For the majority of business owners, I have found two common correlations between a company’s growth and the owner’s money mindset when it happens.
The first situation came to mind when I was speaking with a colleague a few months back. He was telling me about a friend of his who inherited his father’s business. This friend managed to grow the company to high 8 figures and doesn’t need any more money for the rest of his life. It intrigued me when he went on to say “He’s set; he doesn’t have to do anything else to grow the business.” This struck me as a misconception, but one that many tend to lean toward. Companies often reach a certain level and then stagnate. This can be a dangerous thing all around, but mainly in terms of the ultimate cost you pay by doing nothing, or should I say by continuing to do the same things that got you where you are.
One incredible cost is reputation. Consider this, you make a lot of money and hoard it. You decide there’s no need to do anything differently because things are going great; you don’t reinvest any additional money into the business, including toward your team that helped you get here.
Team members start to resent you and the company; they not only leave but you have difficulty replacing them because word has gotten out that you’re a cheap skate and don’t take care of your employees.
Customers leave because you’re not creating anything new to entice them to stay over your now competitors and they’re unhappy because they’re being serviced by unhappy employees.
All of a sudden business starts to take a downturn – situation 1!
The second situation is when the company has grown rapidly bringing much happiness and success to the business owner! All of a sudden the company is moving to a bigger space, the owner buys a new car, travel costs go up, a hiring spree occurs, etc.; the possibilities are endless as to where the money goes, right? Right – until it’s gone – situation 2!
The scenario that both of these situations creates is loss of the endgame vision and lack of focus on the cash flow. These two themes should be front and center at all times. When you scale your business, it’s easier to create sustainable growth when you’re paying attention to these two things. It’s also easier to anticipate the highs and the lows, and create a blueprint as to how you’re going to ride the waves.
If you go back and think about the two growth reactions I mentioned earlier do you know what happens in each scenario? The companies are no longer attractive to buyers; they also might not be a viable solution for the owner’s retirement or initial exit strategy dreamed of. They in fact may have risked their own business continuance.
When you’re experiencing growth you want to consider how much of the excess cash should be invested for reserves. Should you sell the business now? Do you want to divest your investment and purchase or start another company? Do you want to implement your exit strategy?
You want to get into the proper money mindset early on so that when you do hit the roadblocks or plateaus you’ll have the confidence, energy and strategies in place to deal with them head on and grow your venture to new levels.