Why does it matter? How much does it cost? What does it get us?
How much does it Cost?
I don’t know you, but budgeting has always frustrated me. I quit my Managerial Accounting class back in 1977, and still have not taken it again, but life experience, decades of falling flat on my face, and having to get up and start all over again, have taught me a thing or two.
First things first, understand the term “delayed gratification”.
The past two generations, have being so influenced by MTV, movies, and reality TV, that for the most part, they can hardly understand the difference between reality, and fiction. It takes a significant emotional event to wake them up from their “I want state”. Have you seeing the teenager that cannot wait to get his or her driving license because daddy is going to buy them a Jaguar or a BMW? Or the 15 year old girl who cannot wait for her birthday bash, because mommy is going to spend thousands of dollars in a party so she can flaunt here social status?
Guess what, for the most part, as parents, we have failed in teaching our children the value of an education, money, and unselfishness.
Well, that is enough of my soap box, let me step down from it, and bring our conversation back to business.
I was reading the political blogs the other night, right after a political infomercial, which I did not watch even though I am an avid student of politics here in the United States, and someone commented that one of the “real life persons” that had a role in the infomercial acted shocked when receiving the bill for the food that he had ordered at a restaurant, and proceeded to indicate, that because of the bad economy, he will not be able to eat out as much. I could not believe it.
First of all, if the economy is bad, and you have a hard time paying your bills, you prioritize. And eating out, unless it is an emergency, does not constitute a priority. TRANSLATION: you do not eat out until your bills are paid off.
You do not buy a new car or trade your old one, until you can afford it, or makes sense to do it. You do not spend thousands of dollars in a party for your children, you do not spend hundreds of dollars in new clothes, in cell phones for teenagers, or for yourself for that matter if it really does not make financial sense.
It is the same for your business. You do not hire somebody to take the trash out, if you are not making a profit, and you can actually take it out yourself.
You do not buy new computers, unless your old ones crash and you can afford them.
Think about it. You are in business because you want to make money, right? Otherwise, it will be a hobby.
Find out what your overhead expenses are, find out how much they are per month, and for the entire year. Overhead expenses or fixed expenses are the ones that you need to pay on a regular basis or you cannot operate; rent, mortgage, car payment, electricity, DSL Internet, phone, office supplies, etc.
See that I did not included Marketing, or employees in there. The reason is simple, if you cannot pay an employee, you will have to do the job yourself, or will have to contract it out. In the beginning, you will need to do the marketing yourself. Remember, if you cannot pay for it now, you just cannot afford it; TRANSLATION: Do Not Buy It.
I taught my children that if it was too expensive, we could not afford it, which means, we either get a second job, or do not get it. Both of my kids at home work, and I am proud of the fact that they are showing signs of responsibility; if they want it, they pay for it themselves, and do not expect a hand out.
As entrepreneurs, the same should apply to us.
I failed several years ago at business ownership, mainly because I did not make my intentions really clear, and while I was absent, my business partner went crazy purchasing inventory that we could not dispose of. That put us in a financial bind. Lesson learned.
How much does it cost? Can we afford it? Can we afford it now, or, if it really important, do we need to wait until we can afford it?
Write down all of your expenses. If it does not matter, why buy it? If it is too expensive, can we make do with something more economical? Or, can we improvise a way to achieve the same results without the expense of buying the hi tech, ultra fancy doohickey? Can we afford the new house and give a 20% down, or will it be more reasonable to rent while we fix our credit and save for the down payment?What expenses can you cut? Is it necessary to stop by Starbucks everyday for a latte at $5.00 plus or $25.00 a week? Or does it make sense to buy a $30.00 esspresso maker, and have as many lattes as you want daily? The $30.00 espresso machine will pay itself, if today is Monday, by Monday next week.
If the only work out you do at the gym is walking on the treadmill, and your membership is $500.00 a year, you can buy a treadmill for $500.00 and safe the membership for the next few years.
There are many ways to cost expenses. Remember, you are in business to make money, if all your money goes to business expenses, and you have not cut expenses by now, you are probably a lousy manager. There is usually a way to cut expenses, and streamline production.
Why does it matter? How much does it cost?
On our next post, we will cover the question: What does it get us?
Tell my your experiences with budgeting… What have your experience taught you?
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Again, think about your previous experiences. Has this article given you new ideas? The way you do business, could you use new ideas? Can you change the way you do certain things in your day to day operations that would save you money, and improve your output? Share your ideas with us…
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