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A Technique to Cut Costs

spendingHere’s a concept that business owners often struggle to really understand: Every penny you spend is an investment.

We’re used to seeing investments show up on our Balance Sheet. We buy a new computer and we see it added there.

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When we spend money on advertising or office supplies, it shows up on our Income Statement rather than our Balance Sheet.

But we’re still spending money. It’s an investment for the purpose of increasing our sales.

The financial statement on which it shows up on is based on accounting rules. We have to understand that we are spending the money with the purpose of increasing sales.

Interdependence of business and personal finances

While we say business owners, this concept applies to our personal finances as well.

As a business owner, particularly a business owner who owns 100% of your firm, your business finances and personal finances are completely linked.

Not in a legal sense – you’ll want to talk with your attorney to select the right entity for your company – but in a philosophical sense.

Your business has to do well or it will affect your personal finances. We all get that.

What a lot of people forget is that their standard of living may affect their business. If you spend too much personally, you put more of a burden on your business to produce more income for you to take out of the business. It can really add to the pressure, particularly for a start-up business.

In our personal lives, every penny we spend should add to our happiness. If it doesn’t, it’s not a worthwhile expenditure.

Start from scratch

There’s a technique that helps you decide if the returns you’re getting are sufficient. It’s called zero-based budgeting.

For every line item on your Income Statement, you assume you don’t need to spend any money. Then you add to it for the outlays you determine will give you the return you desire.

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georgeI do this in my businesses every three years. Costs can creep in. You commit to this service or that program. It all adds up. Instead of doing it all every three years, you may pick a few line items every year for review. Just make sure you cycle through all of them every few years or so.

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marylynnLet’s take an example that applies to our businesses and our personal lives – our cell phone. I might ask myself: Do I need the package I currently have or could I cut back? Do I need unlimited texting?

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You’ll also consider alternatives. If you weren’t spending this amount of money on your cell phone, what might you spend it on? You might find you could increase sales faster or be a lot happier if you spent this money on another thing.

You might decide to increase your long-term happiness and invest this newfound money. That may make you happier now and then.

By justifying the expense all over again, away from the emotional point of purchase, you’ll spend your money on what you really want. You’ll get the returns you seek. That’s bigg success.

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Thanks for the gift of your time today. Please join us next time when we ask, “Have you evolved enough?” Until then, here’s to your bigg success!

 

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00492-093009.mp3

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The 3 Rs of Bigg Success – Part 3

Back-to-School on chalkboardIt’s Back-to-School time and we’re in the middle of a ten-part series on lifelong learning. We started by talking about the 3 R’s from our school days – reading, writing and arithmetic. Now we’re talking about the 3 R’s of BIGG success.

So far we’ve discussed two of them – responsibility and resiliency. Today we’ll chat about the 3rd R of BIGG success – relationships.

We are living in the age of interdependence. It’s amazing how much can be accomplished by working together.
Read more

Image of a credit score with the blog post title: The 5 Components of Your Credit Rating

The 5 Components of Your Credit Rating

Image of a credit score with the blog post title: The 5 Components of Your Credit Rating

BIGG success is life on your own terms. Our focus today is on money, one of the five elements of BIGG success.

Specifically, we want to talk about an asset that is particularly valuable now. Yet it doesn’t show up on your Balance Sheet. It’s your credit rating, or credit score.

Read more

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The Second Way to Create Wealth

money.jpgWhen we think talk about capital for a business, we usually think about money. One timeless wealth-building secret is to use other people’s money, commonly referred to as OPM.

The idea is to use a small amount of your own money, levered with a large amount of other people’s money.

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The most obvious example is making a small down payment for your home and then borrowing the rest. Over time, you pay off the mortgage and you own the home outright. You’ve used OPM to add a significant asset to your Balance Sheet.

Of course, with our homes we have to work to pay off the mortgage. It works even better with a business or a piece of investment real estate.

All we have to invest is the small amount needed to get started. If all goes well, our customers or tenants pay off the loan for us. Now that’s a deal!

The second form of capital

We can also use human capital to create wealth. It’s kind of the Cinderella of the capital world – it doesn’t get as much focus as money as a form of capital.

But other people’s labor, or OPL, is also a way to build wealth. Of course, by “labor”, we mean time and talent. Instead of levering money, we lever time and talent.

OPL is more important going forward

OPM and OPL are the two ways people have traditionally created wealth. OPM has received more focus because we’ve relied heavily on investments in assets and infrastructure to create wealth.

But for small business owners today, the model for building wealth in the future is likely to rely more on OPL. Thanks largely to technology, we can start businesses with less money than it used to take.

Here are three guiding principles for using OPL to build wealth:

You must consider all peoples’ interests equally.

This is the principle of equal consideration of interests. It’s all for one and one for all. As the leader, you have to consider all people in your charge equally and then do what’s best for the collective whole.

So we think going forward, the people who create the most wealth will not be focused solely on their own self-interest. You have to think about what’s best for everyone who is part of your team.

Think win / win or wait.

If you’re going to work with someone, you both must win or you should wait. A win by one is a win by none in the long-term.

As bigg goal-getters, we’re always looking for ways to add value which creates opportunities to create wealth.

Your people must buy your vision.

If you have to sell your vision, the game is over before it’s even started. You want people to see how your idea benefits them. But it has to be bigger than that. It also has to serve society in a larger way – it needs to improve people’s lives. And your people must see it.

It’s a higher form of salesmanship – of leadership – that leads to bigg success today.

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Get the tips and tools you need to be a BIGG success.
Subscribe to the Bigg Success Weekly – it’s FREE!

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Thank you so much for reading our post today.

Next time when we’ll talk about what a popular HBO show has to do with organizational structure in the years ahead. It’s related to this post so please check back in with us.

Until then, here’s to your bigg success.

 

Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00416-061509.mp3

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Getting Aggressively Passive: Creating A Passive Income That Sets You Free

(Image in today's post by lusi)