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Business success is dependent on a solid financial foundation & success looks different to everyone & there is a lack of equity of access to resources and information for small business owners and independent contractors & there is a societal narrative making us believe “balance” is our ultimate goal & … There are so many “&”s that impact being your own boss. Let’s have some frank discussions on the basics of business with a holistic focus on everything that helps business owners define and find success.
Molly 0:08
Hello, hello. I am Molly Beyer, host of the Ambiguous &: Business Basics and Beyond, a podcast where we have frank discussions on the basics of business with a holistic focus on everything that helps business owners define and find success. There are so many ands that impact being your own boss. Join us as we explore all these ands and more. Like, subscribe, or follow wherever you get your podcasts, and let's explore these ambiguous ands.
0:38
Hello and welcome to the Ambiguous &: Business Basics and Beyond. I'm your host, Molly Beyer, and I'm here to lead you through frank and holistic conversations on the basics of business. Today, we're going to start a conversation that's really near and dear to me, and it's using mindset and habit to build good financial habits. This starts to kind of move into the more emotional kind of woo-woo side of my chaotic superpowers. So when I'm getting into this space, I like to set an intention for the time I'm here. As business owners, our job is to grow our understanding of money and how it impacts our businesses and our lives. And so today, here in this space, I'm asking you to join me with an open mind and an open heart for this conversation, so that you can be open to new ways of thinking, so you can leave smarter, more aware, and excited to explore new possibilities of yourself.
1:40
Okay, so now that I'm more centered, we're more centered together, we're going to talk about money and how our mindset and our habits shape our financial success. The reality is that for many of us, our business cash flows directly into our personal cash, and so even if we have good financial separation, our financial worlds significantly cross over. The reality is also that many of us are not managing our personal finances nearly as well as our business finances. And the deeper reality is that most of us are not managing our business finances as well as we could either. And so by many of us, I am definitely meaning myself as well. So confessions of an accountant, I may have kept meticulous records and budgets in my personal world, but I've also kept years of trauma and disordered thinking about money. So in my personal space and in my business space, money always felt really tight. When I finally started to examine my personal finances, I realized that I needed to shift my money mindset into more of that business owner mode. How I manage my businesses financially directly impacts how much money I have in my personal bank accounts, and so I do manage it differently. So I really needed to make that mindset shift. Mindset shifting, though, starts with deep understanding. And so what we're going to do today is to start deepening our understanding of basic business financials, the connection between the personal and business financials and the really strong need that most of us have to shift from financing to funding.
3:28
So as a business owner, you really have to understand your business finances. That is an essential piece of running a business. But too often, business owners only learn the bare minimum, or they outsource entirely. And outsourcing is great for accuracy. I am a bookkeeper. I know this, but you do have to finance, elevate your financial literacy so that you can make sure you run your business in the best way possible, and especially as you're looking to move your personal mindset to more of a business mindset, this understanding of these basics is key. So let's break down a little bit on really the key financial statements within a business.
4:10
The income statement, also known in the US as the profit and loss or P and L. This is a statement that shows your revenue, your costs and whether you're profitable. It's literally your income minus your expenses to determine your net profit or your net loss, as the case may be. Your balance sheet, on the other hand, tracks your assets. So those settings are like cash and receivables against your liabilities, things like debts and loans. And so this is where you talk about equity, when we're talking about a business or net worth in a personal space, so it's either having positive equity in your business, which means your assets outweigh your liabilities. Same thing in your personal space, if you have positive net worth, that means that your assets are greater than your liabilities. Yeah. And so one crucial distinction that most business owners miss with these reports is that things like loan payments don't show up on your income statement. They're reductions to liabilities on your balance sheet. And so while those payments directly impact the cash flows in your business, you can't use either of these statements alone to budget. And so this is where this understanding becomes really important, because it helps prevent any financial surprises. This does sort of lead to the statement of cash flows. This is a report that shows the cash generated by a business and how it moves within that business, the three key areas it's looking at: our operations, investing activities and financing activities. And this, this does get really nebulous, and the statement is, cash flows is a hard one to use without accounting assistance to help manage your business. And we are going to do a whole episode, probably multiple episodes, dedicated to cash flows, because it is a really hard one for people to understand. But understanding that neither the income statement nor the balance sheet is that full picture for things like budgeting is the first piece that's really important here.
6:16
So when we start now talking about the link between personal and business finances. So your business and personal finances, again, they're deeply connected. And yeah, I am saying that again because it's hard to think of them as separate entities. You know, poor cash flows in your business do directly impact your personal financial health when you're a small business owner, and many business owners do find themselves using things like personal credit or financing to cover business expenses, especially in the beginning of the business or in times of financial crisis. So when they start that intertwining of their financial worlds, it's really hard then to separate them. So our goal is to create some financial stability.
6:56
Some of the best ways to do that are two, yes, I know I'm talking about how these things are interlinked, but separate business and personal accounts. So this means you have separate business bank accounts and separate personal bank accounts, and you are not combining those two. So this makes your bookkeeping and taxes a lot easier, but it does also give you greater protection, specifically, if you are an LLC, so if you're simply a sole proprietor filing your taxes under your social security number, you really don't have a lot of legal protections. So most people do tend to form an LLC, a limited liability company, to help give them some of those legal protections at the state level for their personal life. So basically, if you're sued by a client or a creditor or the business is trying to, you know, get money from you, with that LLC, you do have the opportunity then to have some of that protection for your personal life. However, if you are muddying the waters on your own by regularly mixing business and personal finances, then too in that legal sense. So keeping separate business and personal accounts and always keeping them fully separate is really important. It also does keep you in a healthy mindset around the financial decisions that you're making for both your business and your personal life when you are looking at them as those separate entities as well. I recommend tracking both sets of expenses using a consistent system. So I highly recommend that business owners have their personal finances in an accounting software as well, and recommend that you use the same one that you're using for your business books. So if you're using QuickBooks or Xero or Freshbooks or Wave or something like that for your business, I recommend using that same one for your personal bookkeeping as well. It helps you become more familiar with the system, and really increases your understanding of the different financial aspects that are covered on your financial statements, because you're seeing that transaction level, how they're impacting those statements.
8:57
It also really helps you see the true movement of your money. And so one of the best examples I can give you of this is credit cards. How do you track your credit card expenses, especially in your personal budget? Because, like, legit, who is actually reconciling their credit card every month? You're just keeping track of your payment, right? That's how you're budgeting. You're saying, I pay $500 to my credit card every month. So if you're keeping track of a business credit card in that business, you are tracking the expense that you put on that credit card, including the interest charges, and then you're moving the money from one account to the other, so from checking to the credit card or whatever. So you're tracking your expenses on your income statement, and you're tracking that money movement then on your balance sheet. So here maybe you paid $500 to the credit card. That was your cash flow out there, but you actually incurred $1,000 in expenses for the month, in purchases and interest charges. And again, who's balancing their credit card? If you're in your business, generally you are, not everybody, but for your personal you're not paying attention to what you're putting on there. You're only budgeting that monthly payment. So what I want you to start thinking about is, what would you do if you didn't have access to that credit card?
10:11
So this is a great way to segue into sort of our next needed mindset shift, and that is the idea of shifting from financing to funding. So many entrepreneurs rely on loans or credit to cover expenses, and this really leads to a really bad cycle of debt. Credit cards, lines of credit, consolidation loans- these might be increased cash flows into your business, but they come at such a high long-term cost in interest and fees that they're not always worth it. So instead, start prioritizing building funds to support growth without relying on financing. Some ways to do this, start saving intentionally. This makes it so that you don't just have to react to financial needs. Anything extra that you can be saving each month, but you can also pre-save instead of financing. So say, there's a piece of software or equipment that you want to buy. See what you can reasonably save each month to build up a fund of it for it instead. So instead of, say, you know, putting $5,000 on a credit card to purchase that, especially with average credit card interest rates around like 21% at the time of recording of this episode, and that's average for both personal and business credit cards, currently, that's a huge amount of additional expense to take on for that purchase. So even if I say I'm going to put that on my credit card, I'm going to pay it off in six months, that's still an obscene amount of interest to pay, when instead, I could have operated a little leaner in those six months to save that money, or say, I'm going to put it, you know, $1,000 towards this each month anyways, do it to save instead of to pay off that credit card. Because the reality is, again, I might intend to pay it off in six months, but something inevitably is going to come up to set me back. And at least if it's savings, that setback only pushes back my time of purchase. It's not adding debt. It also keeps that money liquid in case, whatever that setback is requires additional funds, because even like a liquid asset, like a piece of equipment, resale value is rarely equal to purchase price. So if I need to recoup that cash quickly, it's not as easy for me if I've already financed it.
12:25
Another thing to do is keep your expenses within your means. Here again, if I can't afford the thing I want to buy, I need to examine whether or not I actually need it. In a business, if I don't have enough money to pay my expenses, I'm eventually going to lose my business. In my personal life, I might lose my car or my house, and it is really hard, because with so much access to credit and financing, as well as just like all the media that we consume and what we feel like we're supposed to look like or live like, it becomes really hard to make the conscious decision to just live solely by your means. But if I operated on my life on cash alone, I couldn't spend more than I had. And so that's really a mindset to start adopting. If you do have money to spend, if you do have, you know, savings, or you are looking at financing options, look at investing in assets that build long-term value. So whether that's tangible assets like real estate or vehicles or equipment, or it's intangible things like patents or trademarks or copyrights. This is really where you want that thoughtful financing to go if you're going to do that. And of course, whenever possible, save to purchase outright or use your built-up savings to do it. But this offers stability to your financial situation, and it also increases your creditworthiness for times that you do need to finance something, because both your business and personal finances have credit scores, and this positive equity is going to really significantly increase those credit scores in both areas. If you're like me in my early explorations of these ideas with my personal and my business finances, even starting to think about this is going to start feeling really crappy, because when I dive in, it's really easy to see everything that I've done wrong, but sitting in that space really doesn't help me find a way out. And this is where mindset shifting is really, really important and really gratitude is at the core of all mindset and habit shifts, and mindset and habit shifts are at the core of financial success. And so what do I mean by gratitude? It's very intentional.
14:28
When we look back and we see all of the mistakes that we've made, it's really hard to be grateful for where we are. But instead, if I'm looking back to see how far I've come from my past self, it's a lot easier for me to be grateful for all of their decisions that I made right moving forward, all the things that I did well. So I'm going to use an example and so okay, more Confessions of an accountant. I do have a credit card in my business, and I got it for a specific purpose, and then, you know, as happens, I ended up putting a bunch of stuff on it that I'm like, Why did I do this? So a series of poor decisions ended up with the credit card debt that I didn't want in my business, and so I could look back on this debt and see all of the things that I did to get it there and beat myself up about it and have it be terrible. I can live in this gap space and just be looking back over this chasm of mistakes, or I can look back at what I've gained, what have I done correctly? And so a lot of it has to do with like that moment of recognition of, oh, wait a second, I don't want this. And so what did I start doing? I started balancing my credit card, which I should have been doing anyways, but I hadn't been, and I realized I had recurring expenses on there that were costing me more because of the interest than they should have, and so I just moved them to my checking account, which is where they should have been in the first place. Why they were on my credit card, I couldn't even tell you, but they're moved. I was also financing a software that wasn't bringing in any revenue, and so I decided to stop that until we actually have the revenues that decide to pay for it, or we've decided to just not go forward with it at all. And I was also putting a monthly business hotel stay on there because of the holds that they have a lot of time, because I always stay at the beginning of the month. And if my receivables are not in when my beginning of the month payables are going out, sometimes it would leave me with a really narrow amount in there, and that hold could cause problems. And so I negotiated a lower hold rate with that hotel, because I'm there every month. They see me, they know me. They know I can always do this, so I didn't have to worry then about putting it on my debit card instead of my credit card. So that made a big difference. And also now that my movement on this card is generally going down anyways, and all of my money issues are much less because I'm starting to also look at how this impacts other areas, I don't have to worry about that large hold anymore causing issues, because my cash flow is not a problem. So you know, those cards gonna be paid off within like, the next six months, that's amazing. And I also had that opportunity again, to look at where I was spending in other places of the business. I wasn't just looking at the credit card, I was looking at all of my other expenses and where I could remove or reduce those so that, again, these cash flows aren't an issue anymore. That's a huge gain. That looking back makes me super happy, and so when I look back, I don't think about all of the things that I did that got me into the situation. I'm looking at all of the things that I've done to help move my way out of this. It's a huge gain, and it's also shifted my way of thinking with my personal finances and added to greater gains there.
18:03
So this is where another area of gratitude comes in, and this is an actionable gratitude space, and that is creating future gains by what I do today. That's deciding that today, what I'm going to do is going to create that space, that success space in the future for me to look back at and be grateful for the progress that I've made. Because happiness, if it's always tied to like a goal, if you know a financial goal, or or something like this, if we're always looking back and saying, Oh, this is where I wanted to go and I didn't get there, we're never going to feel satisfied if we're instead living in that gain space, if we're focusing on the wins, You know, we're working to pay off debt. We're improving our cash flow. We're just feeling more confident about our numbers. That's what's going to lead us to a space of happiness overall.
18:50
So let's kind of close here with just a little exercise. If you're comfortable, share in the comments what a financial win is that you've had recently, you know. And also, what's the financial habit that you want to strengthen, even if you don't put it in the chat, just think about it on your own. What is the financial win if you look back in that gain space? What is something that you've done well with your finances recently? And then, what is one of those habits that you want to change so that you can shift that mindset and decide what actions you're going to take, so that when you look back from the future, you can see what that gain was. Shifting our mindset and implementing better financial habits help us to create the sustainable success that we need. And so next episode, we're going to build a little more on this with really putting habits as discipline into that space to achieve that success that we're really looking for.
19:45
So thank you so much for hanging out with us today. Again, we'd always love to hear your feedback on today's episode and any requests for future content. Drop a comment or suggestion. Join us next time too, for more frank and holistic conversations on the basics of business, and please also like, subscribe or follow so you never miss an episode, and until next time, I am Molly Beyer, and this has been the Ambiguous &: Business Basics and Beyond. Have a wonderful day.