Started teaching a course on entrepreneurship tonight and the subject turned to cash flow. We were taking about the 7 C’s of lending which includes collateral. Collateral represents the ability to save and is required for any type of loan. Great character and no collateral equals no loan these days.
When we got to cash flow and need for financials in the entrepreneur’s business plan, the light went off. The dilemma of how to get into business to make a profit when you lack sufficient collateral suddenly was answered. You have to become personally profitable before even considering going into business.
Personal profitability means that you learn how to create a profit out of your existing cash flow. At any level! Og Mandino called it paying yourself first. To create a profit you must spend less than you earn. Learning to save, or live below your means, is the essential discipline of any entrepreneur. The great fallacy many of us fall into goes, “If I could just earn more money, I could then put some away.” And what happens when the money comes in? The more goes out. If you aren’t disciplined with a little, you won’t be disciplined with alot.
Since job security is a thing of the past, today is a great day to go into business for yourself. Without changing jobs or giving notice. Just take your existing cash flow as your revenue and look at your outflows as your expenses. Then figure out what expense you need to cut in order to make a profit. And let your profits grow in your personal company in a savings or investment account.
Most self-made millionaires understand this concept and have practiced this for decades, usually on modest incomes. Staying profitable in your personal life will not only build collateral but also develop the mental ability to manage the profit and loss of a new venture or face an unexpected change in your existing business. And as they say, the feeling you get from being in control of your financial situation, priceless.
So here’s wishing you a profitable life.