
Monica was Broke...
Monica owns a coffee shop in Kansas City, and when she messaged me, she was at her wits end.
She was struggling to make payroll, again. When I asked her how much SHE made from the business, she said she hadn’t had a paycheck in over 2 years. She was living off credit cards and loans from family to keep things afloat. What little money she did take was to buy the essentials.
For the sake of anonymity, I’ve changed her name, city and business, and even though she gave me permission to share her story I think it’s important you know that I still feel it’s important to protect her identity. I get a lot of business owners reaching out for help, and I don’t want anyone to ever feel as if I’m putting their business out there without regard to their privacy.
Back to Monica. I’d like to tell you that stories like Monica’s are unusual but they aren’t. Everyone is aware of the grim statistics of business failures but in case you weren’t aware, the Bureau of Labor Statistics (BLS) has consistently reported that roughly 20% of businesses fail within the first 2 years. When you look at the rate of failure over the course of 5 years, it more than doubles to roughly 45%.
Let’s put some actual numbers behind that. According to the Census Bureau, on average, about 4.7 MILLION businesses are started each year. That means, as we sit here in the 4th Quarter of 2024, for the roughly 5.5 Million that were started in 2023, over 2.2 MILLION of those will be out of business in the next few years. That is a staggering amount of struggle going on out there. And according to the Chamber of Commerce, roughly 80% of businesses are self-financed.
Let’s stop and think about that for a second. These aren’t all affluent people who are starting businesses. In fact, people starting businesses represent a complete cross-section of Americans, from race and gender, to income and education. So, these are not just rich people starting businesses.
So, this means that if it’s a cross-section of people starting businesses, these are people just like you and me who come with all sorts of limiting beliefs and cognitive biases. Of particular interest to me is their relationship to money.
I find it interesting how many business owners I have known through the years that have a horrible relationship with money. The thought is, “Well, my personal finances might be a mess, but once I get my business up and running, THEN things will be different.” Except, that is very seldom the case. So I couldn’t help but think of our friend Monica with the Coffee Shop in Kansas City. What WAS her relationship with money BEFORE she started her coffee shop business?
I dug a little into this and I was reminded by an except in the book The Psychology of Money, by Morgan Housel. In Chapter 1 of the book, the author raises the point of how everyone has a different mental model of how money works. What might seem odd or crazy to you might seem totally rational to me. He goes on to make a great point about how it’s among the lowest income households in the US spend, on average, $412 a year on lottery tickets. $412! That’s a crazy number when you consider another statistic that 40% of Americans cannot come up with $400 in an emergency situation. This says a lot about people’s relationship with money, and many people with this same mental model of money, are starting businesses.
I think the solution to this issue is recognizing that making money and having money are 2 different sets of skills. And that until you learn to HAVE money, the making money problem is never going to resolve itself. You’ll simply never have enough. There will always be a reason as to why you have to spend money on this or that. In other words, you have to understand the psychology of money, and understand that money is, by and large, emotional. And it’s not until you change that where things will start to improve.
For example, I had a business-owner couple ask me once if they should take their $35,000 in a cash settlement they were expecting and use it pay off their credit cards. They had no other savings, but this would, in effect, zero everything out. They wouldn’t have any cash, but they wouldn’t have any debt either. I told them I thought that was a terrible idea.
They thought I was kidding. I wasn’t. The reason being is because nothing had changed that would prevent them from running their credit cards back up again. I told them it would be better for them to put that $35,000 in the bank, earning a little bit of interest, and to learn to get into the habit of adding to that every week. At the same time, they would starting tracking their credit card balances and make sure they were paid down, and every month the balances were lower and lower until they were paid off using cash flow. Granted, that might have taken a few years, but the lesson would have been permanent.
They assured me that the way they looked at credit cards was different, and they would never find themselves in credit card debt again. Ok, and I let it go. They knew my stance and it was up to them to prove me wrong.
I have found myself in this situation of being in debt, paying down debt, getting a little cash, getting back into debt, using the cash to pay down debt, over and over and over in my Life. And things didn’t change until I got serious about tracking my finances and having a far different relationship with money.
In about 3 months, the business-owner couple was right back in the same situation with their credit cards again. I wished they had proved me wrong. Mathematically, paying off the cards was the smart thing to do, but math is not was rules us. It’s psychology. It’s our behaviors that rule us. And that is why I wanted to teach them how to handle the most liquid form of wealth they have, and that is their cash.
As for Monica, well, she learned to figure things out. One of the things she learned from me was a simple suggestion as tracking her cash balances. When she noticed that she struggled to get her cash balance to grow every month, as I suggested, she started to get really intentional about where her money went. She was a shocked, and a little embarrassed, to admit that she was spending $100 a month, on, wanna take a guess? That’s right. Lottery tickets. She was behaving like a poor person, so it was no surprise that she was poor. It took her a while to retrain herself and put that money into a bank account, but saving money is a habit. It’s such an important habit in fact that Napoleon Hill stated it as Lesson #3 in his Law of Success course.
The tracking that Monica learned from me is something you can access for Free in the Business Owners Money and Finance Course. You can access that by clicking HERE
In the Business Owners Money and Finance Course you will learn some accounting basics, some bookkeeping basics, as well as things you simply must know as a Business Owner and nothing more. I’m not trying to teach you things you don’t need to know, just the things you do need to know. Again, You can access that by clicking HERE
Alright, this is starting to get a little long and I’m going to land the plane. Have a great rest of your day, and I’ll see you next time.