In this post you will learn:
- One thing you cannot delegate in your business
- How to go from novice to financial mastery
- The biggest mistakes entrepreneurs make with money
Being financially literate is as important to your success as understanding your customers.
Maybe more.
In almost 20 years in the game, I’ve watched a lot of entrepreneurs get hurt by not understanding money. Cash flow stutters that sink growing businesses. Leverage that looked like easy money to make until it took twice as long to pay off. The owners are betting everything on an exit that will never happen. Financial reports that can also be written in a foreign language.
Errors are common but not inevitable. So I put together a framework. The Eight Pillars of Financial Mastery for Business Owners.
8 financial commandments
1. Your money, your responsibility.
It’s easy to think we can outsource financial decisions to experts. Hire a good accountant, get a financial advisor to handle it. But sometimes experts get it wrong, and you’re the one who pays the price. No one cares about your money like you do. You have to take full ownership of the decisions and results in this area, even if you have great people advising you.
2. Manage your financial reports.
Understand how your income statement, balance sheet and cash flow statement really work and connect. It’s not sexy, but it’s necessary. Too many business owners have a vague idea of what these messages are saying without really understanding the story they are telling. By understanding them deeply, you’ll make better decisions about inventory, hiring, marketing spend, and everything else.
3. Prioritize your profit levers.
Not all leverage is created equal. Three things move the needle the most: pricing, your fixed overhead costs, and optimizing for after-tax profitability. They deserve disproportionate attention. A small price increase can have a huge impact on your bottom line. Keeping fixed costs lean gives you flexibility. And it’s not what you earn, it’s what you keep after taxes.
4. Borrow wisely.
Few things can get you into trouble as quickly as leverage. I’ve seen it time and time again – taking money looks like easy money, then paying it back takes twice, three times, four times as long as expected. Leverage can be incredibly powerful and incredibly destructive. You must have a deep understanding of when and how to use it and when to walk away from it completely.
5. Invest outside your business.
If you are betting everything on a future exit that may or may not happen, you are taking a big risk. How do you know when to start paying dividends? How do you balance investing back into your business and building your personal balance sheet? These are critical questions that most entrepreneurs don’t think about until it’s too late. Build your personal net worth alongside your business, not after.
6. Get freedom, choose your job.
Be clear about when you are financially free. Not so you can retire on the beach—most entrepreneurs would be bored in a week—but so you can work on things you truly love and believe the world needs. How do you know when you’ve had enough? How do you begin to make tradeoffs that optimize for meaning over maximum profitability? This pillar is about understanding this inflection point.
7. Develop your habits.
How you manage your money has almost nothing to do with how much money you have and almost everything to do with how you were raised. We all carry biases and patterns from childhood that shape how we spend, save and think about money. Some of these patterns work for you. Some don’t. Understand your biases and try to correct them.
8. Pass it on.
If you have built something meaningful, you have opportunity and responsibility. How do you give back and enrich the world? How do you raise financially literate and responsible children, especially if you have the means? How do you mentor the next generation of entrepreneurs? This pillar is about leveraging what you’ve built to make a wider impact.
That’s the framework. I will dive deep into each pillar over the coming weeks.
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