This is the first in a series of articles on the most important principles of finance. Several years ago I was in an accident, and following it I asked myself, “If I knew that I was no longer going to be able to work, what would I say that would let my message to continue?” This, and subsequent articles in this series are the answers to that question. They are the lessons I’ve learned from working with clients, and they are the lessons I’ve learned myself—so much so, that many times I refer to “us” rather than “you.” They are the guiding principles that would apply to any business at any time. And while some may be obvious, it’s worth reminding ourselves of these principles anyway.
We Have to Make Money!
Obvious, yes. But this is the bottom line. Every business needs to make more than it spends and spend less than it makes… a business simply must have a positive bottom line. While this may seem as plain as the nose on my face, the fact of the matter is that I’ve seen many cases where this was lost in the busyness of daily operations. And, as best as I can tell, it comes from a sense of unguarded optimism that shows up in statements such as:
- “I just know this is going to make us rich.”
- “Mrs. Smith told me that God would bless me for all the hard work that I’ve done.”
- “Next year has got to be a breakthrough year!” Said for the 10th year in a row!
- “If that idiot Jones did it, I can do it too.”
Now occasionally there are situations where someone goes deep into debt, later to have spectacular turnarounds. Those make great news stories but aren’t the norm.
If you do not see a bottom line that you like, I want to suggest ways in which this philosophy applies to our day to day affairs:
1. Pursue money. In the classic book The Millionaire Next Door the authors describe this as an economic offense, going out and getting money. So go hustle!
2. Remember the two ways to make money: more clients and higher prices. The hustle here means networking, marketing, and getting the message out, so we have more clients. But what about higher prices? It’s about providing value to the people we meet. So as we talk to others, let’s find out what they need and want, and they’ll tell us. Then we can provide what they want and charge a premium for it.
3. We also need to remember economic defense and spend less than we make. This is quite obvious, but this is where I sometimes see that optimism. How can we guard against over-optimism? By remembering that income is what it is, not what we think it should be, not what we want it to be… it is what it is. Since income is what it is, then we have to make sure that the business’s expenses are below income. So we need to budget and spend overhead based on a reasonable forecast of income.
4. And finally, breaking even is not good enough. If we are going to thrive later, then we are going to have to sacrifice and save money now. The money we save will allow us to reinvest in the business, grow it, and sell it when we’re ready to move on and retire.
So my friend, when all is said and done, this is the prime directive of our businesses. It is also the principle under which all of the other articles in this series reside—and for that matter, the overtone of anything in these financial columns. Make money, and we’ll prosper, be able to live our fullest lives, help our families, and help our communities. It starts by making money.