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Financial Decisions -- The Desire for a Doughnut

Posted by eLaunchers on Feb 8, 2018 2:00:00 PM

eLaunchers

Working Hard-1.jpgHave you ever had a doughnut? It’s yummy. It’s round. It’s sweet. It’s made from dough. And it’s sometimes filled with jelly or cream. A doughnut cannot kill you. It is simply not possible. BUT, eating a doughnut a day for 20 years? That can kill you.

Most bad financial decisions are not lethal, they are like doughnuts and they are they only lethal over time. Sometimes you are forced to eat a doughnut. Sometimes you are mesmerized into eating a doughnut. Sometimes you eat a doughnut because it is the easiest thing to do.


Let me provide an example of eating a “doughnut:” Everything is closed, I am at the office and I am starving. I have a major deadline to meet and there are two doughnuts in the conference room. Going out to go find something healthy will take away too much time so it is just not an option. The doughnut is the better option because the sugar rush will hold me down through dinner and I can keep working. Obviously, this is not the healthiest behavior I could engage in but it is the most prudent thing to do in the heat of the moment.

 

In 2002, I left my job and started my business. Within a matter of eight months, I had gained forty pounds. At my annual checkup, I asked my doctor why I was gaining this weight all of a sudden. He asked me what had changed recently in my life. And I said, “well, I started my own business.” What did starting my own business do to me? Well, I no longer ate lunch at noon or dinner at six. I also ate out often and filled up on meals full of carbohydrates.

 

The moral of this story is: when you eat, what you eat, and how much you eat is crucial to your health. I was still doing those things when I had my other job but I was only doing once or twice a month what I was now doing once or twice a day. Hence, my physical deterioration. Gaining weight was an unintended personal consequence of starting a business.

 

Fiscally irresponsible behavior is also tied to these kind of incidental behaviors as opposed to systemic outrageous behavior. Most fiscally irresponsible behavior is facilitated by very smart people who know they are doing a very bad thing with the intent to get out of it. But they are digging themselves a hole they can’t get out of.

 

So, if you have engaged in a fiscally irresponsible behavior that put your business in a rough financial shape, DON’T BE TOO HARD ON YOURSELF. Yes, it is your fault. No one made you do it. A magical fairy does not give direct deposits nor does she take money away from you. So this is your fault. BUT, it can be fixed.

 

Rule #1: be cognisant of your financial affairs. The worst thing you can do is engage in a financially irresponsible behavior and NOT KNOW IT. Going back to when I started my business, I didn’t know the unintended consequences of eating out everyday because it was my only option. I couldn't go home at six o'clock because I had lunch at four o'clock. I was hungry at nine o'clock because I skipped dinner so I was ordering pizza. I wasn't thinking about my belly. I was thinking about my bottom line. You will do that too. Just KNOW that you are doing it. Not knowing that you are engaged in a fiscally irresponsible behavior is a much larger issue than actually being fiscally irresponsible.

 

This book is basically a compilation of some simple business mathematical principles. As I was telling my son about my idea to write this book, he was seriously underwhelmed. As an engineering major, he looked at me and said well this is not difficult at all. This is simple math. And I said yes, it is simple or it can be.

 

This is not complicated. This is not brain surgery. This is not building skyscrapers. This is just counting money before, during, and after you make it. You most likely have CPA’s, Quickbooks, a tax preparer, a payroll preparer, and a bookkeeper. All businesses have that. You have a whole financial team and they are all counting your money in an at-rest position. Most businesses don't have processes in place to keep track of inbound revenues and most business don't have processes in place to calculate outbound expenses. It’s called a budget. I know you have heard of it. You've most definitely studied it. Unfortunately, I have seen too many businesses who don't have a clear budget that they can then follow or deviate from. THAT is the issue.

 

Fiscally irresponsible behavior is contingent upon planning what you are going to do, doing it, expecting what the universe will do to you because of that decision, observing that choice, and adjusting your affairs accordingly. After all that, you can adjust the bottom line based on your expectations versus what actually happens. That is called variance.

 

You will not be able to control the behavior of the universe. You cannot control your competition, you cannot control your customers, you cannot control your prospects, and you can barely control yourself and your own affairs. This is a very slippery game therefore you need to create a foolproof process that involves hard data and fact. You need to have instrumentation.

 

Imagine being in an airplane and the all the pilot has is the control stick and the windshield but no instruments. Sure if the pilot is talented enough, this can work. But, it is not the prudent way to do it.

 

Here is something I learned from a U.S. air force pilot turned motivational speaker, consultant, and business coach. He said that in a life threatening accident evasive maneuver, he had to make a split second decision to let the machine do the work or to override its control. In that moment, he realized what he had learned in his basic training: trust your instruments. I like that. If the instruments saved his life, shouldn't we as business owners trust our instruments?

 

Fiscal health begins with understanding the basics of running an instrument panel driven business, adapting that dashboard to your life, watching it, observing it, and then making decisions based on fact.
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