When you think about the challenges of running a small business, what is the first thing that comes to mind? I suspect it would have something to do with cash flow management, or balancing income against outgoings. Or maybe realizing some profit after costs have been paid and monies due have come in.

The balance of assets and liabilities is a significant challenge for any small business owner. Moreover, you’d consider a small business owner who wasn’t precisely aware of their cash flow to be incompetent, correct?

But what happens when we look at our personal finances in the same way? Making sure our income outweighs our outgoings is something we all do – whether we sleepwalk through it, firefighting as we go, or budgeting down the last penny.

We are constantly navigating through cash flow challenges, day in and day out. And when your professional life also impacts your finances in subtle and sometimes unnoticed ways, the need to have everything efficiently organised comes into even tighter focus. But managing cash flow doesn’t come naturally to everyone.

Identify and Manage Your Cash Flow Challenges

The failure to manage cash flow challenges is one of the four clear derailers for a professional woman’s life. Completely understanding your cash flow is one of the fundamental building blocks of your financial plan, taking care of the everyday, here and now expenditures as well as facilitating the long term goals, dreams and aspirations. So, necessarily, it becomes one of the first steps that I take with new clients.

Most of my clients are very high-earning women, but I see their money causing them stress and worry. It’s weighing them down. They’re not enjoying their lives as they ought to be, their spending is chaotic and not knowing where all their money is going every month causes them stress, worry, and shame. Some of my clients realize they are vastly overspending in some areas, and underspending in others. They are not able to enjoy their money in the way they want and deserve to.

By spending some time working on their cash flow challenges and becoming aware of where and how their money is being used, my clients gain a sense of security and control that they hadn’t previously been able to benefit from. Having this increased awareness of your cash flow means that you can make positive changes to your spending habits, and start ticking off those goals. You are not just taking control of your money right now, but for your financial future too.

The First Step to Cash Flow Management

When I sit down with a client, the first thing to do is to create a snapshot of their financial landscape. I want to see exactly where they are now, and that way we can more successfully plot a roadmap to where they want to be in the future. But that snapshot isn’t immediate. Rather, it’s like taking a picture with a really slow shutter speed, that takes in all the more light.

I ask my clients to make no immediate changes to their money and their spending decisions. I ask them to carry on exactly as they are, earning, spending, and saving as much as they are accustomed to doing, and I ask them to do that for two months. I have some personal finance tracking software at my disposal, so we hook up their accounts and away they go. Then when those two months are up, we can look through exactly how and where they spent their money.

My clients are high achieving women, being compensated well for the work they do. However, they are busy. What this first exercise of money tracking often shows us is that they have been unable to keep track of how and where they are spending their money. That signals one thing to me. It shows me that they are highly unlikely to be spending their money where it is most meaningful to them.

Free Up Funds to Finance Your Goals

This is a hugely important part of your financial plan. You simply must be spending your money funding the things that are important to you, to enable you to live the life you want and the life you deserve. You must be able to spend your money on the things that you hold to be most important – and you need to have a very clear idea of what those things are. Not having a sharp focus on those most important goals, wishes and desires is another derailer, and is so often overlooked.

So the second stage of tracking money habits, after we have just spent some time monitoring spending over a few weeks, is breaking down those expenditures into two categories. We look at fixed expenditures, and then we look at discretionary spending. Fixed expenses are the ones that are pretty much exactly the same every month. It’s your mortgage, your bills, your basic grocery spend, your car or transport costs. For most people, these won’t fluctuate much or at all from month to month.

Then we look at discretionary expenses. These are the more frivolous expenses – anything that you don’t absolutely have to spend money on to get by each month. When I want to identify the money available to fund a client’s goals or wishes, I start by looking at their discretionary spending. We absolutely need to find money to fund my client’s goals, and this is where we’ll begin to find it. We can start to close that discretionary spending down, shifting the funds into more meaningful areas of the client’s life, be it retirement saving, kids’ education, travels with family.

Once we have brought some awareness to their discretionary spending, we can look at their fixed expenses. Can any changes be made here? These may feel like more drastic changes; you may want to consider downsizing your home for example, to lessen the monthly mortgage payment. Or you could relocate to a cheaper neighborhood. Often you may find you can save some money by running a cheaper car or looking at ways to cut your bills. There’s often savings to be made on your fixed expenses; once again, this money can nearly always be used in more meaningful ways.

The Facets of Business Cash Flow Challenges

If you’re a business owner, you have to deal with cash flow issues in duplicate. Firstly, you will be managing your business’ finances, tracking income against outgoings with the aim of creating as much profit as possible, in turn using some of to reinvest and grow the business further. (And again, there are plenty of parallels here with managing your personal financial affairs.)

However, in addition, you will no doubt come across some expenses that blur the lines between personal or business expenses. You need to keep a close eye on these and make sure that your business, or your work, isn’t costing you more than it is worth.

You need to constantly be aware of whether you would be making a purchase or spending on meals out, travel and events if it weren’t for your job or career. You may well consider these necessary costs to get you to where you want to be professionally, and that’s okay. It’s the acute awareness which is important to keep you on track.

If you are a business owner, you can also think in terms of fixed and discretionary expenses. After all, any cash that you can prevent being spent is going to drive your profit margins up, and increase your take-home earnings from your business.

For example, I have a client whose business has hit some tough times recently. It’s meant that she wasn’t able to fund her retirement strategy and had badly fallen behind. We went through some cash flow exercises with her personal finances, stripping unnecessary discretionary and fixed expenditures away. Then we turned our attention to her business finances.

We were fairly savage with both her discretionary and fixed business expenses. We minimized her rental costs by finding cheaper rent. We found a way that she could run her business with one fewer employee. This saved thousands of dollars, and this significantly moved the needle; her business was now operating comfortably and generating more income to fund her goals.

A Cash Flow Strategy – A Must-Have for Any Financial Plan

By identifying patterns in your spending habits, you can see where you need to, and can, make the most meaningful and impactful changes to your financial situation. Ensure that you are spending only an appropriate sum on the more frivolous things such as clothing and entertainment – this will allow you to prioritize funding your most impactful goals.

This is about living YOUR best life. What does that best life look like for you? What do you need to fund to create that best life? Make spending decisions which reflect what is important to you, and make sure you are spending your money most meaningfully.

You need to employ an effective, efficient cash flow strategy so you can make the most of your money and make it work for you into the future. If you can just about get a handle on your budget issues now, but investing for your retirement feels like a challenge, or if freeing up time and money to pursue other professional goals, then maybe you would benefit from a session with a financial advisor.

At Wealthchoice, we do our best work with executive and professional women because, from our own career experiences, we understand fully the challenges you face. Budgeting and financial planning is often last on the list of priorities when you are keeping so many plates spinning. If you feel you would benefit from our financial expertise, from planning a budget to managing your retirement finances, please do get in touch. We’ll be only too happy to help.