Today we continue our posts…
That Eryn is referring to as Methodical Money.
We aren’t trying to swing for the fences here…
And hit homeruns.
Much of wealth creation is about consistency.
Hence…
This methodical money series.
Last week we invited you to look at your money collected…
And your money spent.
Cash in.
Cash out.
If you missed last weeks…
Take 3 minutes to read through it here.
If you don’t want to do that…
The action item was to download your transactions into a spreadsheet.
So lets talk about bank balance accounting.
This is the method of looking at your balance in your bank account…
To determine if you have money to do something.
“Oh good. There is money in there.”
“I’ll write a check…”
“Or buy that rower…”.
“Oh crap. I have no money.”
“How am I going to cover payroll?”
“When is the rent check due?”
That is bank balance accounting.
And guess what?
We aren’t going to ask you to change if you do that.
It’s a natural tendency that many have…
So why fight it.
Let’s embrace it.
In the cash flow management system called Profit First,
We just add some protections around this natural behavior.
Because remember Parkinson’s law…
Without protections…
Bank balance accounting will lead to the outcome…
That our expenses will grow to match the cash available to spend.
Think of your business expenses like counting macros.
Just like we consume calories…
Your business consumes expenses.
And for today’s post…
We want to see what your business is consuming.
You have your spreadsheet…
yes?
Now…
Create a new column and call it “Category”.
We would like you to give each of your transactions a category.
For cash in, use one of the categories below:
1. Income
2. Loan
3. My personal money
For cash going out, use one of the categories below:
1. Payroll – do not include payments to you
2. Dues – payments for recurring expenses
3. Meals & Entertainment – eating out or having fun
4. Supplies – hopefully self explanatory
5. Inventory – cash spent on things you resell at a profit
6. Advertising – cash spent to bring in new business
7. Consultants – cash spent on mentors, experts, outsourced tasks
8. Rent – The cost of your space…and go ahead and include utilities and internet
9. Equipment – items used by members in their WODs
10. Office Expense – anything else that is for the business operations
11. Owner’s Pay – anything paid to you, and any expense the business wouldn’t have if you weren’t the owner.
The difference between expenses 1 – 10, and owner’s pay is a big deal.
If I weren’t the owner of the business….
Would the business have this expense.
For example….my cell phone.
If I have a separate gym number…
Then the business would not pay for a 2nd line.
So my cell phone would get categorized as Owner’s Pay.
If my cell phone is my business number…
Then the business would pay for that and that would go under Office Expense.
If I took a trip…
Was that trip necessary for my operations.
If it was to something like the Two Brain Summit or a 321Go gathering…
Then that would be an office expense.
If it was to Disneyland….
And even if I’m able to justify that trip as a business expense for tax purposes…
That trip would go under Owner’s Pay.
So please do this exercise with your transactions.
Here’s to your financial health.
John and Eryn