Financial Focus

Entrepreneurs often progresses through four stages of financial management focus – Check book balance monitoring, cash flow monitoring, net income monitoring, and net worth monitoring. Each change brings its own learning curve, and the change of focus brings increasing rewards.

Often a new entrepreneur will gauge their financial health by looking at their check book balance, and very little else. As time goes on and the flaws with this system come to light. A bounced a check or two and the stress of being chronically short of cash pushes your focus to cash flow and timing. First with a week, then a month and eventually working up to focusing on yearly cash flow. Lack of cash flow management will kill a business faster than lack of profitability. Businesses with high debt can easily be profitable but have crippling cash flow issues that shut down a business.

The next step in a company’s progression is to start focusing on managing net income. Cash flow is more important in the short term, but in the long term, you have to make a profit. Cost control measures and sales systems are put in place to insure profits. Plans and processes that put money towards the bottom line.

The last step is one that few entrepreneurs think of – managing net worth. Opportunities that provide the fastest growth to net worth are prioritized and funded. The impacts of debt on growth are understood and exploited. It is a subtle change, but focusing on net worth is what builds lasting wealth.

As a business matures, the monitoring of financial progress must adapt as well. Where are you at on the learning curve?

Think like an Entrepreneur

I was waiting at the doctor’s office one day when the receptionist asked a waiting room full of people “Does anyone speak Spanish?” The lady sitting beside me happily jumps up to help out. I jokingly tell her to ask for an application, she giggles and says $20 per hour, and said she will get rich! If you do the math on $20 per hour, 40 hours per week, 52 weeks per year (no vacation, you are rolling in the money!), you have a gross income of $41,600. That is where many folks stop and say wow, much better than my minimum wage job!

While that may sound like a very good wage to someone who is used to working for others, it won’t support a business for very long. When you have been trading dollars for time all your life, there are many things that slip by you because you have never had to think about them.

For starters, as a self-employed person, you have to cover both the employer and employee shares of Social Security, unemployment insurance, workers compensation, and insurance just for starters. These can easily take 25% or more of your hourly rate to cover your costs. Throw in a computer, continuing education, cell phone, transportation, and a small office and you are racking up all kinds of costs. Now here is the real kicker. Rarely do you get 40 billable hours per week. As a fledgling entrepreneur, you have to spend time tracking your time, marketing your business, making sales calls, billing your new customers and everything else you have to do when you are your own boss. So here is the real math on that $20 per hour job.


Dollars per hour  

$           20.00

Hours per week



Weeks per year (you might get sick)



Gross income


$         30,000

25% taxes and Insurance

$           7,500

Net Income


$         22,500

Dollars per hour at 40 hours per week, 52 weeks per year  

$           10.82

Percent Difference  


When you look at the percent difference, you will see that your original numbers were off by almost 50%. By taking a bit of time to run through some numbers, you can avoid making some big mistakes! You can use this same framework when pricing out your services to customers, looking for all of the hidden costs you are facing. A very handy thought process to keep your new business alive.