Treat Your Life Like a Business

Treat Your Life Like a Business

Some people got lucky and made millions. Some people were disciplined and got rich slowly.

However, adopting certain principles can make us eliminate the factor of luck in business and in life. Maybe not completely but enough to feel sufficient control over our project.

In this post I want to point out a few non-exclusive factors that may significantly improve our lives.

The idea is in the title: Treating our lives as a business.

And if we’d do a good job in achieving what’s considered success in life, applying the same principles in a corporate environment would be a joke. Winning at life is much more rare than career success.

Don’t overspend

It always starts here.

Know your budget. Allocate it properly. Don’t borrow without a plan. Have a fund that can cover your expenses for a few months.

Regardless of whether we talk about business or life, going into high interest debt is extremely risky, especially when certain levels of cash-flows are not already established. Although debt can be used as a leverage given a proper strategy, it can also be a fast track to a bankruptcy. So use with caution – or don’t if you have the slightest doubt in what you’re doing.

But what’s even more important is where you allocate your spending.

Do you buy items that serve no real purpose and have non-positive ROI? Both in life in business these can be abstracted away as indulgences without long-term value, usually purchased because of human instincts and insecurities.

On the other hand, you can buy assets – things that give value in return. These can be your employees and tools & technology as a business, or long-term investments and education as a private individual. The amount of overlap is huge.

You want that debt-to-equity low.

While at it, utilize financial reporting. Have a balance sheet.

Know what you own, know what you owe.

And if you still haven’t, develop a thorough understanding of your cash flows.

Market research & Strategy

Never jump in the waters without a plan.

It’s your responsibility to know the environment you’re operating in.

Know your customer. Know your audience. Know your obstacles.

Know the framework you’re a part of – learn about the government, the economy, the tax system… Understand supply and demand.

It’s in your best interest to understand the rules of the game you’re playing and leverage them to your advantage.

And for the extra cautious – have an exit strategy. Never go that deep that you’ll be unable to dig yourself out of the hole eventually. Keep things in control.

Take risks so you’re less victim to opportunity cost and inflation, but have a backup.

Be professional, provide value

Focus on value.

Promise yourself that there will be “no more zero days”.

When you solve peoples’ problems or make their lives better, you’ll be rewarded with various benefits ranging from emotional to financial.

That’s why I didn’t explicitly separate any of the sections in business vs private life – when a life is treated like a business would be, the improvements are massive.

And as long as you do a great service, or provide a quality and cost effective product, the market forces will push you to the top without help of any external factors. And the secret is to never forget providing value. Every action, interaction, or step you take should be there to make something better than before.

For example, running ponzi schemes is unsustainable. Chasing quick profits is a short-term game. Doing dirty solutions will kick you out of the market.

Instead, focus on improving peoples’ lives, focus on benefiting the society, on providing high quality customer care… Friend care, family care, partner care.

And don’t expect more in return than what the market set. If you can set it instead, go for max value.

Focus on maximizing profits

Always!

When you realize how much control you can actually have in this, there’s no stopping.

Need a little push to the right direction? Check the importance of negotiating the highest salary.

Chase the best deal. Compare. Never sell yourself short.

At the same time, don’t overpromise. Overdeliver instead and adjust the value you get in return accordingly.

And if you can’t where you are, don’t be scared to seek alternatives. There’s no point in milking a saturated market. There’s no point in earning cents on the dollar.

But at the same time, focus on the long run. Everyone can get lucky and sign a contract for more than they’re worth, only to be fired within a month. When we talked against overspending, we mentioned that you want your D/E low. Don’t forget the rest of the ratios – your P/E should not be much higher than the industry average as well.

Find your market value, set it, and focus on increasing your worth from then on.

Corporate finance & NPV

Once again, the goal of any activity should be to increase the value to the shareholders.

And in your life, you’re the only shareholder. Or are you?

Regardless of the answer, keep your capital structure close to your optimal mix. I’m more of a fan of keeping capital costs close to zero, but I understand that the right partners or a bit of smart debt can put us way ahead in life. So consider who’s financing your… endaevours… because you’ll most probably be surrounded with these entities for quite some time.

Apart from that, incorporate NPV analysis. Take your risk taking tolerance and capacity in account before considering anything and then assess the net present value of any activity / project / endeavour you’re planning to undertake. Learn to quantify the uncertainty and be more conservative.

NPV is the present value of all inflows minus all outflows.

Apply the same concepts to non-financial assessments. Quantify the value you’d get of a person you’re considering partnering with and discard the project if it’s NPV is negative.

The decision rule is simple:

Consider only projects with positive NPV
If multiple mutually exclusive projects, consider the one with the highest NPV

We don’t need to reinvent the wheel.

Do what works, maximize value, repeat.

Reevalute

The most important part.

Whether it’s daily, weekly, monthly (I like this one the most), quarterly, semi annually, or yearly, don’t forget to look back.

Assess what worked and what didn’t. What you need to improve and what you need to get rid of.

Don’t be afraid of change. There’s no room for emotions, biases, or opinions in business. The numbers speak for themselves, so just follow what they say.

If you need some more time to decide on a certain venture, please do. Just make sure not to accumulate too high of an opportunity cost – or in other words: make sure that you have a solid foundation of financing and backup given that the said venture fails.

Learn from the mistakes, utilize the newly acquired knowledge, and make each following year better than the previous one.