Freedom of action, flexibility, professional satisfaction, need for more control, or even personal fulfillment, entrepreneurship is adorned with charms, each one more attractive than the other.
However, this path is paved with inevitable storms that you will have to overcome by arming yourself with a solid risk management policy.
The ability to properly manage his income is undeniably vital for the entrepreneur, but also for the sustainability of his organization.
In this article, you will discover 6 strategies to better manage your income as an entrepreneur.
Relevant and consistent financial decision-making requires what psychologists call “willpower.” To better understand this concept of will, we must imagine it as a muscle that can get tired. As we exercise this will, it can lose its strength and completely diminish.
Financial management cannot be based on an unsteady muscle that gets tired. The desire to do well is very difficult to maintain over the long term.
People who constantly face difficult financial decisions are less financially stable and more easily exhaust their willpower (1) . One study suggested that shoppers with less money, who often use more willpower than wealthier shoppers because they face more frequent and difficult spending decisions, are more susceptible to compulsive shopping (2) . Therefore, it seems that having to devote willpower to difficult spending decisions can drain willpower in other areas.
To guide us in defining the implementation of efficient strategies, several scientific studies have demonstrated the effectiveness of certain strategies in developing good self-control in terms of managing expenses.
Here are some management techniques to appropriate classic financial management models.
1. Strategist in his relationship with money
If motivation, the desire to do well or the will alone are not enough, what is the secret to effectively managing your income as an entrepreneur? Although all these parameters are of great importance, only a clearly defined trajectory can maintain healthy financial habits.
Beyond the monthly monitoring and control of expenses and revenues, all efforts made in the context of revenue management must have a specific purpose. Be part of a coherent perspective whose purpose for our company is clearly defined.
The creation of a new department, new acquisitions in perspective, the creation of a branch… Or is it with the prospect of affording a summer house in a few years?
Either way, it’s important to clearly budget for your future goals . Thus, whether or not you are getting closer to the goal can be clearly tracked during each exercise. This is what will allow us to continue to provide the necessary efforts even during periods when motivation is lacking. This technique makes our goals visible and allows us to break them down into concrete micro steps, thus promoting the adoption of better financial habits. Each action is thus motivated by objectives to be achieved.
2. Clear banking distinction between private and professional life
This point applies more particularly to micro-entrepreneurs and VSEs.
If there is a rather famous principle in financial management, it is that you should not mix towels and dishcloths. As much as it is necessary for good mental health to know how to distinguish private and professional life, so is it for cash flow management when you are at the head of a company.
Ideally, it is better to hold at least two bank accounts; one for our privacy and the other for the business we run. One of the most obvious reasons being that all eggs that end up in the same basket will tend to be eaten the same way. In other words, the temptation to exceed its budget to dip into that of the company is much stronger when all the funds are available in the same place. At the beginning, it starts with derisory sums to gradually evolve.
The secret to good financial management also lies in good risk management . And good risk management implies that these are minimized as much as possible. Reducing the temptation to dip into business funds is a good first step.
3. The strength of savings to achieve your goals
Saving is one of the keys to success. When you are an entrepreneur, saving is not an option, but rather a necessity.
In addition, other studies have demonstrated the usefulness of automated savings (3) . A bank account to which a certain percentage of our profits will be automatically redirected, for example, means that we do not have to decide on savings each time. Automating this process will prevent us from always being confronted with the temptation not to do it and therefore always having to rely on an iron will to stay on the right track.
However, keep in mind that the level of savings must be reasonable and above all not weigh too heavily on the company’s resources. The ideal would be to provide savings over several horizons according to each future project. Investment products can also be a good idea to avoid hoarding savings money.
But above all, it is strongly recommended to constitute an emergency fund equivalent to at least nine months of income in anticipation of possible economic crises or other moments of cessation of activity.
4. Say no to the happy consumer image
We live today in a hyper-consumerist society where the media relays information that we need a whole arsenal of things to live well. In order to make everyday life as easy as possible, we all tend to go and drink from the source of “the more you consume, the happier you are”. A representation in which the act of purchase in itself becomes an end in itself and no longer a means of satisfying a need.
Take, for example, the market for so-called luxury telephones. Why do we end up buying the latest model of iPhone or Samsung? Certainly not because one simply seeks to satisfy the need for a means of communication. Apart from the small minority who use them for professional reasons, the majority of consumers who go for these gadgets do so for the simple pleasure of owning the latest model.
From the point of view of the company in search of turnover, it is a speech that makes sense. But for the consumer who is targeted, the story is much less glorious. This is the very breeding ground for compulsive purchases that lead to large budget deficits. What’s the point of owning a phone over €1,300 if a €200 or €400 model fully satisfies your consumption needs? Especially since as an average user, we will not even use 20% of the features of this device. In other words, part of the funds we invest in this type of purchase will have been used to buy features that we will probably never need.
This consumerist drift is regularly transposed to the company with sometimes harmful consequences.
Faced with any act of purchase, it is necessary to behave as an informed and above all thoughtful consumer. Any new acquisition, however small it may seem, must meet a real and objective need for the company. To do this, it would be useful to answer the following questions before thinking about going to checkout:
- Is this new acquisition essential to the company?
- What real value does it bring?
By being honest with yourself, it is very easy to identify what is compulsive buying and without much use. We must absolutely succeed in detaching ourselves from social pressure and the traps that consumerism sows.
Implement the Deming wheel
Beyond the principles of good financial management, learning to manage your income as an entrepreneur requires above all methodology and a dynamic of learning and constant improvement.
In this perspective, the Deming wheel (4) introduces a particularly useful strategy. A tactic of quality improvement widely used in various industries, it offers an easily applicable pedagogy in the case in point for satisfactory results and which go well beyond the simple management of one’s income.
The Deming wheel presents a perpetual cycle composed of 4 stages.
As the title suggests, the first step in any project should be good planning. Clearly defined objectives and precisely identified means of implementation.
Next comes the stage of implementing or carrying out the plan. Here, more than determination or motivation, it is above all thanks to good discipline that we stay the course. Although it is completely normal to encounter unforeseen events, the objective is to stick as much as possible to the initial plan.
Control will consist of a regular evaluation of the results of our actions. This makes it possible to objectively observe its progress. But regular monitoring also allows you to calibrate your forecasts so that they are as much as possible in line with reality.
The objective here will be to adopt a new course of action which will take into account all the conclusions of the previous stage for an even more effective action. If the objectives at the beginning turned out to be overestimated, for example, this will be the place to put in place a much more realistic plan.
Resource management is an important part of any entrepreneur’s life and may require the implementation of a smart and slightly time-consuming strategy. But it’s important to keep in mind that this is the price to pay for adopting healthy habits.