I spend a lot of time looking at the financial statements of businesses around the country. A lot of them have one thing in common: poor spending habits of the CEO. His or her habits determine the cash potential of the company. Here's why.
It's a pretty typical pattern. When a company gets started, the entrepreneur is really frugal. They have a hard time paying for staples and paper. They work long nights, making untold sacrifices to get the company off the ground, and when it finally does, something strange happens - a shift in the entrepreneur's thinking.
The Secret Bank Account
Once the company starts doing well, the entrepreneur uses the company card to purchase something as a reward for all the hard work, and why not, it's deserved. However, that quickly becomes a habit that's hard to break. Pretty soon, Amazon boxes are showing up the company daily and the CEO is taking the family out to eat on the company card every night.
Life is good. The business is rocking and the entrepreneur is finally living the life he or she dreamed about. Until...
Something Bad Happens
One day the entrepreneur goes to work and his accountant tells him they don't have enough cash to make payroll. Gulp. "Why not?" he asks. "We're billing more than we ever have before. We're killing it!"
The accountant explains that there are a lot of reasons for the low cash balance, but the biggest culprit would have to be owner draws.
Stop Spending and Start Investing
My message to you today is this: Stop spending on yourself and start investing in yourself and the company. Instead of buying countless items on Amazon, consider upgrading your server or sending an employee to a conference. Instead of eating out every day, consider adding to your marketing budget or hiring an assistant. The cash in your business is a tool, not an endless stream of frivolous purchases. Use it wisely and you'll be wealthy. Spend it haphazardly and you'll be a cash broke entrepreneur.