Here’s an idea for business owners (big or small): Never think in gross top-line terms.
How often do we think of a $10,000 or $200 sale as ‘our’ money or profit? A few years ago, when I went into business for myself, I learned Net-Net thinking. When I earn revenue, say from a speaking or consulting gig, I first back out costs, commissions and expenses and then I back out taxes. That gives me a true number, the net profit number. That’s the only number worth thinking or talking about. That’s also how I roll up income in the Profit/Loss statement.
Back in the go-go dotcom bubble days, topline income was everything. If you did a million dollar deal, in your mind, you were worth multiples of that — even if there was no net profit. I can’t tell you how ingrained that gets in our minds when times are good. I think of it as expense denial syndrome. This thinking, of course, leads to a crash later when the rubber hits the road as the economy corrects. Thinking in net terms often leads to a happy surprise at the end of the year, instead of a scramble to pay taxes and bills.
For non-business owners, is this your personal form of accounting? My wife Jacqueline taught me to think Net-Net on a personal level as well when I was at Yahoo. Sell a stock option, immediately deduct the taxes and forget about the gross income from the sale. Same goes for salary or bonus. Do the math every time and adjust it downward to the net income number. It is a mental programming technique that makes you very realistic about what you are making, and more importantly, what you’ll have at the end of the year.