In Episode 22 of the Babies and Business Podcast, hosts Avram and Rachel open up and discuss their personal experiences with financial struggles and how these have impacted their business operations. Avram received really bad (and common!) money advice resulting in near bankruptcy, while Rachel grew up in poverty. They emphasize the mistakes that many businesses make when it comes to overspending and not paying adequate attention to their cash flow. If your business couldn’t handle a financial emergency today without going into debt, this episode is a must-listen!

Show notes:

[02:31] Really bad money advice that’s given to entrepreneurs that’s very common

[06:00] The program that helped Rachel get household finances under control

[08:08] Two app suggestions to help entrepreneurs budget their household with ease

[14:25] How much your business can actually afford to pay you

[16:22] True story: how a $4m/year business was toppled by a small financial emergency

Mentions & Resources

Tim Roberts

BNI Power of One Podcast

BNI 615: Business Matters 92 – Planning Your Money

Ramsey Solutions

Dave Ramsey’s Four Walls

Every Dollar App

Good Budget App

Mike Michalowicz

Clockwork (Book)

Profit First (Book)

Babies & Business: E14: How to Drop Operating Expenses 27% with Profit First

Episode Transcription

Below you will find a transcript of this entire podcast episode. Enjoy!

Avram Gonzales: Welcome back to the Babies and Business Podcast. It’s Avram here with my beautiful cohost, miss Rachel.

Rachel Gonzales: Hello.

Avram Gonzales: Hey, we’re just sitting here talking about money. One of our favorite conversations. I listened to a podcast from Tim Roberts this past week, the BNI Power of One Podcast and decided that this was a topic worth discussing.

And in this podcast, Tim and his, co host talked about how many people in America could not even afford a $500 emergency when it first hits. And you hear a lot of data and statistics about the personal side of finances, but often times we don’t hear about what that looks like in business. And I know for a fact that there are many businesses that are robbing Peter to pay Paul that are in a constant Rollercoaster and Rachel especially has some great insight that she’s going to share today on How getting our personal finances together helped enhance the business finances and Vice versa.

It’s just the topic that we wanted to explore today.

Rachel Gonzales: Yeah,

Avram Gonzales: how excited are you?

Rachel Gonzales: Yeah, I’m pretty excited Yeah, you know, I I just think that it’s such a good thing to be talking about that money needs to be talked about more because, uh, sometimes it can be taboo or people have a lot of shame or guilt around it.

So there’s a lot about money, but there’s so many things that can change, uh, for a person when we actually have conversations. So, kind of a switch gears here, I wanted to talk about something else because I know for a fact that you’ve been given some pretty bad money advice personally. So I wanted to hear more about that experience and what that, what that did for you.

Avram Gonzales: Well, growing up in a personal development environment, one of the things that was pounded into me over and over was that the solution to all your money problems is just to make more money. Like, why don’t you just increase your income rather than quibble over the 5 dollar latte that you’re buying every day.

You know, why don’t you just make more money and focus on that rather than trying to minimize your expenses and That was also pounded into me through my experience in network marketing I was one of those guys that got a huge check on stage and was celebrated for how much money that I had made in a single year with their opportunity and being paraded around for how much money we were making but the reality is a lot of the people that were carrying those big checks off the stage Their finances were in shambles.

Yeah, they had to sell more or they we re going to die You know and where did that leave me a couple years later? I was damn near close to filing for bankruptcy Because I had all of these really terrible money mindset ideas things that I thought well, this is how rich people work. This is how wealthy people operate with their money, but it couldn’t be further from the truth you know, I think this thing that Tim Roberts shared on his podcast shares what the common average person Is dealing with.

Yeah. And when it comes to creating financial success, you don’t want to talk to or entertain what the average common person is doing. And those are the conversations that we’re trying to foster more of here on the podcast, but also that we keep in mind here in our household and running our business all the time.

The common person that’s trying to give you financial advice has no business giving it to you.

Rachel Gonzales: It’s like the person that isn’t a parent, but they have parenting advice, . They’re like, well, haven’t you tried this? And then you ask the question, Oh, well, I didn’t know you were a parent? Oh, no, no, no. I just, I just thought this is how it would work.

Love, hate those kinds of comments because you’re just trying to pull out your hair because you had so much of that as a business owner and as a parent. So it can be frustrating.

Avram Gonzales: It can be. And you know, when I was close to this bankruptcy is around the time that we met. Yeah. Um, and you were somebody that I know grew up not having much money or any money at all.

Yeah. And yet of all of your siblings, you seem to have this superpower around saving that ended up translating really well into budgeting. And it’s like this dirty word for people budgeting, you know, they don’t want to talk about it or feel like their freedom is getting taken away. I know your perspective is, is really different.

But I want to take us back maybe six years, whenever it was that we met. Gosh, it’s been a while. Where did we even start? I know there’s a moment where things began to shift for us when you entered the business. Yeah. Like, let’s go into that.

Rachel Gonzales: Yeah, you know, we, we had this time in our life where you were, you had some past things.

Expenses that had come knocking at your door and so we had those things coming up and so bills coming in to get paid And we saw all these things due to be paid and I just oh my gosh I think my heart dropped there for a minute and same with you. I think we were just Where, where do we go from here? And for me, it really started with Dave Ramsey’s program, the, just his money mindset and getting people out of debt.

And there’s, you know, he talks about. Budgeting and budgeting really isn’t a bad word. It it’s the ability to spend money and not have to feel guilty about it. So there were a couple of steps that we took that I took to help guide our family to where we are right now, family and business, because. They’re both very much married together, pun intended.

Avram Gonzales: Well, we just had no clarity in the beginning. That’s one thing, right?

Rachel Gonzales: Yeah. Correct. So, zero clarity. So, if you asked me back then, how much is your food bill? How much do you spend in food each month? I wouldn’t know.

Avram Gonzales: What is it now?

Rachel Gonzales: It’s 500.

Avram Gonzales: So, she knows that. I think that’s an important key.

Rachel Gonzales: Correct. Yeah.

And then, you know, there are other bills like utilities that kind of go up and down. And our budget actually takes care of that. I think it’s set at 300 right now. It could be 250. We’ve had to play with that a little bit to give ourselves a bit of a buffer. So there are things like that, but not to go too much into the details because we could do a whole podcast about budget because I really feel strongly about this.

Budgeting is truly the way that you get to freedom. You do not get freedom any other way. Like fitness happens over time. Budget, well, financial health happens over time. Doing consistent things over time. So what we did, just to give you a couple of things and be really quick about it. So Dave Ramsey has their four pillars that they call the four walls that you take care of when you are constructing your budget.

And that is shelter, food, transportation, and utilities.

Avram Gonzales: That’s a good

place to start.

Rachel Gonzales: Yes. It’s such such a good place to start. You understand what is your monthly overhead like, we didn’t

even know that. And it’s just that, right? It’s just that. So if you cannot afford anything, if you are in debt, if you are struggling with financial stuff, just start there.

Start there. Create a budget, and then eventually you can get to other things. But like I said, we’ll talk about that in another podcast. I really feel strongly about this, but I do wanna mention two tools that really, really helped me with budgeting, and that was, Dave Ramsey’s Every Dollar because it got me in the habit of having every single dollar that we brought into our house Belong to a job.

So there was a job for every dollar. So that really, really helped my mindset. It really helped us be if you’re not used to a budget, it really helps you be strict about it and really staying within those limits. Made it pretty simple

to it made it so made it so simple.

So simple, good clarity on both sides.

And then what we did as we got more mature in our understanding and also both you and I are savers. So we really didn’t need the extra push to be better at budgeting and like the extra, um, accountability that that app had of don’t go over your set amounts. We moved to Another, um, paid service called Good Budget.

We’ll talk again, more about that in our later podcast. Um, but those are the two things that two tools that really, really helped us with that.

Avram Gonzales: And we moved from every dollar mostly because we found as entrepreneurs, our income. What we drop in the business can go up and down, even though our basic needs are the same every single month, this other envelope system, this good budget allowed us some extra flexibility after we learned some of the basics.

Yeah. So I know that our journey with personal budgeting started to feed our greater journey with the business. Do you recall a time where things became crystal clear about what was required for us to do in the business to make sure we had enough at home? Because that was a big thing. We didn’t know how much should we be paying ourselves, how much is too much.

That’s a big problem. I think a lot of entrepreneurs are paying themselves way too much because they just don’t know what’s appropriate or way too little. But we’re gonna talk about what is the appropriate

Rachel Gonzales: Yeah, you know, so I went on this journey we went on this journey together of getting our personal finances kind of squared away with the budget and then It was it was like the mystery was lifted.

There was no more mystery about how this could work for us. And so I was able to feel a little bit more confident in actually looking at the business stuff and seeing how we could get those things to be more efficient because I knew that we were not running as efficient as we could because at that point, I remember at this point in time that I’m thinking about That we felt worried about taking out money.

We felt like we were stealing from the business. We weren’t sure if the business could bear what we needed to sustain our household. Even just bare minimum, these four walls that we talked about. So, I went on this journey and we were already reading books by Mike Michalowicz. Um, Clockwork, Profit First, Profit First came along and I was really, really daunted.

It was a daunting task to think about putting that into action. Gosh, it makes you, the book kind of makes you look at your finances. It doesn’t kind of, it actually makes you look at your finances and find out where you are. And he uses a percentage system. And so I remember the conversation that we had and it was, I had done the math.

To find out what we spent as a business, what we had to be spending, what, so I broke down all of the costs, all of the different things. And I said, Avram we need to make this much money in our business so that personally we can draw this much and we are not going to be taking too much out of the business.

Avram Gonzales: Yeah. We had to increase our recurring revenue by like 13, 000 or something like that in order to justify the amount of money that we wanted. To bring into the household not just survival, but what we wanted and that was a pretty eye opening Experience because I think before that time we were just justifying whether we felt like we needed it or not Right, and then we would take it and then we’d feel weird about it wondering if we were robbing from the business.

I’m just going through all these emotions.

Rachel Gonzales: Well, and then also profit first makes it clear a healthy business. These are the percentages that a healthy business functions in. It should pay its owner. Yes, and you’re and the owner so his, uh, Mike Michalik’s biggest, uh, what is his mission is to eradicate entrepreneurial poverty.

So he talks about the owner’s pay account and where you need to have X amount for the money that you’re making, you need to have X amount of money that you’re paying to yourself. Because if the most important employee arguably is yourself, if you’re not paying yourself, eventually you’re going to quit.

Meaning your business is going to just die because you can’t function. So you need to be paying yourself. So what we actually needed to do was actually kind of contrary to the information that you got. Yes, we did need to bring up our income in the business. But we also needed to get more scrappy about how we spent money.

We actually had to take our operation expenses from where they were down about 25, 28 percent I believe it was.

Avram Gonzales: Well, quick plug, we did a podcast several weeks ago. If you look it up, it’s how we dropped our operating expenses 27 percent using Profit First. We talk a lot more about Profit First, the book, the system, and that might be a great resource for you to go check out as soon as you finish up this podcast.

Rachel Gonzales: Yeah, yeah, exactly. So there’s so many things that, that it, gosh, that it changed in us. We were able to see that we were operating with way too high operating expenses and that we currently were able to pay ourselves that amount, but we, our operation expenses were so high. So over like, I think it was just under two years that we were able to get right where we needed to be.

So just really exciting things that we went from you You went from near bankruptcy. That’s right. I came from, I would say, extreme poverty, and I always saved my money because I never knew when I’d have money. So that served me really well in being willing to save money and wait for things, and we’ve just been able to accomplish so much.

You know, I think about a time when $500 really would have broken us, both on the business side and the personal side, and that’s not the case now.

Avram Gonzales: The financial part of business is just something that people overlook because the first thing you have to do is start generating sales But the problem is is as you make more money You spend more money and if you haven’t figured out and gotten control over the cost of rendering your service or producing your product I mean, that’s a whole nother podcast in itself You know, we’ve done and because of our work with Dave Ramsey and scrutinizing our personal at home budget We took that exact same mindset and applied it to the business using profit First’s framework And we got really clear on what was necessary and what was not friends There’s a lot of stuff that you’re spending money on That you simply don’t need to be spending money on and if somebody somebody sat you down and interviewed you about it You would not be able to come up with a great reason for why you should hold on to that expense Beyond just maybe your pride.

Again, you gotta go check out that Profit First podcast that we did a we do talk about that. We talk about being really attached to your expenses. You know, we’ll start wrapping things up here. We have had this experience in the past where we’ve had clients that were crushing it from a sales perspective.

Millions of dollars a year in sales. That still went belly up. Because they were just one emergency away. From everything falling to pieces because cash flow was an issue. Cash flow was an issue and it took one small thing to break them. Yeah. You know, the business that I’m thinking of is the one that had this partner that committed a huge amount of fraud.

Right. Right. And so you think a business that does four million dollars a year. Oh, what’s a hundred fifty thousand dollars? Well to a four million dollar business. Well, I’ll tell you what it is. That’s like a month and a half of payroll. Right. You know, that’s not, that’s not, everything starts to fall and cascade after that.

Rachel Gonzales: Right, and you look at it, you know, you may, you have a bill due today, but you have jobs tomorrow, and that’s really not going to cut it, and you just all, you, you kind of work from behind, so I’m really excited to talk more about budgeting because we will talk a little bit more about, uh, and in depth about how to really assess those things, and money is a really vulnerable, vulnerable topic because We have a lot around money, whether it’s shame or guilt or, or pain or, you know, all sorts of things.

Um, that money can be a really wonderful tool that can get us where we want to go. And it can be such a, such a Mind blowing experience to actually have it work for you.

Avram Gonzales: Yeah, and it takes time it takes time, but it starts somewhere, right? What do you think it where do you think it this money journey really begins for somebody who’s wanting to make a transformation?

Rachel Gonzales: Yeah, I think it starts in so many different things with clarity though You’ve got to have clarity if we had many iterations we have had many iterations of our budget we started with the four walls and then we We were able to make that our own and then have different envelope systems like be able to save for this or that and Be able to build up a snowball that can help pay off more debt again That’ll be part of the budgeting thing talking about how do you overcome this because the statistic in America it is staggering there I do not know the number but it is staggering how many people are in debt and They could not make it the next month if they lost their job.

So Budgeting can truly, truly alleviate so much stress. So we’re going to drop a couple of tools in here where we mentioned a couple of the things that we recommend that the different apps, the different books, things like that.

Avram Gonzales: We’ll throw that in the show notes. Make sure to go check it out.

Rachel Gonzales: Yeah. Go throw it, uh, go check that out.

And please, you know, like, subscribe, follow us. If you want to hear more about the things that we have suggested and you just love what we’re talking about, please. Please tell your friends and help us make this a great podcast.

Avram Gonzales: Hey, we appreciate your support listening in today. If you haven’t dropped that…

Five star rating on iTunes. We could really use your help. We got some, some goodies and things coming in. We’re going to talk about a future podcast. We want to incentivize you a little bit to leave us that review. I think that’s, I think that’s above board, right? Give you a cool gift for leaving some nice words along with your rating on the podcast.

I think that’s kosher, right? Hey, anyway, please help us out and get the words to more people. And we look forward to catching you on the next episode. Bye for now.