Let’s start by what a money leak is. I define a money leak as a way that money is going out of your business. Money comes in through sales and it goes out through spending, and some spending in your business is money leaks. Let’s speak about how we identify what those are and how we eliminate them.
The way that I like to do this with clients is I have an exercise that we do. I think the best way for me to explain it to you today is also to talk you through how you would do that exercise as well. Then you can understand how to identify the money leaks and what to do about them.
The first thing to do, in finding those money leaks in your business, is to pull out some records. I want you to gather together the last 12 months business bank and credit card statements that you have, and ideally in paper format, ideally print them out, so you have a big pile of paper is by far the easiest way and the most effective way to do this exercise.
All the business bank and credit card statements, anywhere where business spending is happening, you want to pull those out. Then you probably want to make a cup of tea as well or something, perhaps, stronger if it is later in the day. But you also want to grab a red pen and a highlighter and sit somewhere comfortable. What you then want to do is you want to go through every single sheet of paper, every single item, expenditure item, and ask yourself, with your red pen in your hand, “Is this expense 100% necessary to keep the lights on in my business? I cannot operate without it. It is not possible to run the business without this expense.”
It’s either not legally allowed or it’s just impossible to do. If the answer is yes, it is 100% necessary, not a nice to have, not 80% necessarily, not yeah it would be a bit of a pain if I didn’t have it. 100% necessary, completely impossible to run your business without. Then I want you to circle that expense with your red pen and I want you to ask that same question every single line page, by page, by page, month, by month, every single time.
Some items, you’ll be asking yourself that question 12 times if they are monthly recurring items.
But again, I want you to do this every single line, every single item, and circle those ones that are 100% necessary to keep the lights on in your business. Once you’ve gone through that stack of paper, what I want you to do is flip it over, back to the beginning, and this time take the highlighter in your hand. And this time I want you to ask yourself again, every single item, line, by line, by line, every single month, asking yourself, perhaps, multiple times for recurring transactions, ask yourself this question, “Is this expense delivering me a positive return on my investment, a positive ROI?”
That either means is it delivering me a return in terms of money or in terms of time. Either I’m getting more money out from this expense that I am putting into it, or I am getting time out in order to free me up so that I can be revenue generating. Again, line, by line, by line, item, by item, month, by month, every single one you want to go through and mark it with your highlighter, if the answer is yes, it is delivering me a positive return.
Now I want you to also be including that question when it comes to your team. Are your team either generating you money or saving you time to free you up to generate money? I want you to also ask this for every single person in your team at the same time, which can be quite a hard piece of this exercise. Once you’ve done this, once you’ve got the pages marked and read, you’ve got them highlighted, you’re going to have some items there that you have not marked with red or highlighted and those items are money leaks. They are not serving any purpose in your business. They are not necessary to keep the lights on. They are not delivering you a positive return. Therefore, they are unnecessary and there are money leaks.
You have two choices with those; either you understand that they are nice indulgent thing to have in your business, and that’s what it is, it’s just an indulgent expense. Or you say, “Hang on a minute, this is a money leak, I’m going to get rid of it because this will free up the cash so that I can take more money home, so that I have more money in my pockets. You have a choice which route you go down on that, but those are fundamentally the options when it comes to money leaks that either they are something that you understand, that there are nice to have, and you like having them. And therefore you know you make that decision that you’d rather have those than have more money in your pocket, or you say, “I cancelled this and I get more money in my pocket.” That is the choice that you make.
I hope that this episode has been useful in understanding the two questions that you need to ask to eliminate money leaks and how you can go about actually eliminating those in your business. Thank you so much for listening. Until next time, let’s find the clarity in your numbers, increase your wealth, and get more money in your pockets.