Until you get your initial investment in your business back in your pocket, your business is unsuccessful.
Easy Money?
Over an over people invest in their business. It is called owner’s equity, owner’s capital investment or start up capital invested by owner.
This is money you have that you put into your business as seed money. One of the 10 Critical Business Factors that we use to measure business success says that a critical criteria is MINIMAL start up cash.
And the minimal is a variable term. There is some risk that you could lose this money so you only want to invest what you can afford to lose.
Remember, if you borrowed money from the bank or another financial institute you would be paying the loan back each month plus interest. If you borrow from investors, you may be borrowing under some other terms of trade and it is important that your investors get their return.
But the money you put in is YOUR investment and until your business pays that back to you, your business is unsuccessful.
One reason why many owners never recover their investment it that they forget to track their money. They failed to do several things properly at the beginning. These include:
- Opening a separate business account and putting money into and out of that account from your personal account and tracking it in your accounting system
- Keeping a journal of your investment and withdrawals
- Paying for small things with cash in your pocket and never claiming that money or tracking that money in your company account.
Whatever you initial investment of capital is, your business only starts to be successful on the day that all that seed money is returned to you. And every year or time, you need to put the money back into the business, you need to keep tracking the repayment to you.
You may never be able to recover and be rewarded financially for the time you invest but the capital must be paid back to all investors for a business to be successful
So the numbers to watch in this blog are the numbers associated with your initial investment. If you put money in, keep an eye on your getting it back. Too often, a business goes broke and so does the owner because they have never recovered the initial investment.
Keep counting. More important numbers next blog.
Roberta
Passionate about Your Purposeful Performance in Business
Get your copy of 10 Critical Business Factors to find out the other criteria for business success
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Guest Blogging with Jon Morrow
These are excellent and must-do tips for anyone serious about running a business. It’s surprising that people continue to co-mingle funds, and then wonder why they’re not making money. In some cases, they are and don’t realize it. It’s definitely tempting to pay for something with cash (especially a small purchase) but why not take the deduction whenever possible? Thanks for the perfect business reminder.
Lisa Kanarek recently posted..5 Ways to Improve Your Voice Mail
Agree Lisa and it is dangerous when people co-mingle. One problem stems from the hobby business mind set which affects so many people going into business. In Roy’s example of the pharmaceutical company you have owners with a wealth generating mentality but the restaurant and cafe, work at home and online marketers are often hobby business owners who fail to realize what the whole thing costs them and they never recover and can find problems with family and support people because they keep spending money instead of making it.
Twitter: Adjuvancy
April 27, 2012
I’m not sure I agree with that.
Let’s say I started a new pharmaceutical enterprise with a $ 1 million investment. And, the plans were to have the loan paid off in 6 years- in a balloon payment. And, in year 1, instead of year 2- my drug is approved. Still no revenue. And, year 2 has revenue of $ 500K and expenses of $ 480K. NOT including my salary. I’m still pretty pumped, since this a year ahead of schedule. Year 3, sales of $ 2KK and expenses of $ 1.4KK. Of which 250K is used to pay down the loan. Year 4 (which was scheduled for $2KK) achieved $3.5 KK, with expenses of $3KK. ). And, this time, I kept $ 300K for myself and paid down $ 200K I’m sorry- that’s successful- very. (By the way, year 5 had the loan paid off. And year 7, the company was sold…)
Roy A. Ackerman, Ph.D., E.A. recently posted..Neither rain, nor snow, nor sleet- yeah, right!
Roy if you had #1m to invest in a business, you would track the payment. But your second example is more the case I was referring to and the people who open restaurants, cafes and small service businesses often fail to track their initial investment. Worse, for many they find themselves in trouble because they take the assets away without properly handling them and then find the tax man auditing them.
Twitter: Adjuvancy
April 27, 2012
I will counter that entrepreneurs often forget the fact that the total investment and the total return must be considered. Which I clearly employed in my example above.
And, when these entrepreneurs DON’T consider the true consequences and facts, they often end up in trouble. (Restaurant owners come to mind IMMEDIATELY…)
Roy A. Ackerman, Ph.D., E.A. recently posted..Neither rain, nor snow, nor sleet- yeah, right!
I really like the way you instruct business owners to keep a close watch on their finances. Many businesses fail because people neglect the importance of careful financial records.
I have to admit that I am not good at keeping track of my personal finances. I could use some work in this area.
Janette Fuller recently posted..Poem – Mixed Media Greeting Card
Janette, I find so many owners let their accountant handle the money side of their business and never think about the money or time they put in to establish the business. It can be quite frightening when trying to close, sell or change the business. And it does start with basic personal finances. How do you track those?
I can’t imagine having a business and not tracking expenses, investments, etc. To me, that is how we here in the U.S. file taxes every year. We must know the income and the outgo. But I like what you say in that our business is not successful until MY investment is returned to me.
PeggyLee, I imagine though in your consulting and coaching, you come across people who track their business investment or their income and expenses well. The reason why, mindset when it comes to numbers and money
Opening a separate account is the most important factor in setting up your business. I have encountered clients that are still mingling their funds with their personal accounts. Along with that, I highly recommend interviewing and getting recommendations for a good CPA. That was the best decision and change my husband and I made in our businesses almost 10 years ago. Our CPA has been a tremendous help in business decisions, investments and other factors that can affect your self-employment.
Good advice you share here Roberta. New entrepreneurs should take away the fact that if they do their homework and have a good ‘plan of attack’ they will be that much farther ahead and will build a stronger foundation for a successful business.
Lynn Brown recently posted..Increasing Traffic To Your Blog With Twitter
Not sure CPA is totally necessary but a good bookkeeper if you are unfamiliar with the financials required in business. It is so essential to set up right and work through everything properly if one is going to succeed. Success without control is just an accident with positive results
It’s a tough decision risking your money in a business you aren’t sure of. It would be better if you’ll get a business partner so you won’t be shouldering all the burden if ever the business experience some rocks.
Beth Watkins recently posted..Feel Good Fashion – Eco-Friendly Spring Sandals & Shoes
Beth, I have done it both ways and it really is dependent on both the business and the personalities. And one thought – never start a business over a glass or 2 of wine – could be a bad decision
Creating clarity around understanding what you are putting in is important so you can make informed choices..and even simply for practical financial aspects such as tax deductions.
Tambre Leighn recently posted..Taking Stock
So agree Tambre. If you fail to record, you fail to account for and benefit