide Value
The past year has been one of dramatic change: in markets, workplaces and consumers and buying habits. Don’t assume that you can keep doing what you always have and remain competitive. Evaluate your business to see if you need to replan or pivot to continue to provide value for your customers. Is your product or service still aligned with your customers’ expectations? Is what you’re selling today profitable?
If it’s becoming increasingly difficult to stay profitable with your current strategic plan, start exploring other options. What are the emerging trends in your industry? Can you adjust your business model to meet your customers’ changing needs?
4. Learn To Budget
You need a budget to run your business effectively, and very few entrepreneurs have one in place. The amount of money in your bank account on a given day isn’t a barometer for success. You have to understand your numbers: what your debt is, what your revenue is, where your finances stand now and where they will be in the coming weeks and months.
Start by calculating money in and money out for each month to see if you’re left with a surplus or a shortfall. If you have to take out debt to cover the shortfall, what is the best way to deal with that problem? And more importantly, why is it happening in the first place? What immediate actions can you take to reduce your expenses? If budgeting doesn’t play to your strengths, bring in expert help. Hire a bookkeeper or accountant to create sustainable financial systems for your business.
5. Earn More
Finally, look for opportunities to earn additional revenue. We usually talk about starting a side hustle as an individual pursuit, but a good entrepreneur goes through the same thought process. How can you expand or shift your business offerings? How can you better serve your current customers or reach a new audience?
For example, if you work from a large building but are only using a portion of it, you could rent it out as office or coworking space. If you already do deliveries for your business but aren’t at capacity, you could start providing a courier service for other companies.
Money is a source of anxiety for many business owners, but that doesn’t have to be your story. You have the power to change your mindset and actions to scale your income, get out of debt and build wealth.