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The 4 commandments of money

Les 4 commandements de l'argent

The 4 commandments of money will allow you to put all the chances on your side by adopting a healthy management for yourself and your company. These 4 rules are:

  • You’ll pay yourself first.
  • You’ll be profitable from the first day to the last.
  • You’ll make money before you spend it.
  • You’ll use the money to buy your freedom.

The many risks of mismanagement for your business

A study by the analysis institute CB Insight gives 2 main reasons for the lack of money for which young companies end up closing down.

  1. The market does not exist : The company does not manage to generate a turnover.
  2. Expenses are more important than revenues : You go bankrupt because the business runs out of cash reserves.

Most problems could be avoided. First of all, to prevent the absence of a market, you can carry out a quick market survey.

Click HERE to find out how to set your rate to apply “Market research in 7 questions

Even if you don’t consider financial freedom to be your primary goal, it’s still a shame to spend the next 10 years slaving away for your business. All this effort to realize that, at the end of the road, nothing has changed.

And it can become even more depressing if you end up with even less deep pockets after all your efforts. Still, many entrepreneurs fall into the trap of working for no pay and live in uncertainty.

By simply being paid for your work, you have failed to become your own boss. You’ve actually remained your own employee.

Being paid for the fruits of your labour is not enough to say that your business is profitable

As for expenses, it may turn out, as early as the preparation phases of the launch of your business, that you fall into the trap of spending in advance. You are probably a victim of your subconscious, which encourages you to do this because you already imagine that you will make money from your business.

Here are a few examples that illustrate this behaviour :

  • You buy business cards in case you go to meet potential customers.
  • Instead of using an inexpensive means of transport such as a bus, you prefer to rent a sedan in order to impose yourself in front of partners.
  • You already want to spend money on premises and furniture.
  • etc.
The MIDAS king

You can fall into the MIDAS complex. In reference to the behaviour of the legend of King Midas, who turned everything he touched into gold. It reflects a psychological phenomenon called the Dumning-Kruger effect, where “everything works for you“.

This is because those who are least qualified in a field may overestimate their competence. You can potentially fall into this kind of complex when your first attempt at starting a business proves to be successful. When it grows and has a promising future.

In this way, many contractors may feel that every project they launch turns to gold. In an excess of confidence, their temptation to want to start many new projects is great. They end up dispersing themselves instead of staying focused and continuing to develop their own business to make it profitable.

If you develop a business for the wrong reason(s) as well as to satisfy a self-esteem then you are going to play with fire. The outcomes in this process are likely to be losers every time, bankruptcy, debt, burn out, etc..

Another pitfall is measuring the success of your company by the number of employees it has. Wanting to solve all problems by recruiting is a rather dangerous behaviour that can lead to a multitude of losing outcomes.

By projecting yourself with the desire to become a big company, you fall into the trap of wanting to recruit by turns.

You have to take on an activity that is as light as possible in order to quickly become profitable

Adopt good management to follow the 4 commandments of money

A company is profitable as soon as it generates profits. Its financial result is positive when its turnover exceeds its expenses. Don’t be nervous or doubtful when it comes to the question of dividend payments. You can pay yourself dividends for having had the courage to risk your start-up capital.

Another alternative suggested by the author Mike Michalowicz of the book “Profit First” is to decide at the outset what level of profit you expect to make by the end of the year.

Imagine if you had a turnover of 100,000 euros over the year. If you estimate that you can achieve a profit of 10,000 euros, then the best way for you to stick to it is to take 10 cents out of every euro that comes in.

Most businesses can start by setting aside 5% of their sales each week. All businesses can set aside even 1%. The most important condition is to put this money in a separate account to see the jackpot accumulate.

You don’t have to use it at the first opportunity to pay your bills, and you can totally pay yourself in the form of dividends.

By respecting the first two laws :

  • You’ll pay yourself first.
  • You’ll be profitable from day one until the very last day.

You already know how to distribute your salary and profits and better manage your operational expenses with the remaining budget.

Keep your business going thanks to the 4 commandments of money

1. You’ll pay yourself first

You will develop a feeling of solidity if you decide now on a fixed and reasonable amount that your company pays you every month. Even if only at the beginning to keep a symbolic 1 euro per month. Any company can pay “something” in a fixed way to its manager. The prices of your products should allow you to make a maximum margin. Otherwise you must review your pricing policy.

Click HERE to find out how to set your rate to apply “The price you paid for your product for your fair value

Pay yourself a fixed amount of money to avoid dipping into the company’s accounts. Separate your personal accounts from your business accounts, regardless of the legal form of your business. In the first of the 4 commandments of money, it is important to do this to achieve this distinction and clarity in your mind.

2. You’ll be profitable from day one to day two

Congratulations, your profits are real when you look at your balance sheet. You can pay your taxes with a smile. However, avoid the trap set by some accountants of increasing your expenses to pay less tax. It is more advantageous to have a huge profit even if a percentage is redistributed to the state than not at all.

3. You’ll make money before you spend it

You should never write a “rubber cheque” or buy anything on credit. To prevent you from falling into a financial downward spiral :

It is more advantageous not to make any expenses that can be put off until the next day

Here are a few tips to make this rule a reality :

Spread your budget over several bank accounts. You can have a “Receipts” account for incoming money that you can redirect to other accounts such as :

  • A “Profit” account : for the executive’s remuneration.
  • A “Taxes” account : for the payment of taxes.
  • A “Payroll” account : for the remuneration of your employees.
  • An “Advertising budget” account : to finance your advertising campaigns.
  • An “Operating Expenses” account : to finance your commercial operations.

Containing your expenses will bring you financial discipline and avoid many difficulties that can be avoided right from the start.

Prefer to pay in advance of delivery even if you have a service activity.
On the other hand, prefer to negotiate with your suppliers to pay them “30 days end of month“. Even if they refuse, nothing prevents you from competing.

4. You will use the money to buy your freedom

You don’t need to :

  • measure yourself against people who don’t have the same goals as you do.
  • adopt their method(s).
  • measure their success by the number of views, fans, employees, products in stock, etc.

In the last of the 4 commandments of money, you can manage your business and live your life your own way.

To summarize the actions to be carried out healthy management of your company

To summarize the few principles that will allow you to perpetuate your activity without stress :

  1. Your first objective, to be financially free
  2. Don’t overestimate your skills
  3. Don’t spend money unnecessarily
  4. Don’t just get paid by the fruits of your labour
  5. Don’t grow a business for the wrong reasons
  6. Don’t measure your success by the success of others
  7. Make your business profitable while being light on weight
  8. NEVER cheat (no bad checks…)
  9. Set aside even a minimum percentage (profits) of your turnover
  10. Spread your budget over several accounts if necessary
  11. Pay yourself a fixed amount on a separate account from your business

To go further…

Sébastien Night In : Profession : entrepreneur libre [Online] Paper book format available in French on : < https://amzn.to/38w0HcA >

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