personal finance for the entrepreneur

Summary

personal finance for entrepreneurs is a different game than personal finance for employees. if you carry the W-2 mindset into ownership, you’re going to lose. three rules.

1. never let a bookkeeper or accountant limit your growth. if they tell you a course was 30% of last month’s revenue and you shouldn’t buy it, run. their job is the math, not your strategy. you’re allowed to spend 10% of revenue on yourself, on coaches, on courses, on masterminds. that’s how the business gets bigger.

2. get out of the saving mentality. saving is a discipline, keep it. but for an entrepreneur the more important question is not “how do I fit my life into $10K a month” but “what’s the lifestyle I want and how do I build the business to fund it.” different question entirely.

3. track profit over everything. simple definition: after you pay everything and everyone, what’s left over. that’s profit. I don’t count my own salary in there, because in early years I didn’t take one. you should know your profit percentage and the actual number every single month.

if you don’t know profit, you might be running a business that isn’t worth running. that’s not a feeling, it’s math. find out the number. if the answer is bad, fix it or stop. either way, decide on purpose. try harder.

Transcript

the w-2 mindset is the wrong frame

The most impactful business is the business that genuinely improves another human, a better human business. And to grow a business like this, you have to continually improve yourself. This podcast is a documentation of that thesis, scaling businesses and also personal growth. My goal is for you to shortcut this journey.

So if you’re ready to try hard, subscribe. If you like what you’re hearing, please share and enjoy. All right. Today, let’s talk about personal finance for the entrepreneur. I’m Jerred Moon. This is the Better Human Business podcast. And I end up talking about this topic to a lot of different entrepreneurs.

At some point, we’re going to have to discuss finances, finances in your business, finances in your personal life. And that’s what I want to focus on a little bit more today. I just have three quick tips for you as an entrepreneur when it comes to your, your personal finance life. And they’re very much intertwined.

don’t let accountants limit your growth

So it’s really not, Hey, here’s exactly what to do with your personal finances at all. It’s more how to start thinking about things differently. Because most people that I know, you have some sort of financial education background or lack thereof, but you have a background. It’s either your parents taught you nothing, or they didn’t intentionally teach you anything, but they gave you maybe like a scarcity mindset around money’s running out, money doesn’t grow on trees, that kind of thing.

We all have some sort of background. We from personal finance that we got either from, yeah, from family, from friends, from hearing it from somewhere, whatever. And then there’s a secondary education where if you’ve ever been a W-2 employee, which I have definitely while I was in the military and shortly after.

So that means I’m, I’m trading my time for a paycheck, right? I’m getting a paycheck, I’m getting paid salary and I’m a W-2 employee. And the mindset that gets ingrained when you are a W-2 employee has everything to do with taking that paycheck, whatever it is, but it is a limited amount, right? Whatever that, that paycheck is, and then dividing it up in certain places and also making sure that it doesn’t, too much of it doesn’t go in the wrong place.

out of the saving mentality

Let me explain that a little bit more. Like if you, if you get paid a certain amount per month, personal finance, most lessons for people who are W-2 employees, the lesson is, oh, first off, don’t spend too much. We have to budget, so don’t spend too much. Try and whittle down your expenses as much as possible.

That’s phase one. And then phase two, now I’m going to slice up this pie in as many ways as I can. Some for my personal life and some for my investing and retirement and, and, and that’s how it works. And what happens is a lot of us having this W-2 mindset, this employee mindset, and then also whatever financial background we have, then we go into entrepreneurship and we try and take that same mindset to our personal finances, but you’re playing a different game and it take, it might take you a while to learn that, but you honestly are as an entrepreneur playing a different game and you have to erase all of those ideas from your brain to succeed in personal finance and finance inside your business.

So having said that, here are my three tips. The first one is do not ever let your accountant or any bean counter limit your growth. One more time, don’t ever let your accountant or any bean counter, just anybody counting the numbers, limit your growth. As an entrepreneur, the whole idea of you have to spend money to make money is true.

track profit above all else

I don’t like people when, I don’t like when people say that when they’re spending on things that aren’t maybe guaranteed or things that they don’t really know if there’s going to be an ROI, but there is 100% an ROI on investing in yourself, whether that’s you joining a mastermind or reading a book or buying a course, any of those kinds of things that are going to make you better, make you smarter, make you more efficient, they’re investments in your growth, right?

And then there’s also investments in services that could grow your business. But what happens sometimes when an accountant looks at things is they have the W-2 employee mindset and they look at it from what you can and can’t afford or how much of an expense. Hey, this course you just bought was 30% of your gross revenue last month.

You probably shouldn’t do things like that. My accountants, and I have not ever had this happen, by the way, I’ve just gotten this feedback a lot of times. I’ve never once had a bookkeeper or an accountant tell me what I should or shouldn’t do with my money, like ever once. But apparently it happens.

know the number every month

There are other bookkeepers and accountants out there who are like, hey, maybe you should cut this out, it’s expensive. But if you ever run into that, run away. Do not listen to them even for a second. Put your fingers in your ears and start making loud noises because you cannot let their mentality bleed its way into you growing a business, right?

We can’t have some W-2 employee who doesn’t understand ROI, growth, personal development, and investing in those things telling you shouldn’t be spending money on something. But if that ever does happen to you, like I said, don’t listen, run away. They don’t truly understand. You absolutely have to put money into the growth of yourself and your business.

And if you’ve been listening to this podcast long enough, you know that to me those are basically the same thing. If you get better as a human, your business gets better, your business gets bigger, all of those things. So you have to focus money in making yourself and your business better. And don’t ever let anyone looking at your books say, hey, you shouldn’t be spending money here or you need to cut this out.

That is taking the personal finance of, oh, here’s our total and we’re going to trim some of the expenses here. We’re going to try and get our expenses down as low as possible. That’s not necessarily the goal. Now if you are spending on stupid stuff that doesn’t actually make you better, that’s a different conversation.

But when I’m talking about specifically making you better, developing you as a person, developing you as a business owner, investing in yourself, even though they’re soft skills and it’s harder to calculate ROI in those things, you absolutely need to be spending that money. In fact, I would argue you need to allot a certain percentage of your annual revenue to making sure that you spend that money.

And this would be different per business size, but if I was like, hey, if you made a million dollars last year in business, I’m like, hey, 10% of that needs to be allotted to the growth of your business. And I’m not talking about advertising. I’m talking about like personal development stuff and talking about joining coaching groups or coursework.

What if you had to spend $100,000 a year on improving yourself? That’s a better way to look at it, much better way to look at it as opposed to, oh, I could not do these things. I could stop my personal growth here. Don’t ever do it. The second thing is you have to get out of the saving mentality and people might argue with me here, but again, when you’re an employee and you have a set amount of money that you make every single month, absolutely.

You need to squirrel some away. You need to save it. Now I’m not saying you shouldn’t save like I save money. Everyone should save money. That’s just a good discipline. But what you don’t need to do is only focus on saving and cutting expenses. What you need to do is focus on growth. Again, not growth that’s going to break the bank, but you need to be focusing on not this is too expensive.

I can’t afford it. The question should always be, how can I afford it? How big does this business need to be so I can afford it? You got to get out of that saving mentality because you’re an entrepreneur. You’re not a W-2 employee. If a W-2 employee is making $10,000 per month, I get it. You take that $10,000 a month and you try and break it up and make it go as far as possible because that’s a good amount of money.

But when you’re an entrepreneur, if you’re like, I actually want to make $15,000 a month, now you’re going down a different route. You’re like, hey, I actually want to take home $15,000 a month. You’re starting to ask different questions. You’re not saying, hey, how do I fit my life into this $10,000 a month lifestyle?

You might say, I want to live a $15,000 a month lifestyle because of X, Y, Z expenses. These are things that I want. It’s going to cost about $15,000 per month to live the lifestyle I want. Cool. First, get honest with yourself that’s what you actually want and then two, make a plan to how do I get to that $15,000 a month or whatever your number is.

That is the mindset you need as an entrepreneur, not the W-2 employee mindset of here’s what I get and I’m going to try and fit everything into it. Again, basic budgeting is not a problem, but you have the opportunity to go grow your income faster than an employee could. An employee’s income will grow, but it can’t grow as fast as a smart entrepreneur can increase their growth.

So that is another mindset that you need to get into. Get out of the saving mindset. Do save money, but don’t only think, oh, this is all the money I’ll ever have. It’s more scarcity-based. Think, okay, this is how much money I’m making right now. When I was first couple years of an entrepreneur, I was making very, very little money.

I was taking very little home, but I still always had this mindset of, hey, this is where I want to be. I want to be at this next level. I’m not sticking in this, this is all I have. I know I can do better. I know I can be better. I know I can grow more. So get in the growth mentality. The last thing, you have to track profit over everything else.

This can counteract with the accountant thing, because if you’re trying to increase profit, a lot of the times people are thinking, okay, how am I going to cut expenses? Because if you have revenue coming in, you’re going to want to start cutting expenses because that’s what profit is. So you have your revenue minus your expenses, that equals profit.

And so one way to do that is to have a higher profit if revenue stays the same, is to cut your expenses. But that’s most of the time a horrible mentality. On a quarterly basis, if you want to review your expenses or even on a monthly basis and see what is unnecessary or no longer moving the business forward and you cut those, maybe you have two software subscriptions that don’t make sense and so you need to cut one.

Those kind of expense cuttings, that’s a good idea. Where it becomes a bad idea is if you are making your set revenue per month, you’re spending money on advertising to get there and you’re like, you know what, this advertising is a big expense, I’m going to cut the advertising so I can have a higher profit number.

But what you didn’t know is that advertising was actually going to lead to more business over the next three to six months had you not cut it at all. So you have to be very careful about what you cut when you are seeking more profit. This goes back to the growth mentality. Let’s earn more top line revenue as opposed to cutting more expenses to be more profitable.

And that’s even getting into the weeds. Where I really see entrepreneur struggle is just not knowing what the profit is at all. And so I’m going to define what I think profit is. Profit is really just after you make all the money, you have all the money in a month, you pay everything and everyone. So you pay, if you have two employees, you pay those employees, you have your services, you have rent, whatever you paid, you pay for the services, you pay for the rent.

And now whatever money is left over, that is profit. That’s it. And the reason I look at it this way is because I operate cash flow businesses. I’m not looking to sell businesses. I’m not looking for some fancy formula. I really just want to know what money do I get to take home this month? What am I allowed to take home?

Because I do have a set salary that I pay myself, but that’s because I have a stable business. But when you don’t have a stable business, what you get to take home every month is just what’s left over. And so when you first start starting out, that could be $100 that one month, that could be no money for several months.

That could be not taking home any money for a long time. I’ve been in that boat too. But then after a while you start to take home more money. So I don’t count my salary as an expense to the company because I’ve operated all the businesses I am in right now with taking zero salary before. I’ve done that for long periods of time.

And so that’s it for me. So after you have all your revenue and you’ve paid everything and everyone, whatever that number is, that’s your profit. That’s the number that you need to track. Then you can pay yourself, you can take distributions, however you want to get that money to yourself. You could even leave it in the business and reinvest in the business through other business expenses.

But you can still count that money as profit for that month before it gets used, if that makes sense. So if I wanted to buy a $5,000 course to learn how to do Google ads, you know what I’m saying, you could, I wouldn’t count that $5,000 as not being profit because you wouldn’t be able to buy that course if you didn’t have profit.

So it’s all the mandatory expenses. And then you can either take that money home, you could have taken home that $5,000 or you can be like, you know what, I’m going to reinvest in this course next month and we’re going to get better at Google ads. So that’s the last thing that you should be tracking, profit.

You should know it every single month. What’s your profit? You should know the percentage. You should know the actual number. There’s no reason as a business owner, you should know that thing. Like how many people have like a convoluted response when I ask them, Hey, what was your profit last month?

And I’m, I might not even be asking a number. I’m not saying I don’t like, Hey, tell me that you made $10,000. I don’t care about that. Like maybe just give me the percentage. Were you 40% profitable, 20, 15, 90? What was it? What was your profit percentage? Most of the time, an entrepreneur, one doesn’t actually know that number because your accountants not typically giving you that number.

It’s something you honestly have to know yourself. Your accountants can do that, but they might count other things like your salary and other stuff. So you might have to adjust when you look at your books. So most entrepreneurs don’t know it and two, don’t really know how they should calculate it. And I just gave you the easiest way you could possibly do it is just paid everything and everyone.

And now what’s left over? What could I put in my bank account if I wanted to right now? I mean, you have to take 100% of the distributions, but it means it’s there. That is profit. You have to know that number because if that number is not good, you might not have a business worth owning because I’ve looked at that and I’ve been in really tough situations where after everything’s said and done, how much I was taking home at certain times in my entrepreneurial career, I couldn’t justify doing it for years on end.

I’ve been in situations where my employees are paid more than me by a large margin in multiple situations and I’m like, I’m not going to do all this work so other people can be compensated more than me. As selfish as that may sound, I’m not going to because for most employees, it’s still just a seven, eight hour a day job.

For an entrepreneur, it’s basically every waking minute is really spent in some capacity thinking about entrepreneurship or your business and so I’m not going to work at that level and take home like no money, right?

I’ve been in those situations and that’s not something I would do for five, six, seven years, but you go through these growth cycles where that might be a reality and it’s hard to deal with, but you have to get there, but you have to know that number because if you don’t know that number, then you might be in that situation now and you don’t know that you’re not very profitable and you might not have a business worth running and that’s a different conversation altogether because if it’s costing you personal sacrifice, time, mental struggles, all these things that entrepreneurship can do to you, but you’re not really making very much money off of it, what’s the point?

Why are you doing it? You might just need to readjust. Maybe there’s a different strategy. Maybe there’s a way to help the same people in a different way. It doesn’t mean you have to stop doing what you’re doing or you can’t help the people that you want to help, but maybe you’re just going about it the wrong way and you need to pause and look at things differently, but that’s it for this one on personal finance.

I know these things are not easy. People want to run away from personal finance. You want to farm it off to your accountant so you can not take ownership. You want your bookkeeper to tell you something’s too expensive. You want to let them make the decisions, but at the end of the day, you’re the decision maker and maybe you don’t want to have to focus on growth and you don’t want to have that mindset, but that’s your job.

If you don’t want it to be your job, then give your business to someone else because that is our job as entrepreneurs. We have to continue to grow because the economy is constantly growing. The market’s constantly growing. We have to continue to grow and you have to know your profit. There’s no excuse.

Again, you can pretend like your accountant knows, your bookkeeper knows. They might know, but they don’t care. They don’t care like you care and they shouldn’t because it’s not their business. You should care. So do the hard thing and track all of these numbers. Know what you’re doing in business.

Go out there and grow. I know it’s hard stuff, but if you don’t want to do it, try harder.