The Life Blood of Your Life Business
As I've stated countless times on this website, your life is just as much a business as any traditional business. And if you hope to achieve the same level of emotional profitability as successful traditional businesses achieve monetary profitability, then you must track, plan, and monitor your personal finances with the same diligence and attention to detail as they do.
Having been in business for myself for most of my adult life, I have seen countless businesses start, but only a handful that manage to survive more than a year or two. And if there's a common thread between all of the business failings I've witnessed, it's that the owners (now former owners) lacked a keen understanding of cash flow -- which is the life blood of any business, including yours.
Are You Pulling Water Skiers Behind Your Insurance Premium?
Most business failings start the same way.
The new business owner suddenly sees a "surplus" in his/her checking account, and the next thing you know they can be seen driving a new pickup towing a new speed boat.
But what these owners fail to realize, is that the cash they spent was not at all "surplus," but instead was cash that was supposed to be set aside to pay for accrued expenses (expenses that were incurred previously, but not billed until a later date).
In other words, what these owners mistook for being play money, was in fact money that had technically already been spent.
For example, if the business was just entering its 3rd operating quarter, and the annual insurance premium of $15,000 was due in December, then at least $7,500 ($15,000 ÷ 2) of the money spent for the new pickup and boat should have been held in reserve to make the insurance premium when it comes due.
But an insurance premium is only one of many types of expenses that accrue over time, but for which the bill doesn't come due until some time in the future.
Here are a few accruing, non-monthly expenses that might apply to your life business:
- Holiday and special occasion gift giving
- School clothing and supplies
- Car license plates/tabs
- Car insurance
- Car maintenance, repairs, and replacement
- Property taxes
- Dues and subscriptions
- Union dues and club memberships
- Home repairs, maintenance and equipment replacement
- Life insurance
- Medical, dental, and optical procedures
- Funeral and burial expenses
- Tax preparation
- College tuition
Regardless of whether or not you choose to set money aside for your accruing expenses, they are accruing and the bills will be coming due. If you don't have the cash available to pay them, you might enter the first stage of going out of business -- negative cash flows.
Negative Cash Flows: First Stage of Business Failure
The first stage of going out of business occurs when the business is unable, untrained, or unwilling to meet accrued expenses as they come due.
This forces the business owner to borrow funds in order to pay those expenses.
In turn, this increased debt then leads to reduced cash flows (higher debt payments), which then leads to even more debt.
This vicious cycle eventually stops when lenders are no longer willing to borrow the owner money. Bye, bye business.
Again, your life business is no different. If you are unable, untrained, or unwilling to set aside funds for your accruing expenses, don't be surprised if one of your non-monthly expenses turns out to be ... a "retainer fee" for a bankruptcy attorney.
Cash to your life business is like gasoline to a gas powered automobile. Without it your life can't go anywhere. So I hope you will take the necessary steps to keep your "cash" tank from running on empty.
The first necessary step is to use the non-monthly expense budget calculator to forecast your accruing expenses.
The next step is to open a separate "cash flow" checking account and begin depositing the monthly average amount into that account. This will enable you to pay all of your irregular bills and expenses as they come due.