|
|
 |
| |
|
HVAC
Articles |
The Law Of Money.
There is contractor by the name of Jim Brown in Mountain Home, AR that coined a phrase called “The Law of Money”. Simply stated, the law says that any significant size budget, be it personal or business, will absorb every dollar placed in it. Put another way, no matter how much money you have in your checkbook it always seems to get spent! If funds are low, somehow you got through the end of month. If you had a great month, guess what? All the money is gone.
Now the above statements may not be totally true but they do illustrate a very basic point. If you don’t plan how you are going to spend you money……your money will have a mind of its own. Jim Brown illustrated his mastery over the Law of Money when he stated selling maintenance agreements many years ago. Since he already had a very profitable business all his fixed overhead was already covered. That meant he could sell a maintenance agreement (this was about 10 years ago) for $100 and still make a $50 net profit on it. However Jim understood the Law of Money. He knew if he deposited the $100 and left it in his general checkbook the Law of Money would take over and the additional money would simply disappear. When he met with his accountant at the end of the year the accountant would show perhaps $20,000 in new maintenance agreement sales but guess what…..there would not be any additional money in the checkbook.
With that scenario in mind Jim made a life changing decision. He decided to take control of his new found profit. Before he deposited his first $100 check from his new maintenance agreement program he had a little talk with his office manager. His instructions were quite simple. Whenever the company received a $100 check for a maintenance agreement the office manager was instructed to deposit the $100 into the general checkbook that day. However, the same day the office manager was also instructed to write a check for $50.00, the profit portion of the maintenance agreement sale, and to deposit the $50.00 into a savings account. If three checks came in during the day then the office manager was to deposit $150 into the savings account. The office manager was also instructed that when the total saving account reached a pre-specified level she was to take 30 minutes off and go to the bank and purchase a 12 month CD. The process was to continue, unaltered. The new found profit was not needed in the past and it would not be counted on in the future either. As the years have gone by Jim says his favorite pastime is to sit on his front porch, in his favorite rocking chain, and thumb those CD’s. Jim says, and I quote, “It makes him very happy!”
Now with that in mind I want you to do something for yourself. There is not a person reading this article that would miss a $100 out of their general checkbook each week, even if you are a one man operation. Somehow the company would make it through the month without the $400. Now assume you took the $100 a week and deposited it into a mutual fund, which traditionally earns about 12% a year over the life of the fund. Based on the time value of money (money earning an average interest of 12% a year) your $100 a week deposit would yield the following results.
Would an extra $25,000 or $50,000 be helpful when it comes to retirement and/or sending your children to college? I bet the answer is yes. I can’t tell you how many contractors have come up to me during conventions to tell me “thank you” for the above suggestion. It has changed their lives and it will yours as well.
Do yourself a favor. Take a few dollars out of the company checking account each week and watch it grow. The key is to have the person handling the checkbook deposit the money. If it is up to the owner the $100 a week will either be rationalized away or things will simply get busy…..and you will forget (again, it will not get done.)
For more suggestions on how to run a profitable business you might want to consider attending our three day “Basic Business Boot Camp. Give us a call for details or check it out on our website at www.GrandyAssociates.com
Tom Grandy, president
Grandy & Associates
One Executive Blvd.
Suite LL-4
Owensboro, KY 42301
Phone: 800-432-7963
FAX: 270-684-7425
E-mail: TomGrandy@GrandyAssociates.com
Website: www.GrandyAssociates.com
|
|
| |
|
Search
