There is a common trend in entrepreneurship. The trend goes like this: You have a great idea, and you build on that great idea. You become so blinded by your vision that you spend recklessly on the business without regard for your available capital.
You get nickel-and-dimed until you have nothing left, or you are in massive debt. Ultimately, this can set you back, not only in your business, but also in life. Let me explain why cash management is important to create long-term wealth building, financial stability, and entrepreneurial success.
Why Cash Management Is Important For Your Inner Well-Being
Before you can understand how to manage your cash, you need to first be able practice self-discipline and live on very little.
I know, I know: that’s extremely boring, clichéd, and even counterintuitive. However, frugality is the core of making money with very little effort.
If you look at some of the richest individuals in the world, they care very little about lavish, expensive goods and material items. A lot of them focus on simplicity and wear the same clothes every day.
It’s not that these individuals don’t have nice things, they just don’t rely on them to achieve their goals. They are often so focused on their businesses and missions that they pay very little attention to flaunting their wealth.
If you can live on very little, you can allocate your wealth and assets to making more money.
Also, you will have a newfound superpower that not a lot of people have: you can be frugal and be fulfilled. In other words, you can be content.
Being content is the first lesson to learn before you can build wealth.
Contentment is the door that allows good things to flow into your life. If you can be content with what you have, everything else that comes into your life will only be a plus. Those things are the icing on the cake, but the cake is your very own internal source of fulfillment.
Bad Ideas Don’t Fail Startups — Poor Cash Management Does
Let’s go back to what I mentioned in the introduction about how poor cash flow management is a common startup failure trend.
According to a study by Jessie Hagen of U.S. Bank, 82% of small businesses fail due to poor cash flow management (Forbes, 2020).
I experienced this myself on my first business venture. My biggest issue was that I was relying on credit to fund my business. I was so blinded by my vision that I didn’t even think about my cash burn.
The result? I lost all my money, had to move back home with family (See why that’s not a good idea), and I was set back from achieving the goals I wanted to achieve, such as finding love, starting a family, making millions of dollars, etc.
See: If You Can Make $1, Here’s How To Make $1 Million
If I had known the importance of proper cash management, I would probably be on my way to retiring early, vacationing permanently in the tropics, and sipping mai tais while running a digital business.
It’s not that the average entrepreneur’s business ideas are bad, it’s that they aren’t aware why cash management is important to sustaining their vision.
If you can conserve and allocate your money wisely when managing your business, there is no way your business can fail.
It would only be a matter of time before you find success, while also keeping in mind that you have to adapt your business as time goes on to meet the needs of the market by continuously fine-tuning.
Common Sense Ways To Manage Your Money as An Entrepreneur
Money really isn’t all that complicated. The real issue is there has never been an agreed-upon strategy as to how to gain and retain your hard-earned cash. That’s why I looked within to discern what the truths are about it.
You can look within yourself as well to find these truths to be true. Why? Because it’s really just common sense. See: KISS Principle: The Spiritual Wisdom In Keeping It Simple
If you can understand and fully trust these spiritual lessons on wealth, then wealth will start to flow toward you effortlessly. Let’s dive in!
Don’t Lose Money
Simple, right? Then why are so many people in debt or struggling to gain any strong financial foothold? It’s because they haven’t fully integrated this lesson into their lifestyle or standards.
When I lose money I didn’t intend to lose, I get aggravated—not because I lost money, but because I’m usually the type of person who is aware of where my money is at all times.
When I had a credit card, I remember looking at one of my monthly expense statements and saw that I had spent over $1,000 on dumb things. They were random meals, coffee, clothes, etc. I was shocked to have spent all that money because it felt like little expenses in the moment.
I experimented with the envelope system. I put $300 in an envelope—that was my allowance for the next month. To my surprise, I only ended up spending about half of the $300. I immediately cut up my credit card and never looked back.
I now stay aware of where all my money is at all times, through wise budgeting and tracking expenses.
Related: The Basic Grocery List That Will Save You Thousands A Year
As an entrepreneur, net worth (total assets – liabilities) will become your best metric for understanding your financial position. When you no longer are losing money, your net worth has only one way to go: up!
Choose a Business model that makes sense with your current Financial situation
If you are starting your own business, it’s not wise to jump into a costly business model without knowing how much capital you have to start with. What do I mean by that?
Here’s a simplified example: Don’t start a restaurant unless you’re ready to handle the overhead (such as kitchen equipment, staff payroll, leases, food inventory, renovations, etc.).
Every business has overhead, though some have more than others. It’s a gamble to jump into a restaurant model without actual restaurant experience, throwing money at the business in hopes that it will take off. That is a losing strategy.
However, an online business (blogging, podcasting, digital retail) or service-based businesses (lawn care, cleaning service, pressure washing) may be more practical to get off the ground with very little capital or experience, since you can simply learn as you go.
When making the leap to starting your own business, it’s wise to maintain your current job so you have the income to fuel your business. As you earn from your day job, you can slowly start to invest in your business, allowing it to grow slowly over time.
As your business takes off and you earn more money, you have more flexibility to eventually quit your day job, invest more time in your current venture, or start businesses that require more capital to get off the ground.
Start a Business Based On Your gifts, not to get rich
Remember my first venture I mentioned earlier? Do you think I started that as a form of self-expression or because I was passionate about it? Heck no! I was a naïve twenty-something with a chip on my shoulder, solely relying on my willpower to get rich quick..
If you chase money, you will always end up being disappointed—and broke. If you start a business based on your passion, you will give it the care and attention it deserves, ultimately building a sustainable brand and following.
Additionally, you will learn that every dollar put towards your passion project counts. You begin to be more strategic about where you are allocating your money within the business because each financial decision you make affects the business and ultimately your customer base and following.
If you’re only in it to get rich or are being disingenuous with your business practices, you will eventually make financial decisions that alienate your customers and cause business failure.
Your customer base is the lifeblood of the business. Without them, you have nothing except an idea. Take care of your customers and they will take care of you in return.
Make the leap the right way with proper Money Management
I firmly believe that becoming an entrepreneur is an ideal path to wealth and career fulfillment. Some people may never get there because there are still more important life lessons to discover, and that’s okay!
Others who are ready to make the leap often will run into cash flow issues as one of the primary struggles in the early stages of their startup and in the years ahead.
Don’t make those decisions without first understanding why proper cash management is so important. These key life lessons can save you years of financial setbacks and set you up for business success right from the get-go.
Everyone has a great business idea; it just takes unlocking the discipline, patience, and financial awareness to bring it to life.