Perhaps one of the most difficult aspects of starting your own business from scratch is assessing how to divvy up your initial earnings with proper balance. Specifically, when setting your personal salary, it may be tempting to short yourself by being overly cautious with what you set aside for future business investments and other expenses.
Exhibiting a responsible degree of financial caution is by all means one of the most important things to remember when managing a new business in its infancy––especially in turbulent economic times. However, it is possible to sell yourself short when you are seeing success which can translate into personal and professional detriments.
Although it’s great to fall in love with your product or the service you provide, it’s important to keep your own finances in balance with what you provide. Here are some warning signs that might tip you off to a problem:
Victor Green, author of How to Succeed in Business by Really Trying gives great straightforward advice into the realities of balancing massive amounts of responsibility and stress with the kind of work you could do under other circumstances.
On the subject of working for yourself versus the alternative, he says, “If you’re not making more than you would at a job, I think you’re a fool because of the additional responsibility and risk. When you work for someone else. you take home your salary. When you have your own business, you’re at the end of a very long line, behind the landlord, the utilities, the cell phone company, and so on. I’ve talked to people making $2,500 a month from their business. I tell them they could earn more than that stacking boxes at a grocery store.”
Of course, this perspective takes the idea of bottom line earnings and sets it atop the highest pedestal of achievement imaginable while ignoring other financial and personal metrics altogether. The question of earnings versus the personal satisfaction one receives from the job they do or the people they serve is always a question every professional should ask themselves. However for those who may not be satisfied working at a grocery store-level income, Green’s advice is sound and realistic.
When it comes to personal earnings from a startup point-of-view, gazing into the future of your business and predicting where exactly you’re headed should inform most every financial decision you make in order to secure your vision of continued success. If your return isn’t as high as you want it to be at the moment, do you see yourself doing better in the future?
If your horizon is bright, continue running your business the way you thought it would work. If not, force yourself to strip yourself of naive ambition that can cloud your judgement. Being honest with yourself can sometimes mean readjusting your vision to fit the future of your industry.
There is certainly no shame in reorienting one’s work to fill holes that appear within an industry. Setting yourself and your vision in stone can lead to disastrous consequences given even small changes in the greater work environment.
In addition to questioning the status as your own boss, Green also has good advice about keeping informed about your company’s financial statistics. He proposes a simple test one can carry out to gauge basic finance knowledge.
Numbers and Finance by kenteegardin
If someone asked you simple questions about the company’s revenue, expenses, and profits for the previous month, quarter, and year, could your accounting programs give you an accurate answer within a matter of minutes? If not, Green contends you most likely aren’t well-informed about your own business and therefore aren’t able to make truly informed decisions for its future.
Green seems astonished at the amount of small businesses and startups that get blinded by unabashed expectations at the expense of diligent financial tracking. “If you stay on top of the numbers, there are many things you can do to monitor and improve your performance,” he says. “But it’s amazing how many people don’t know very much about their own business’ performance.”
If you’re a start-up owner and unsure of how to monitor your earnings and expenses at the level you’d like, give us a call. Our outsourced accounting and CFO services experts can help you carve a successful future for you and your business.
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