Are you an entrepreneur who’s been living paycheck to paycheck in your business?
Living paycheck to paycheck makes it hard for entrepreneurs to weather any unexpected changes or invest in new opportunities.
Today, I’m sharing some strategies that will help you manage your debt, know your numbers and start building a cash reserve so you can stop living paycheck to paycheck and create some breathing room in your business.
In this episode, I also discuss:
- Living paycheck to paycheck creates anxiety 1:45
- Building a brand with intention 5:47
- Having a plan and setting a budget 7:44
- Why it’s so important to have a cash reserve 13:02
Other episodes mentioned:
The Four Forces of Cash Flow – episode 44
Intention Setting – episode 79
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Read the episode transcript
On today's show, we're going to talk about what to do when our business is living paycheck to paycheck. Now, we hear this term paycheck to paycheck a lot in the world of personal finances, meaning that we are an employee working at a business, and we are spending more than we make. However, I can't tell you how often we are seeing this with our clients at kickstarted County, Inc. Our clients when they first start working with us, they don't know how much money they are spending. And so they find that they are still living paycheck to paycheck, right, so they trade it in one paycheck for a new paycheck, but still living paycheck to paycheck. Welcome to entrepreneur money stories, the podcast that will transform the way you think about business, finances, and money mindset. I'm your host, Danielle Hayden, and I'm thrilled to be here to help you take your business to the next level. On this show, we're going to explore everything you need to know about managing your business, finances, building wealth, and most importantly, developing a healthy money mindset. Throughout the podcast, we'll share key insights and strategies that you can apply in your daily life as a CEO and business owner from identifying your financial goals to building a solid financial foundation. We'll give you the no BS checkup on your business finances. So get ready to be inspired, motivated and empowered as we dive into the world of business finances, and money mindset. So what does that even right? So I wanted to find what does living paycheck to paycheck mean? It means that you're barely able to cover regular expenses and bills with the money that you have on hand. Right. So there's no cash reserves, there's no financial cushion. So in business this means that all the revenue that is being brought into the business is being spent immediately on operating expenses, payroll, and debt payments, right. So there's no room, after you've paid all your operating expenses, payroll and debt, there's no room to continue to invest in the business, or to create any type of financial stability. This is not only a sign of financial instability in a business, but it really creates an atmosphere for anxiety. As a business owner, it makes it difficult for you, as a business owner to weather any on expected expenses, or any changes, we are not able to invest in the next opportunity, maybe the next staff member, the next growth strategy, because we don't have that cash cushion on hand breathing room within our financials to be able to take on that next opportunity.
So living paycheck to paycheck life will make it really difficult for you to continue to grow and continue to invest in opportunities. And most importantly, it'll keep you from making strategic decisions in your business, right? Because you are not going to have the available resources to cover those immediate expenses. So think back to the time that you wanted to rebuild your website, outsource tasks in your business as a business or hire on help. Right? We need to have breathing room in our business to be able to take on the next opportunity to grow. I was working with a client this week. And she and I were talking about how much money she's spending on contractors and employees. And she was really defeated. When she first got on the call she said I just can't believe how much of my revenue is going back out the door to contractors and employees. And I feel like I can't pay myself and I can't keep up. We've all been there. We all know how that feels. And if you haven't heard me say this before it kicked started counting Inc. We have a policy This is a firm wide policy for clients and employees. This is a judgment free zone. Right? Yeah, I work out of Planet Fitness. So it's the judgment free zone everywhere. I won't take credit for that. However, we've always said that we lead with non judgment. And that's really important because it allows us to be able to work with our clients in a really meaningful way. This client was able to open up and share that with us to say I don't know what to do. Because I'm feeling frustrated in my business and hurt, I walked through where she wanted to see herself in the next year, three years and five years. And this is really important because it helped guide her strategic decision and she As two options for strategy, we can remove some of the contractors, we can let go of some of the employees, and she can take on more of that work for herself, right, she would do more of the work in her business. And therefore, she would create more profits, and she would be able to take home more of those funds. The second option is that she can continue to build her team and continue to build her brand and where she can charge more for her services, she can build a team of highly skilled individuals who can then take more off of her plate so she can work on the business rather than in the business. And as she builds us over the next year to three years, maybe she'll take less in salary, right, she might see a lower profitability. But we're looking into the future so that we understand that we're building this brand with intention. So it's not to say that living this way is going to be the permanent way to live. So if you are not sure how to set intentions in your business, go back and listen to episode 79. We aired it back on January 3 of 2023, where we walked through how to stop setting goals and really actually set intentions for the next year or three years. So that when you are trying to make these financial least strategic financial decisions, you have the guidance available to you, right, you've sat back as a CEO, and planned out where you write your what your intention was, for your business and for you personally, so that it can help you make the strategic decisions. And when you're in times where your business might be living paycheck to paycheck, it can help you understand what is the bigger goal? Where do you see yourself going? And then what are the strategies that I need to start to implement in my business so that I can get out of this cycle? Let's talk about how to get out of this cycle, right? I want you to be able to leave every single episode. With action steps. I know how valuable your time is, and I know how difficult this content can be. Money mindset and business finances are not easy. And I am so proud of you for tuning in. And being here to improve your money mindset and to learn about business finances. This is what's gonna set you apart from other business owners. This is what's going to create success in your business. So what are the steps to stop living paycheck to paycheck in your business? First step in this process is a budget. If you are not sure how or where to start, tune back into Episode 68. Why every business needs a budget. In that episode, we go into detail on how to build a budget. But it's really very simple. I know this sounds like a very big project, a really simple task. This is the process of outlining all of your revenue and expenses for the upcoming year. This can really help you identify the areas in which you need to cut costs and where you actually need to prioritize spending. You heard me right, I'm telling you that you have permission to spend in your business, you have permission to reinvest and you have permission to pay yourself. But let's do it with a plan right. When you create a plan, you can confidently spend money on your business, you can confidently pay yourself as a business owner. So tune back into Episode 68 and learn how to build up a budget in your business. Step two, we need to have a plan on how we're going to monitor cash flow. So as a business owner, you need to regularly monitor your cash flow to make sure that you have enough cash to cover your expenses right. This can involve creating cash flow projections or tracking when you will get paid from your clients or when you need to pay your contractors and vendors. But we don't have to make it so complex. Right, I am encouraging you to simplify this process in monitoring your cash flow. Now we did an episode on the four forces of cash flow back in episode 44. So if you're not sure where to start, tune back into Episode 44, the four forces of cash flow now, there's several different strategies on how you can monitor cash flow. You can create what we call our weekly dashboard where you're monitoring the cash balances. the inflow and the outflow over the next 30 days. If that feels like too much for you right now, that's fine. That might just be too much for today. He said, our clients at kick started counting Inc. When we send them their financial scorecard at the end of the year. We include their cash activity for the month. And so that would be your next option is to look at your cash inflow outflow at the end of each month, so that you can see the impact that your operating expenses, owners drawers and debt payments have had on your business. Now, I do encourage you to do this at a minimum on a quarterly basis. Obviously, the ideal situation being on a monthly basis. Hey, listeners, I hope you're enjoying another great episode of entrepreneur money stories. If you're ready to dive deeper into your money mindset, I invite you to book a strategy call with the kickstart accounting team. The KSA team is eagerly waiting to help you and support you as you make your dream business a reality. Don't put us on one of those to do lists that never get done. We know what it's like for accounting to follow you around like a black cloud tax to get started to 844-499-6969. Again, tax gets started to 844-499-6969. Do it right here right now. Go ahead and press pause. As you're thinking about it. This is something that is too important to wait, trust me, you'll wish you did it a lot sooner. All right now, back to the episode. Alright, next, we
need to start to build out our cash reserves. So in order for us to stop living paycheck to paycheck, and start to feel confident and empowered in our business, it's really important that we build this cash reserve. We talked all about how to save, and how to calculate this number back in episode 84. So tune back in to Episode 84. And the three numbers that every business owner needs to know to learn more details about how to build a cash reserve. But to summarize it here, businesses really should aim to build a cash bank that has about three, maybe six months worth of extra expenses. So you could do this in a few different ways. You can set aside a percentage of your profits each month, or you can set aside a specific cash amount each month to build up this reserve. Most of our clients ask us, How much do I even need to save right? Like what does that mean? How do I build a cash reserve? And how do I know when enough is enough? Right? I am reading a book called Stillness is key right now by Ryan Holiday. And he talks about the E word enough. And as business owners, we tend to always move the goalposts further back. So as we hit our goals, we just move the goalposts back so we never actually achieve it. And we don't need to do that in our finances, we can build a cash reserve, where we can feel confident that it is enough, right that we have enough to feel secure and confident. So in order to calculate that we would look at our average monthly operating expenses plus our average monthly cost of goods sold plus average monthly owners drawers. And lastly, add in our average monthly debt payments. Once we have this number calculated, right, once we've added those four numbers together, that is our monthly cash outflow of our business and we want to have three to six months worth of that saved in a separate checking account or savings account so that we can feel secure in knowing that we can pay our staff members continue to invest in inventory, pay ourselves and owners draw and and pay back our debt payments. We want you to feel confident as a business owner. The next step is to look at reducing expenses. Now I put this one in here really reluctantly, because I hear too many business owners and gurus out there talking about constantly reducing expenses. Sometimes that's not the answer, but sometimes businesses might need to look at where they're spending money, talk to our suppliers, find more cost effective vendors, relationships systems, software's and reduce any unnecessary expenses, right. The big area for this is subscriptions and our memberships so looking at At where we're spending money, and do we need it in our business. Now we have a really awesome tool that we use with our clients when they talk to us about profitability and wanting to increase their profits. It's called our expense grading worksheet. So go back to Episode 75, finding profitability in your business, tune into that episode where we talk about this worksheet in detail. And you can export that worksheet right there and use this in your business to reduce expenses. Now, you might walk away from that exercise with confidence that you need these expenses in your business, that you need all of these software systems and people to operate an effective business. And that's okay. The answer isn't always to reduce expenses. Sometimes the answer is reinvesting in your business. Alright, next, let's talk about revenue. This is another way to stop living paycheck to paycheck. You as a business owner can increase your revenue by doing a few different strategies, new sales opportunities, expanding your products or service offerings, targeting new customers or markets, or just raising your prices by 1%. Tune back in to Episode 49, the power of 1%, where we talk through all of the strategies that you can implement in your business to increase your profitability. This includes raising prices by 1%, decreasing operating expenses by 1%. To give you space in your business, to start to create more profits, right, the profits are going to be how we create long term sustainable, healthy businesses. But sometimes raising prices or cutting expenses can be really daunting, it can feel really big and overwhelming. And so we don't always need to make huge changes, these changes don't have to completely change who you are. As a brand. We can make small changes over time 1% Change implemented over and over again, it's going to bring beautiful, big impacts into your business. The last area to look at is managing your debt. Businesses should manage their debt very carefully. Avoiding taking on more debt than you can handle or paying off really high interest debt can really cripple your business, especially the cash reserves and the cash impact of the business. So as a business owner, we need to look at our debt to income ratio, to ensure that we're not taking on too much debt in our business. We want to again create healthy, long term sustainable businesses. And I'm not saying that we can't take on debt, tune into our episode on all about debt to get a clearer understanding of our approach to debt, and change our money mindset around bringing on debt into our business. We can bring on debt to pursue opportunities or to weather difficult times in our business. Before we take on debt we need to understand what is our debt policy or stance in our business? How much debt will be taken on and when and for what so debt with a plan and then debt with repayment. So going back to our cash reserves? Do we have enough saved up in order to be able to pay our debts over time? You have some work to do, right? We have lots of action steps to take right now that can start to improve your financial stability and reduce the risk of living paycheck to paycheck in your business. I want you to position yourself for long term success in your business. That is our mission here at kickstart accounting, Inc is to help support women business owners who are creating a legacy that are creating long term business to support the economy, hire new team members, support their family and play a bigger role. So I challenge you to implement one of the strategies in your business, and I would love to hear about it. tag us on Instagram at kickstarted counting. Right You can post the one strategy that you've decided to implement and tag us. You can also email us support at kickstart accounting inc.com And then I asked you to share this episode with one other business owner. We are going to continue to pour into this free resource for you and we ask for One thing in return for you to share this episode to share this podcast with other business owners don't keep this all for yourself. There is no competition in entrepreneurship. We are here to support one another. And we know that this topic is difficult. And we want to be able to continue to put out these resources to help you find empowerment to help you as a business owner, gain the confidence that you need to step into your power. I don't forget to like and subscribe. We have tons of amazing content coming out. I cannot wait for you to hear some of the guests that we have coming up. So like and subscribe so you don't ever miss an episode.