I don’t think I’ve ever been employed in a company before where someone hasn’t made a remark similar to “This place is run by a bunch of idiots!”. Usually it’s due to people following procedures mixed in with trivial everyday matters that get caught up with those said procedures but it has always bothered me when people say it. There they are, criticizing how “stupid” a business is run when their OWN life is run far, far worse.
You see, in many respects a business is basically just like a “big person” or family unit. A business has an income (from one or many streams), it has expenses (spent by one or many persons), it has problems it has to deal with, interests that it tries to promote, bills to pay, people to look out for, things to insure against and on and on.
This is a major reason why I’ve devoted a lot of my time to learning and analysing exactly how businesses deal with their finances, expenses and other various problems. Once I’ve learnt how they do it, often in the most efficient way I apply that knowledge to OUR house and reap the benefits and you should too!
Table of Contents
Money
One of the major things businesses tend to do that individuals or families don’t is make financial decisions rationally instead of emotionally. Case in point, what happens when Qantas runs up a HUGE loss? They cut costs. They don’t go out and look for “10 quick tips to save 10 pennies” and then ignore the problem hoping it’ll go away. The get shit done. Now a lot of people might be starting to angrily write a comment below to the tune of “but they fired 5000 people etc etc” to which I’d point out that isn’t that a better scenario than them ignoring the problem and the whole company going under eventually?
I’ll also often hear people talk about how they don’t have a budget or keep track of what they spend as they’re doing “OK”. Can you imagine what would happen if McDonald’s stopped tracking their expenses and just paid whatever bill came in? Aside from being fined for not having proper records I’d imagine they’d go broke. Fast. I’m pretty sure I also don’t have to point out why but I’ll do it just in case. They’d go broke because contractors, employers and everyone else would notice and start charging them WAYYY too much for things. They’d probably charge them for things they didn’t even use too!
Sound familiar? It should because that’s what ends up happening to families that don’t know what’s happening with their expenses.
Stop for a minute and just have a think about how you deal with money versus how your work place deals with it. Do you think your company wastes money? Do you think they give more attention to their expenses and finances than you? If your answers are “Yes” and “Yes” then you’ve got a problem on your hand but the good news is it also means there’s likely room for savings to be had!
Risk
Now it’s not just in dealing with money that business excel over individuals, another big area is regarding risk management. Most people (and people run companies so companies know this too) know that the cost to prevent a problem occurring is usually far less that the cost to fix the problem after it’s happened. It’s cheaper to clean your gutters than it is to rebuild a house after it’s burnt down. It’s precisely because of this that most decent sized businesses now spend lots of time and money dealing with ERM (Enterprise Risk Management).
Most people start off by thinking risk management is just about producing a big “what if” list and preparing for each scenario. What if the house burns down? What if it floods? What if I get cancer? What if I get fired? etc. However there are many other aspects of ERM that are a bit outside the scope of this post (I’d highly recommend Fundamentals of Enterprise Risk Management by John J Hampton if you’re more interested in the matter).
At the very least though you should be thinking about and preparing for the above questions but at the same time don’t just go out and buy insurance for all of them. Do a true cost analysis of each scenario and make sure that it’s really needed first. Usually insurance should only be for truly high cost things that can happen like driving into a Lamborghini show room and causing $5 million in damages.
Furthermore risk management is also about the upsides to risk. The housing market might crash tomorrow and your house might halve in value! However if you have set yourself up properly (and 100% Mutilated Your Mortgage) you might be in a position to take advantage of this and be greedy when everyone else is being fearful. If your street got flooded and you’re not too put out because you have the appropriate insurance (or better yet, don’t have that much stuff and thus can easily replace it all) you’ll probably be in a great position to help your neighbours out.
Aside from being a very good deed to do, I’ll pretty much guarantee you that they will be forever grateful and be willing to do YOU any favours in the future. Imagine if because of your quick thinking and preparedness you helped save a local business from going under (financially speaking) due to his shop being flooded. It’s not always about getting something for yourself, but properly managing risk can have its upsides too.
Equipment
Finally one of the other major area’s in which businesses always trounce individuals is in equipment purchasing. For businesses when I say “equipment” I mean things like vans, tools, chairs, tables etc which I consider analogous to a families car, home appliances, furniture etc. Big businesses most of the time do a thorough investigation not only into what the best piece of equipment is for the task at hand… but also whether or not it is even needed at all.
Do we REALLY need a forth fleet car? Or can we reduce the need for fleet cars some other way and avoid this cost? If the car is justified then they will do a full life time cost analysis including everything from initial price to repairs to fuel with estimates on how much it’ll be driven to maintenance costs and even likely resale value. The one with the cheapest LONG TERM cost more often than not wins which in many cases isn’t the cheapest up front cost.
Contrast this to individuals who usually buy things on “impulse” (this is just a made up marketing word for emotionally compromised). If they don’t buy that table “because I just HAVE to have it” they’ll likely buy it because it’s cheaper than the one sitting next to it (which is probably also overpriced too). There’s never any thought given to if it’s needed or not, whether a solution can be achieved by some other means without the purchase of the table and although the Internet has made it vastly easier to compare prices, people still seem to just ignore this vital step.
The next time you think you need to buy a new piece of “equipment” imagine you’re “The Boss” and your lackey has just approached you with a purchase order form along with his purchase justification. That purchase justification needs to have solid, logical facts on it before you’ll even LOOK at that purchase form. The purchase should of course better your business (family) too otherwise why would you waste money on it?? If you believe that justification is good enough, have a look at the purchase order. Is it a fair price? Have they already gone and got 3+ quotes for the item? Did they consider purchasing second hand and what is the total cost of the equipment, not just the upfront cost.
Your Life Should Be A Business.
The benefits include: 1) How to pay off your mortgage faster than 99% of people with one hour a month of work 2) How to get rid of your debt and have the freedom to spend money on the things you love, guilt free 3) Clear outline of how to setup your expenses, mortgage and general finance 4) How offset accounts work and how to get the same result without being gouged by the big banks 5) How to cut through the crap and focus on the things that truly matter when taking down a mortgage 6) How to adjust the strategy so it works for you, even if you have kids, even if you only have one income 7) How to do all of these things and maintain a normal social life (and never be cheap).
