- Don’t ignore a client’s emotions and mindset when working through cash-flow issues – it could point to a deeper problem than financial literacy.
- If your client truly believes that money, profit and tax are bad, they may unconsciously derail efforts to make them successful.
- Your client will need consistent support from you to ensure they evaluate financial decisions properly.
Are your clients struggling with cash flow and working capital issues? Cash flow is a financial problem, so it makes sense on the surface to try to tackle it with financial literacy training.
It’s easy to fall into the trap of doing what you have always done – using an app or spreadsheet to pull together some graphs or dashboards to address your client’s troubles on a purely technical and financial level.
But these reactionary measures (tantamount to schooling your client in accounting) may make things much worse and perpetuate the pressure on your client’s bank account.
Here’s the problem: the human element – emotions, mindset, habits, self-sabotage – cannot and should not be ignored. Worry and fear can permeate every aspect of your client’s business, leading to negative thoughts such as being “terrible with money” or “bad with numbers”.
The fear of not being able to pay bills or an unhealthy obsession with minimising tax will have a direct and negative effect on their results.
Unfortunately, financial literacy alone will not cure this insidious problem.
Your client’s need for a quick hit of cash to make payroll (or cover a tax bill) is the financial equivalent of a drug user who has just crashed. Quick medical attention may get him or her back on their feet, but the underlying emotional reasons for the addiction remain.
If your clients are constantly struggling with cash-related issues, it’s highly likely they also have a “chronic poverty” mindset. Unless you can work with them to address the problem from the inside (dealing with both the financial literacy and the emotional and mindset elements), you will never have a successful advisory practice.
Following are the five symptoms of a chronic poverty mindset and my tips to help you banish this toxic thinking.
1. Profit, money and tax are bad
How often have you heard clients say, “I hate paying tax”? What about statements such as “money is the root of all evil” or “a good name is better than riches”?
Here’s the thing – money, profit and tax are neither inherently good nor bad.
Money is just a way to pay for things. Profit is merely an accounting term used to describe what is left after expenses are deducted from revenue. And tax is something you pay the government when you have made sales and profit.
When your client attributes a negative or evil connotation to these words, they unknowingly set themselves up for a world of pain. If your client truly believes that money, profit and tax are bad, at a deeply subconscious level they will sabotage themselves to avoid the pain of encountering these things.
Your job is to help your clients let go of the negative meanings so they can attract more of what they want.
2. Penny-wise, pound-foolish
Have your clients ever told you stories about how they went far out of their way to save a few dollars on supplies, fuel or printer cartridges? Have they bought things just because they were offered “a good deal”? These bad habits invariably end up biting them in the bank account because they waste more time, money, and energy than they are worth.
It’s going to take more than a stern talking to to help them break free. Neuroscience shows it takes at least 60 days to break or form a new habit. Your clients will need consistent support from you to ensure they evaluate financial decisions properly.
3. Scarcity mentality
Scarcity mentality is particularly dangerous because it affects your client and everyone else they deal with. It means they are less likely to share (and that includes power, profit and recognition), plus they will also have a hard time being genuinely happy for the success of others.
In addition, this mindset focuses on the extreme short term of every decision and ignores the long-term consequences. It can directly affect cash flow as it causes people to use the resources they have now so they can’t be taken away later, leading to impulsive and bad decisions.
An abundance mindset, on the other hand, flows from a belief that there is plenty for everyone. There is a sharing of prestige, profit, and decision-making and opens up possibilities, options, alternatives and creativity.
4. Entrepreneurship is hard
Many entrepreneurs mistakenly think that to create a successful business they must work themselves to death and plough all their cash back in.
Your clients need to learn that putting funds aside for their own pay and retirement, and earning a profit, are essential to having a successful business.
Creating an intentional system – with regular salary for each owner and vacations to rejuvenate – means your clients put the right building blocks in place to overcome their poverty mindset and create a healthy and sustainable company.
5. Not feeling worthy
Small business owners rarely charge what they are worth. Whether that’s due to a lack of self-worth or just a fear of losing sales, it never pays to undercharge. While it is possible (and common) to have a high net profit margin and low cash flow due to mismanagement, it is actually rare to have low margins and high cash flow.
It is imperative to help your clients narrow the focus of what they do so they can command a premium price. As their trusted adviser, you must show them how to demonstrate the value of their unique selling proposition.
Until your client believes that “they are worth it”, no amount of financial literacy training or forecasting will fix their cash-flow problems.
“Until your client believes that ‘they are worth it’, no amount of financial literacy training or forecasting will fix their cash-flow problems.”
What you can do about it
Identify which of the five chronic poverty mindsets may be holding a client back, make a plan to shift their mindset to the positive, or support them over a period of at least 60 consecutive days if they need to break a bad habit (or form a new positive one).
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