“The number 1 misunderstood opportunity amongst entrepreneurs anywhere in the world is the tax opportunity.”

Financial Literacy and Cashflow Management

Have you ever felt like you keep working, but you’re just not ever getting ahead? Do you feel like you keep having to work harder and harder to maintain your current lifestyle?

Chances are that you’re in need of some basic financial literacy and cash flow management skills. Now, as a Chartered Accountant, I have to admit that this is one of my absolute favorite topics to delve into with entrepreneurs. However, for many of us entrepreneurs, it really is a topic we would rather avoid.

Why is that? Because, when you are an entrepreneur, chances are you’re tasked with building something out of literally nothing. Or, otherwise, you’re in charge of building something bigger out of something smaller. Wherever you are in the entrepreneurial journey, you want to grow. You want to take the next step, you want to make it bigger and better.

NATURALLY, there’s going to be a restraint on most resources! We use assets and ingenuity to create MORE. Of course, this is going to place extra strain on all your resources - including the two resources that most entrepreneurs just never seem to be able to get enough of - time and MONEY.

Now, the time story is a chat for another day, but Money - I can help you with that.

The first step is to realise that it's not you - it's the game, it's the business, it's the nature of entrepreneurship. It's going to be tough and there are going to be months that you barely scrape through money-wise. It is what it is. It's not you - it's the nature of the game you choose to play. That’s step 1. So let go of the shame and realise what game you’re playing.

Now, once you know it is not you, the next step is realising that there are a good many things that you CAN well control that will affect the way your money resources behave. This means that you need to realise, that yes, it's not you, the nature of the relationship between entrepreneurship and money is going to often be strained, BUT there are certain things we can do to make this relationship work a little bit better and there are certain things we can do to make this relationship work a whole lot worse.

I’ve done both. In my first business I, a fearless chartered accountant, almost bankrupted us three times - because of this fearless approach to scaling too fast, having too many holes in the bucket, and trying to take too many people on the journey with me too quickly. I have also in my third business successfully managed us positively through very challenging times, including COVID-19 - not even coming near to bankrupting us again. Lesson learned - there are a whole lot of things that you can do to make your money-entrepreneurship-life a whole lot worse, but also a whole lot better.

So what are those things?

Here we go:

Step 1: Zero-Based Budgeting

The start of any healthy financial management situation is a good old-fashioned strip-down of all unnecessary holes in the bucket. You HAVE GOT TO at some point in time, pull up your latest three months' bank statements, analyse ALL the expenses on there and then classify them as incredibly necessary, somewhat necessary, and luxury.

Then comes the fun part - where can we save? Start with the luxury items and eliminate them, then move to the somewhat necessary items and see what you can eliminate there and finally look at the incredibly necessary items and see how you can save even further. Imagine that you know that you’ll only be earning 50% of your money the end of this month - so you HAVE to reduce the budget by 50%. See what changes.

Very often the things we view as absolutely necessary aren’t even that necessary, for example, a cellphone contract… Work out how much you’ll be paying for that phone over the payment period. Do you really need that specific phone? How much is that phone or even a minimum version of it, if you buy it in cash? If you don’t know these things, you need to start knowing. Empower yourself. Learn your numbers, and make it a game to challenge yourself to keep your expenses as low as possible.

Unless you want to have to work harder every single year for the rest of your life. Then, by all means, keep doing what you’re doing. But if you want things to change, if you want to get into a position where you systematically are able to work a little bit less and breathe a little bit more every single year, then keep reading and start doing the hard work.

You especially want to eliminate monthly recurring expenses - those need to be at an absolute minimum. Rather than have contracts and payment plans, you want to start working towards a situation where you’re saving upfront every month and then once in a while decide to buy something big.

I literally have a ‘capital expenses’ budget. Those are all the big things we want and need, that aren’t in the monthly budget. Make a list of them. Put your holidays, spa experiences, new laptops, new garden equipment, all the big things you want and need on that list, and get into a habit of not just knee-jerking buying these things as the need or desire arises.

Step 2: Decide where you want to be and what it's gonna take to get there

The only way to have financial freedom is to build it. So right now, are you building towards it? Chances are you’re just spending whatever comes in in a month - that’s not building financial freedom. You need to be ruthless in your pursuit of financial freedom.

So how do you get there? Don’t tell me it's not possible, it always is. The question is - are you willing to do what it takes to have the life you want? If you want a life that has x amount of passive income in it that grows every single year without you working for it, well that’s something you’ve got to first admit, then plan on how to achieve and then start working towards.

A great way to start building towards financial freedom is the ‘pay yourself first’ method. Open up a savings or investment account - my favorite is easy equities because it allows you to keep your savings anywhere in the world in every possible currency, but you can also ask a financial advisor which option would work for you, or chat with peers or we can chat about investments in some upcoming blog posts.

But you need to open an account - that you preferably don’t access on a daily basis, then whenever money comes in you always ‘pay yourself first’ at your own agreed rate. It can be 5%, 10%, 20%, 50%, whatever your rate is, but this is money you put away into your savings or investment account and then invest wisely in long-term investments that are going to start paying you again - in the form of rent, dividends, profit-share, and interest.

Another method is to work out how much money you need in investments, in order to be able to receive the passive income you want a month. Then work out how much you need to save for how long in order to get there. ChatGPT can, interestingly enough, help with that! Then you ‘pay yourself first’ that amount every single month. The rest of the money you make you then first allocate towards your monthly budget, and then if there’s any leftover that’s the money you get to then spend on one of the items on your capital budget.

That way you get to cover your monthly expenses and indulge a little bit while knowing that you have the peace of mind of being on track with creating a more financially free life for yourself.

Step 3: Get the tax man to contribute towards you reaching your dreams

The number 1 misunderstood opportunity amongst entrepreneurs anywhere in the world is the tax opportunity. Did you know that most tax laws have been specifically written to encourage entrepreneurship? On top of tax laws generally favoring entrepreneurs, there are even more additional incentives for certain types of businesses, businesses that operate in certain sectors, or even certain geographical areas.

It is your job to figure out what these opportunities are and then make sure you make use of them to power your business!

In my time as an entrepreneur, I have been fortunate to have a large portion of our ‘income’ come from monies that would previously have been paid to taxes. Because I understand how the system works, what incentives there are, how to do basic record keeping and keep my side of the slate clean, we’ve been able to grow so much faster than similar entrepreneurs who refuse to open their eyes to this opportunity.

If you’re like most entrepreneurs tax is a scary thing for you. It doesn’t have to be though. All you need is a trusted partner in the business who knows the tax stuff in the jurisdictions you’re trading in and viola - that person becomes worth their weight in gold and you’re doing business the way the government intended you to - with the assistance and not the resistance of the tax system.

I hope I’ve given you some food for thought, and some things you can get started with right away. There has never been a better time than now to start fixing your money-entrepreneurship relationship. I’d love to help you with any more info you need! Comment on this blog post or on the related YouTube video and I’ll get back to you with my take on all your money woes. 🙂

Also please let me know if there are any specific money-related topics you’d like me to explore with you further! Like I said, I love the subject! And remember, if you sign up for our premium membership you’ve got the option of having me as your full-time coach, so then I can take you through all these processes personally.

Until next time, may your money flow and all your entrepreneurial dreams come true!

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The last article in the Planning and Strategy series is Legal Considerations for Startups, Click here to read the article.

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