EntreLeadership – Financial Peace for Business
Dave Ramsey wrote the book, EntreLeadership: 20 Years of Practical Business Wisdom from the Trenches. In one of his chapters, he shares principles for money, debt and funding your future.
For me, this chapter was another way to communicate what we all know. I thought it would be a good idea to come up with a Dave Ramsey checklist and share it with you.
- Basic Principles – Things don’t have to be complicated to be correct. Keeping your accounting simple is key. You could be so smart that you miss an opportunity to be wise if your systems are complex. Proverbs says, “Be diligent to know the state of your flocks and herds.” At night the sheep lay down and the shepherd counts them to make sure none have been left behind. For business, do an accounting of your assets and liabilities. This is a must!
- Taxes Will Kill Your Business – Dave says, “I hate taxes, but I hate unpaid, unfunded taxes even more.” If you don’t keep up with paying your taxes, that alone will close down the business. Sales tax, employer tax, federal and state taxes…they add up. An owner must know how much money to set aside so there are no surprise tax bills. Do you need to set aside 15% or is it 30%?
- Budget – The profit and loss tells you what happened last month, last quarter, last year. A budget will project your income and expenses coming up. “Don’t build a tower without first counting the cost”…build with a blueprint. Business is no different than a carpenter building a house. In my opinion, if you don’t know the numbers, you should be fired!
- Act Your Wage – Businesses fail because of overspending. Decisions are made to buy nice new cars, decorate the office with expensive new furniture, or purchase the latest electronic gadgets because the business “needs” it. Don’t buy toys. Don’t overspend, especially on lifestyle items.
- Debt – We all make mistakes and we all have dumb ideas. Yet debt magnifies mistakes. If you borrow money and make an error, the debt to pay back magnifies. If a business has no debt, there is better cash flow. Using credit cards is gambling in Dave’s opinion. Businessweek magazine says that 50% of businesses use a credit card. Of those companies that do, 71% carry a balance. If that is the case, there will be cash flow issues!
- Myth: Large Purchases Require Debt – Bill is a hardworking business owner. He was renting a backhoe to dig ditches as part of his plumbing services. He became frustrated at the multiple rentals he was needing per month so he decided to finance a new backhoe, trailer and dump truck. The equipment payments were sinking his profitable business. What Bill learned is: Always pay cash for large purchases, rent until you can pay cash, outsource to avoid going into debt, or buy used. Slow and steady wins the race!
- Save! – Put a percentage of your profits aside. Wise people save money. This money can be used for three things: emergencies, inventing into the business and capitalizing on opportunities. The goal is to have 6 months’ worth of operating capital saved in cash.
- Be Generous – Be generous with your products, services and profits. Give to your team/employees, your clients and your community.