Corporations may be cast as callous and impersonal, but they sure do know how to manage money. In fact, their bottom line is the bottom line. The question corporations want answered is: Is there a profit or a deficit? If the corporation is successful, it means it is making money and growing it’s capital. Sounds good to me. So if money, not people are the important, let’s not hate corporations, but learn from them.
A little more corporate ruthlessness for personal finances is not a bad thing. Take the good part of corporate money management and improve your bottom line.
Here are some thoughts about managing your money like a corporation:
- Budget. O.K. if you read this blog regularly, you’re probably tired of hearing this one. But no company operates without a budget. You shouldn’t either. It’s really not that hard. So companies have the accounting department to take care of tracking it, but most people either see a budget or have to submit numbers for it on a yearly basis. So start doing it for yourself and learn to be your own accounting department.
- Cash flow. Cash flow is different from a budget because it tells you what is leftover after all your expenses. So your income minus your expenses leaves your net cash flow. Everyone including corporations want positive cash flow, meaning you have something left over after expenses. Negative cash flow means you’re living beyond your means. It would mean death for a corporation if it continued to have negative cash flow year after year. Make sure your budget results in positive cash flow, which can then be invested, saved or otherwise used to improve your financial outlook.
- Monthly, quarterly and yearly reports. If you are tracking your budget and cash flow, then you’ll already be generating regular reports to see if your finances are on track for the year. If something gets out of hand (why are my gas expenses twice what is budgeted therefore making my cash flow smaller?), you’ll be able to catch it and correct it sooner rather than later.
- Are you in the black or red? Everyone want to be in the black (profit) the majority of the time. Being in the red (deficit) is only acceptable for short periods of time for extraordinary circumstances or expenses. Ruthlessly pursue being in the black like corporations do.
- Get your shareholders on board. Who are your shareholders? Your spouse. Your kids. Your partner. Anyone affected by your financial decisions. Make sure everyone is on board with the financial plan and outlook so they don’t get unhappy and dump your stock. Good lessons can be learned by all.
- Try a Board of Directors. I’ve heard this suggested a couple times, and it’s an interesting idea if it works for you. Certain financial and life decisions, which always have financial impact, are difficult and very emotionally charged. If you meet people in life who are thoughtful, and you value their input but they are not close friends, ask them to be on your personal Board of Directors. This means when there is a major and tough life decision, you can present your proposal to the Board members, and they can yay or nay the project based on whether it makes sense to them. The process of seeking impartial opinion and putting together a concrete proposal will help sort out all the numbers, reduce emotional motivations and make the move strategically more clear. Family members and close friends are usually not good choices because they are too emotionally biased or have their own motivations for a certain outcome. Old bosses, networking contacts or casual but respected acquaintances would work.
See, all personal finances can benefit from a little corporatization.