In this episode: Money is still a taboo subject, in families and in businesses. Jon Peyton explains why owners who don’t know where to invest end up spending only on the problem in front of them, and why marketing so often feels like a black hole. He then walks through how to put money where it returns fastest, reward your team, and decide how much you can safely take out.
Key insights
- Compare yourself to yourself, not to your peers. Talking openly about money is how you learn.
- Owners who don’t plan their spending end up reacting, such as paying for legal defense they could have avoided with the right protections in place.
- Marketing feels like a black hole only when you don’t understand it. Improving its return compounds.
- Fund what returns money fastest. Marketing and sales usually come before hiring people to fulfill orders that don’t exist yet.
- Balance three things: what you pay others, what you pay yourself, and what you reinvest. A one-, three- and five-year forecast keeps them in balance.
Episode timeline
- 0:00 The entrepreneur’s finances
- 0:52 Why money is still taboo
- 2:25 Compare yourself to yourself
- 3:41 Marketing as a “black hole”
- 4:27 Improving the return on every dollar
- 6:16 Expansion versus efficiency
- 7:42 Choosing the right marketing channels
- 10:01 Fund what returns money fastest
- 11:07 Rewarding the people who deliver
- 12:35 How much can you take out?
- 14:02 Don’t live like a pauper so everyone else can thrive
- 15:09 Forecasting one, three and five years out
- 19:26 Why companies that don’t know their numbers fail
The episode in brief
Money is still taboo. Few people like talking about money at home or at work, mostly because they don’t want to look behind their peers. The comparison that matters is with yourself: what you did yesterday, last month and last year. The more openly people talk about money, the more they learn.
Reactive spending is expensive. When owners don’t know where to invest, they spend on whatever is in front of them. Skip the right legal protections, and you may end up paying for both the protections and an attorney to defend a lawsuit. Others pull the money out of the business instead of reinvesting it where it could grow.
Marketing isn’t a black hole. Many owners see marketing as money in, nothing out, because they don’t understand it. Jon uses an example: if every advertising dollar returns $1.50, investing in better messaging, imagery or targeting to raise that to $2.00 pays for itself, and the gain compounds with every dollar after. Understanding your market, where it gathers and what it responds to tells you which channels deserve the money.
Expansion or efficiency, put a number on both. Whether you’re entering a new territory, launching a product or cutting waste, you can attach a dollar figure to it. Rank the options by return and speed. Funding marketing and sales usually comes first. Staff waiting by phones that never ring is a fast way to fail.
Reward your people, and yourself. A healthy forecast tells you how to reward the people who deliver, whether through bonuses, time off or recognition. It also tells you how much you can safely take out at the end of a quarter, with an eye on upcoming projects and runway. Don’t drain the business, but don’t live like a pauper so everyone else can be comfortable either. If you underpay yourself for too long, eventually something has to give.
Forecast one, three and five years out. Look at your trend, your expectations and whether a pivot would help or hurt. A sound financial picture gives employees security, keeps vendors and contractors paid, and assures customers you’ll be around. In a downturn, it helps you protect quality and keep as many people as possible.
The most painful way to fail. Many companies fail because they don’t understand their numbers. That’s a failure the owner can prevent.
Key action items
- Calculate the return on one marketing channel. Find what each dollar spent brings back, and one change that could improve it.
- Rank your next investments. List expansion and efficiency projects, estimate the return and payback time for each, and fund the fastest first.
- Set a distribution rule. Decide with your CPA how much of each quarter’s surplus goes to reserves, reinvestment, team rewards and you.
- Build or update a 12-month forecast. Then extend it to three and five years, and review it each quarter.
Listen next: Episode 15: The Importance of Internal and External Contracts
Value Creation Consultancy™ has since merged into Founder’s Accounting™.
This episode is educational and isn’t legal, tax or financial advice. Speak with your own attorney and advisers about your situation.