Let’s talk about two of our favorite things today: money… and pie.
Just like everything in business, having a solid plan when it comes to finances can be the difference between success and failure. It is imperative that we align our financial plan with our vision and check back often to be sure we’re on the right track.
I am a “percentages girl,” so my favorite way to allocate finances (AKA – revenue) is the “money pie.” You get to allocate what the percent of each slice is – just make sure it’s not 100% income!
Remember—just because you’re MAKING money doesn’t mean you get to KEEP it. There is gross revenue, which is the whole circle of your pie, and there is net income, or what you get to pay yourself. And that’s just one slice.
When revenue comes in your door, one of the biggest mistakes is to use it all to pay yourself. Some people say pay yourself first – I disagree. Though I am a strong advocate for ensuring you pay yourself, you also have to pay your company.
Money Pie Slice #1:
DEBT REPAYMENT: It is very common, especially during the start-up phase of a business, to take on debt. If you have debt either business debt or personal debt – it gets paid first. The more you owe, the more your silent partner is your bank. It costs you to run your business when it’s in debt – pay it off as quickly as you can.
Money Slice #2
OPERATING COSTS: Operating costs is the amount of money it costs you to run your business. This is everything from daycare to marketing, from your internet bill to hiring a virtual assistant. It’s everything needed to keep your business going on a monthly basis. Know where every single penny is going. If you are like me, you are a disaster at your own bookkeeping so it is my first outsource and hire… healthy finance, healthy business.
Some often overlooked line items under operating costs: learning, conferences, coaching/consulting/personal development… get it? You have to invest in yourself as well as your business.
Money Slice #3
SAVINGS: This is your “rainy day” fund. You know that at some point someone will come calling with their hand out needing payment – best to be prepared. Hit with a big tax bill? No problem. Website gets hacked? No problem. Ready for a rebrand? No problem – it’s there. At the end of 2014, how much money just sitting in the bank accruing interest would make you feel comfortable and secure? Plan your monthly budget accordingly.
Money Slice #4
SALARY: You absolutely need to be paid for your work. Until you have consistent monthly income, it is really difficult to draw a salary. I work on percentages because I am not the only wage earner in my family. The more I make, the more I get paid -without putting the business at risk since it’s a percentage of my revenue.
You may choose to not receive a salary for a time, in order to focus on other pieces of the pie. That’s okay too. This is a very individual thing. Do what is right for you – but if you are earning and consistently not paying yourself – then we need to talk. You are your most valuable asset and need to be paid for your work.
I am curious, how do you slice your money pie? Do you allocate revenue? Leave a comment below with your startegy – we sure could learn from you!