Financial Freedom through business ownership is about operating your business within its ability to generate sales.
It comes down to making sure money is spent on things that generate a return on the investment is how you avoid financial imprisonment that comes quickly when a business spends more than it takes in.
Overview
For many, Financial Independence allows a person to be self-insured against a financial disaster, whereas Financial Freedom means their financial situation doesn’t limit their life choices. You have the control, liberty, and freedom to choose to do what you see best.
Financial Freedom through business ownership occurs when owners actively approach their sales, profit, cash management, and business finances. They do this to avoid worrying about meeting payroll or dealing with unexpected expenses. Because they manage their cash, they have a predictable cash flow that allows them to operate their business as they choose to operate.
Too many small business owners are stressed out and frustrated, working their tails off with too little cash in the bank to be at ease at work or home. They feel boxed in without any control over their business or in their lives.
Don’t become captive to your business obligations. You start reducing your business’s financial burdens by managing your business by the numbers through your profit plan. As you fall short of your plans for profit, you are forced to make difficult choices. By eliminating costs from your business, particularly those the business cannot afford, you stop eroding the profits you need to build wealth.
Like those seeking to lose weight, the answer to Financial Freedom is straightforward. I.e., you must burn more calories (sales) than you consume (expenses) if you are to lose weight. The challenge of losing weight and developing Financial Freedom isn’t easy. It takes self-discipline and conscious effort. This is why so many people are overweight, and so many small business owners are stuck in their businesses.
Whether you are a substantial business, a business in the stretch stage, stable, stuck, or caught in the survivor stage, you have access to the tools large corporations have been using for years to create a consistent flow of income greater than the business’s obligations.
Achieving and sustaining Financial Freedom to do what you like to do in your business and life means you must keep your personal and business finances at a level where you always have enough money to cover all your expenses plus some cash on reserve to meet unplanned expenses. A common rule of thumb for reducing stress levels around cash involves a cash reserve equal to 1 to 3 months of expenses. So, if you spend $60,000 per month, you’d want to have an emergency fund of $60,000 – $180,000. This should be enough to let you weather a significant financial catastrophe, such as the loss of a big customer, key employee, or an essential piece of equipment.
Below are five Financial Freedom tips for every business:
- Understand your current financial position. You can’t achieve Financial Freedom without knowing your starting point. Looking at how much debt you have, how much cash reserves you don’t have, and how much cash inflow you need over the next three months can be a discouraging reality check. You must subject yourself to this hard look at your current financial reality to stop prolonging your financial captivity. Click here to learn how to stop being anxious about your business cash flow.
- To experience Financial Freedom, you need to view money as a tool to help you achieve your vision, fuel your business, and position yourself with less stress so you can enjoy life. If you view money negatively, your chances of making it and keeping it. This is why you need to write down your goals for the money you do have and the money that will come in. Do you want to pay down debt? Do you want to expand your staff so you can get more time out of the business? Are there new assets you want to invest in to expand your business or make it more efficient? Whatever your goals are, working to achieve them starts with what’s most important to you. Without this clarity, you will spend your money on unnecessary items that will keep you captive to your business.
- Project your cash inflows and outflows. Financial Freedom will never happen if you can’t project the cash flowing into and out of your business. When you are managing your cash, it is easier to see where you overspend. Fail to do this, and you will always be scrambling for cash to meet your expenses. What’s worse is that you will never hit your financial goals, keeping you captive to a business that isn’t improving the quality of your life.
- Spend less. When you spend more than you plan to, particularly if the spend is with money the business doesn’t have, is why most small businesses remain small. By spending below plan, two things work in your favor. First, you have more money to put aside for your financial freedom. Second, know what your business must have to serve your customers and what it doesn’t need to deliver what your customers pay you to have.
- Unload assets that aren’t generating a return so you can invest in your future. Unused assets need to be sold to free up cash and space. Use the cash to pay down debt, buy a money-making asset, or pay you a bonus. Paying off a significant debt lifts a massive burden off of the business. Every business that does this sees the amount of money they have in the bank rise because they aren’t paying someone else principal and interest any longer.
Financial Freedom is about operating your business within its ability to generate sales. Making sure money is spent on things that generate a return on the investment is how you avoid financial imprisonment that comes quickly when a business spends more than it takes in.