Thinking like a Financial Guru: A Financial Primer for Leaders

Money. It defines the choices that we make, and dictates the quality and quantity of what we can accomplish. Whether you’re just starting an organization or have been running one for decades, you understand all about the boom and bust cycle of cash flow, because it affects every organization. However, you may not have discovered how to effectively harness this cycle. Here is one possible strategy to keep your financial goals focused.

The 60/40 Principle. Learn how money works. Simple, universal principles direct how it flows through our world, but most of us never see them due to the limited amount of time we spend with money. Easy come, easy go, right? Money operates by moving. If it stagnates, it dies – and your organization dies with it. What you need to do is keep your money moving, but in a way that benefits you. You do this using the 60/40 principle.

Costs. First, set aside 60% of your revenue to pay the costs of doing business: paychecks, utility bills, website and credit card fees. Remember that one of your primary goals as a leader is to keep your organizations costs under control. Do as much as you can with as little money as possible, but do so without (1) allowing the final product to look cheap and (2) cutting expenses that actually help the bottom line (like effective marketing and employee recognition). Example: Instead of mailing a four-color corporate brochure to all your clients, write personal notes to your 20 best prospects.

Savings. Next, place 20% of revenue into a savings account to help manage day-to-day cash flow and to act as an emergency fund. All successful organizations save. There are simply too many challenges in the business world not to have financial reserves in place. Example: You are unexpectedly asked to speak at a convention, and you need an unbudgeted $1000 for travel expenses and on-site advertising. It would be a shame to miss such a powerful growth opportunity for want of a little ready cash, wouldn’t it?

Growth. Finally, the other 20% of revenue goes into your marketing budget (in other words, to growth). Money must be allocated to building your organization or it will start to founder, and may die. Just as you have a plan for what your organization will “do,” you need a plan on “how” you will keep it visible to your customers. Example: Do something every day that will advertise your business – send a note, create a database of clients, call a potential user, surf the web for prospects. Whatever. Slow and steady does it, with the emphasis on steady.

Splitting revenues using the 60/40 Principle creates a continuous, cyclical flow for your firm’s money. A vigorous savings effort and a persistent marketing plan will allow you to guide your organization to a sturdy financial foundation. At the same time you will efficiently and effectively boost your group into the realm of steady, methodical, growth. All of this while keeping the most important part of your business satisfied….your clients.