The Business Of You: Managing Operating Capital

Dave Ramsey often presents a simple question to folks who call into his radio program. “If I hired you to manage your finances, what would you do?” Almost every time, the solution is made abundantly clear.

Its interesting how differently people run their lives from how they might run a business. Although the same principles apply, emotions creep in. Personal finance becomes just that – personal.

If we ran our lives like businesses, I think we would find ourselves in much different places. Much better places. In this series, we will look at how we can run our lives more like businesses and benefits of doing so.

Managing Operating Capital

As the old adage goes, “It takes money to make money.” But no businesses has sustained itself without managing how that money is spent. On the business side, we’ve heard it called Accounts Receivable & Accounts Payable. What money is owed to us and what money do we owe others. Its the financial heartbeat of a company.

At home, our finances are not much different. Except at home, we call it a budget. I would venture to guess most of us only manage half of our budget. That half, of course, is the income side of the budget – the accounts receivable. If we don’t get paid, we get pissed. But few of us truly manage the outgoing side. I like to call the opposite of income, ‘the outcome’. After all, that’s what it will be.

How closely to we monitor our bills? Do we explore ways to minimize those bills? Do we project expenses? Do we ration our operating capital among the various departments – housing, food, entertainment, etc?

There is an old saying about business plans, “They are outdated before you pick them up off of the printer”. This is because business plans must be fluid. Life happens. As soon as you print a business plan, the world has continued to turn around you. Your plan has been lying there stagnant, if but for only a moment. Your budget must be subject to the same fluidity. Life happens and the budget must ‘happen’ with it.

Your budget must be a living, breathing organism. I challenge you to take your budget seriously. It must continually improve. It must prepare for the unexpected.

The budget must be the heartbeat of your finances. It must control how money is pumped through your business – The Business of You.