Focus on Your Bank Balance, Not Your Revenue
When I mentor entrepreneurs who are scaling their businesses, one of the first questions I ask is: “Are you paying yourself well and saving money?” Too often, the answer reveals a dangerous pattern of reinvesting everything back into the business without building personal financial security.
My advice is straightforward: Set a concrete goal for cash in the bank. For established entrepreneurs, I might suggest aiming for $2 million in liquid assets. The specific number will vary based on your situation, but the principle remains the same – prioritize building your cash reserves over simply growing top-line revenue.
Don’t worry about the timeline. Whether it takes one year or three years doesn’t matter. What matters is that you’re consistently moving toward financial security.
Why Cash Reserves Create Power
Having substantial cash reserves transforms your position as an entrepreneur in several critical ways:
- It provides a safety net when you make inevitable business mistakes
- It allows you to capitalize on unexpected opportunities
- It gives you negotiating leverage in deals and partnerships
- It reduces stress and improves decision-making
- It prevents you from making desperate moves during market downturns
The most successful entrepreneurs I know maintain this balance – they reinvest in growth while simultaneously building their personal financial foundation. This approach creates true business sustainability.
The High Cost of Neglecting Personal Finance
When entrepreneurs pour everything back into their businesses without building personal reserves, they create unnecessary risk. I’ve seen this scenario play out repeatedly: A business hits a rough patch, and because the founder has no financial cushion, they’re forced to make desperate decisions that further damage the company.
Business mistakes are inevitable. What separates successful entrepreneurs from failed ones isn’t avoiding mistakes – it’s having the resources to weather them. When you have cash reserves, a $50,000 mistake feels manageable. Without them, that same mistake can be catastrophic.
“When you start spending everything or not putting money aside and then make mistakes in your business… it’s painful. And it’s very, very risky because it can set you back to the beginning.”
This risk isn’t just financial – it’s psychological. Financial insecurity creates fear, and fear leads to poor decision-making. By contrast, financial security creates confidence, which leads to better strategic choices.
A Balanced Approach to Growth
I’m not suggesting you should hoard cash at the expense of growth. Strategic reinvestment in your business is essential. The key is balance – continue investing in growth opportunities while simultaneously building your financial foundation.
This balanced approach might mean growing slightly slower in the short term, but it creates a much more sustainable trajectory. I’ve found that entrepreneurs who follow this path not only build more valuable businesses but also enjoy the journey much more.
Remember that the ultimate purpose of your business should be to create freedom and security for you and your family. Revenue numbers might impress others, but at the end of the day, what matters is how much you’re actually keeping and the options that money provides.
So as you plan your growth strategy, shift your focus from revenue targets to cash accumulation goals. Ask yourself regularly: “How much am I paying myself, and how much am I saving?” The answers to these questions will tell you far more about your business success than any revenue figure.
Frequently Asked Questions
Q: How much should I be paying myself as an entrepreneur?
The right amount varies based on your business stage and personal needs, but the key principle is consistency. Even if you start with a modest salary, establish the habit of paying yourself regularly and increasing that amount as your business grows. Many successful entrepreneurs follow the 50/30/20 rule – 50% for business reinvestment, 30% for personal income, and 20% for savings and taxes.
Q: Won’t taking money out of my business slow down growth?
While it might slightly reduce your growth rate in the short term, building personal financial security actually enables more sustainable long-term growth. With cash reserves, you can make better strategic decisions, weather downturns, and capitalize on opportunities without desperation. This balanced approach typically leads to stronger businesses over time.
Q: What’s the biggest mistake entrepreneurs make regarding personal finance?
The most common mistake is tying up all their assets in illiquid investments like real estate or business equipment. While these can be valuable, having insufficient cash reserves creates vulnerability. Many entrepreneurs who appear successful on paper find themselves in crisis when facing unexpected challenges because they lack liquidity.
Q: How do I balance reinvesting in my business with building personal savings?
Start by establishing a minimum personal draw that goes directly to savings before considering additional business investments. Treat this like a non-negotiable business expense. As revenue increases, you can scale both your reinvestment and your savings proportionally, maintaining the discipline of building both simultaneously.
Q: Should I focus on revenue goals or profit goals for my business?
While both metrics matter, profit that translates to cash in the bank should take priority over pure revenue targets. Many businesses with impressive revenue numbers operate with thin margins or cash flow problems. Focus on building a business that consistently generates excess cash that you can extract, rather than one that simply processes large amounts of money.