2019-09-06 06:00:15Accountant AdviceEnglishhttps://quickbooks.intuit.com/blog/us_blog/uploads/2019/09/Cash-flow4.jpghttps://quickbooks.intuit.com/blog/accountant-advice/combating-your-chronic-cash-flow-crisis-part-2/Combating your chronic cash flow crisis, part 2

Combating your chronic cash flow crisis, part 2

4 min read

Rhondalynn Korolak is presenting “Combating Your Chronic Cash Flow Crisis” at QuickBooks® Connect; here’s part of her presentation. Read part 1 of this article here.

If you constantly struggle with cash flow issues, it’s highly likely that in addition to poor financial literacy, you also have “chronic poverty” mindset. And, unless you are prepared to address the problem from the inside out (i.e. dealing with both the financial literacy and the emotional and mindset elements), you will never have a successful business. In order to push beyond these roadblocks that keep you poor, you must first identify the underlying reasons you keep sabotaging your success and address them at the source.

5 symptoms of a chronic poverty mindset

#1: Profit, money and tax are bad

Money is simply a piece of paper that you use to pay for things. Profit is merely an accounting term used to describe what is left over after all expenses are deducted from the revenue generated. It’s not even a real or tangible thing that you can take to the bank and deposit. And tax is something that you pay the government when you have made sales and profit. When you attribute a negative or evil connotation to these words, you unknowingly set yourself up for a world of pain and struggle.

The brain is a survival focused mechanism — it wants to keep you out of harm’s way. If you truly believe that money, profit and tax are bad, your brain will do everything in its power to protect you from it — which essentially means that at a deeply subconscious level, you will sabotage yourself in order to avoid the pain of encountering these things.

#2: Penny-wise, pound-foolish

Have you ever gone out of your way to buy supplies, fuel, or printer cartridges because they were a few cents or dollars cheaper? Do you sometimes purchase things you don’t need (or buy in bulk) just because you are offered “a good deal”? Even though you think you are saving money, often these decisions end up biting you in the bank account because you waste more time, money, and energy than it’s worth chasing them.

Perhaps not surprisingly, entrepreneurs will waste days of their time to save $100, yet think nothing of entering into a contract to purchase an item worth $100,000, when they are short on cash, the return on investment is poor, and they haven’t asked their lawyer or accountant to review the contract before they signed it.

If you are penny wise and pound-foolish, it’s going to take more than sheer willpower to break free. Neuroscience has proven that takes around 60 consecutive days to break or form a new habit, which means you will need consistent and impactful support from someone you trust to ensure you prioritize financial decisions and evaluate them properly.

#3: Scarcity mentality

People with scarcity mentality tend to view life as if there were only one pie and if someone else gets a piece of it, it means there is less (or not enough left) for them.

Scarcity causes you to focuses on the extreme short term of every decision and often ignore the long-term consequence(s). Scarcity directly impacts cash flow because it makes you feel compelled to use up resources you have right now so that they can’t be taken away from you later. That is precisely why it leads to impulsive and bad decisions for your business.

Abundance on the other hand, flows from a belief that there is plenty enough for everyone. When you choose to focus on abundance and gratitude, it results in better decision making and it opens you up to more possibilities, options, and creativity.

#4: Entrepreneurship is hard

Many entrepreneurs pay everyone else first (including employees, the tax man, the bank, and all suppliers) and often overlook and undervalue the role they play in their own company. This way of doing business is hard on the owner. In order to value yourself, you must learn that putting funds aside for your own pay and retirement, and earning a profit, are essential to having a successful business.

Creating an intentional system — with a regular salary and vacations to rejuvenate — will assist you to put the right building blocks in place to overcome your poverty mindset and create a healthy and sustainable company.

#5: Not feeling worthy

Small business owners rarely charge what they are worth. Whether it’s due to a lack of self-worth or just a fear of losing sales, it never pays to undercharge. Your price directly impacts your margins, and margins are one of the key determinants of cash flow. While it is possible to have a high net profit margin and low cash flow due to mismanagement, it is actually rare to have low margins and high cash flow. Unless you are raising capital or selling assets, it is impossible to have high cash flow unless you first start with decent profit.

The quickest and best way to achieve better margins is differentiation — narrowing down the focus of what you do so you can command a premium price. If you let customers or competitors drive the price down, then you will be doomed to continually face cash flow issues. Until you believe that “you are worth it”, no amount of financial literacy training or forecasting will fix your cash flow problems.

So, what can you do about chronic cash flow issues?

To put an end to your cash flow drama once and for all, you must strengthen your mindset and tackle these 5 symptoms of chronic poverty mindset head on. Remember, these emotional blockers, fears, limiting beliefs and self-sabotage are deeply ingrained and it’s going to require more than positive thinking, financial literacy, and quick, band-aid fixes to overcome them.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.
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