Scarcity vs. Abundance: Your Money Mindset
Reason #20 for Implementing Profit First in 2024 - Scarcity vs. Abundance in Your Money Mindset
What is “money mindset”?
Everyone has a unique perspective on spending, saving and utilizing money – from the most risk-averse, to those who are more tolerant of using debt, to outright carelessness or misunderstanding. The complexities of these dynamics can be termed as a “money mindset” – and it can impact your life in a big way.
Our money mindset and financial literacy is largely shaped by our family of origin, economic trends during our lifetime and access to resources and education. Adversity in our formative years can shape you into having avoidant tendences, make you prone to impulsive decisions, or make you fearful of ever facing another challenge. Navigating this personally is tough on it’s own, and it often shows up in business decisions too – and whether or not you ever decide to go into business for yourself may have to do with your ingrained money mindset.
Profit First helps overcome money mindset
We aren’t here to cast judgement – so we won’t be describing money mindsets as “good” or “bad” – so let’s explore some alternatives!
The terms “scarcity” and “abundance” have been used in economics for close to a century
to be “scarce” in your thinking is to assume resources are finite, and will eventually come to an end (think of a yearly budget)
to be “abundant” in your thinking is to assume that the opportunities are endless, resources are renewable or have alternatives and that everything will work out (evenutally)
to be “fearful” implies a sense of worry about the future, and could lead to avoidance of planning or being very short-sighted
to be “cautious” may mean over-analyzing opportunities to the point that decision making stalls (or becomes paralyzed)
to be “informed” may come with a level of comfort, relying on historical data and making educated guesses on the future
Profit First helps to set-up objective guardrails on how your view, spend and save your money in business. By safeguarding funds for specific purposes (in separate bank accounts), you are able to make level-headed decisions about the future of your business – or even just assess the current “pulse” of how successful your business is.
By following the Profit First method, benchmarks are put into place that have been established and proven in many different business models, industries and professions – and aligns them based on revenue brackets. So it isn’t about the age or stage of your business, but again, an objective viewpoint in which to measure the financial health of your business.
Shifting your mindset with Profit First
Profit Comes First
By setting aside a portion of your sales revenue for “profit” you are forced to create sustainablity by guaranteeing a margin
Cash Flow Clarity
By separating the incoming funds from outgoing funds, you can gain a sense of instant clarity in your business just by logging into your bank account. Then, by allocating the major categories of cash flows out of your business – namely Owner’s Compensation, Taxes and Opeating Expenses - you can prioritize needs and potential gaps
Discipline
The Profit First method is all about habits and discipline – finding a cadence that is right for your business model to deal with the cash flow (and find some level of control here), and to obey the guardrails put in place by the unique funds serving their purpose. This can control waste, illuminate mistakes, spark inspiration and find avenues for growth and progress.
Goal Setting
Profit First operates in percentages – and often, just 1% shifts between priorities can make a big impact on the future of your company. If you can’t foresee operating your business tomorrow on 99% instead of 100%, you have a real cash flow problem. The quicker you realize this and start to take control – the better you can set and make realistic goals!
Money Mindset isn’t just about making a quick profit.
It is about using money as a tool to achieve the life you want, make an impact and leave a legacy behind that is in service to the greater good. Often, we hear that business owners don’t want to put “money” or “profit” as their first or only mission in the entrepreneurial journey. We get that. We want you to succeed. To not have to worry about the finances, so you can free up your time, space and energy to make that bigger impact. That is where Beyond Your Books shines – allowing you to gain the clarity and intention to thrive!