Sunday, February 18, 2007

Your money is not my money—it might not even be money!

Money does not exist. It’s a con game, an agreed upon illusion, a convenient conceit to chart the flow of power in our lives.

Where does money come from? How is it created? What do we mean when we say we “make money” or “time is money” ? And what the heck is “cash flow”—is money a liquid?

When you work at your job, you are indeed “making money”; for all intents and purposes, you are introducing new cash into your life where it did not exist before. But what about a bank that creates a $20,000 dollar loan for a car. Is that “making money” ? Did that 20K exist before the bank granted the loan? What about when the federal government expands the money supply? What about when Bush spends another several billion on his military misadventures? Is that “making money” ? It is certainly creating money almost literally out of thin air, aided by the stroke of a pen.

People tend to see money as an absolute, a measurable unit of, uh, measure. See how quick we get into the quicksand when attempting to define what money is?

I am interested in how money functions in the life of the self-employed person. It’s different for the self-employed than it is for the job holder, who can expect a predictable amount of cash per week, month, and year. The employee can handily measure income against expense, set up a budget and earmark an amount for saving and investing. They can become obsessed with their “magic number” as per the dictums of Money magazine in their quest for a comfortable retirement (Just thinking about the “magic number” concept reminds me why I consider holding a job a LIVING DEATH, where you mark time until you retire, close shop and drink or whatever).

Certainly it behooves the self-employed (bohemian or otherwise) to have a firm grasp of their numbers. How much do you take in during a typical month, what are your expenses, and what do you need to cover your nut? As I stated when I began blogging, an entrepreneur can set up a simple book keeping system, taking deductions allowed on the Schedule C and meticulously recording their income and expenses on a regular basis (and do explore all those lovely tax forms that help you keep more of your money—don’t be afraid of them, they are your friends!). Keep on those books on a daily, or at least weekly basis. Nothing will paint a more literal and accurate picture of the financial soul of your business than your financial ledger.

Armed with this information, you are in a position to make decisions about what your next moves. Are your profits enough to live on? That’s not bad, but what frugal things can you do to attract more clients, or make more per transaction? Are your profits far in excess of what you need to live? Good time to expand—create and execute a new marketing plan, acquire new equipment, take on an employee. Are you getting the crap kicked out of you? Rethink the entire business model RIGHT NOW! Do you have peak cash flow months and slow cash flow months like my T Shirt business? Then salt away some green in the flush months for the lean months.

The point is, money is not the end all - be all absolute measure of your success. In business, your cash flow, and in particular detailed information about your cash flow, is an accurate picture of the flow of power through your business effort, your business model and your business soul (business soul—that has to be an oxymoron!). This information will guide the combination of critical thinking and emotional thinking that you use to make the dozens of daily decisions about how to run your business life.

And isn’t that why someone becomes an entrepreneur, because they are passionate about the proposition of calling their own shots, nurturing their dreams into the real? Certainly the self-employed want to make a lot of money, but they are really in the business of manifesting their dreams. I’d argue that building the dream is the image in their mind’s eye first and foremost—the stack of cash is just a simple by product that naturally results when the fine tuned machine is hummin’ just right.

No comments: