For many, starting a business is the professional
dream of a lifetime. While thousands of businesses
are launched every day, history shows a pretty high
failure rate. Yet, despite the odds, the vast majority
of business owners would rather risk potential
failure than never take the leap, based on what I
heard on my virtual small business listening "tour"
across the country.
As part of this tour, I spoke with veteran serial
entrepreneurs as well as those in the early stages
of launching a business, from a cross-section of
industries and geographies and driven by different
motivations. From those conversations, I distilled
the following five considerations to help you
position your new business on firmer financial
footing.
1. Bolster your financial health. You may have the
personal wherewithal to start a business, but can
you afford to make the transition given your level
of debt as well as savings? Set a threshold for the
minimum amount of money in the bank that you
are not willing to go below. This number will be
different for each person, but the important thing
to take away is that you think about what this
number means to you and save it in advance. It's
important to build up and maintain this "healthy"
reserve or cushion to allow you to manage the
lean months or the periods of uncertain cash flow.
If you find that you are approaching your "bottom-
line" number, this is where discipline must override
passion. Step back, take a hard look at your
situation, and see what's working and what's not.
2. Get over the "fear factor." Change is frightening
for most of us. It's only natural and appropriate to
worry about the possibility of failure, jeopardizing
your financial security, or reneging on your
obligations to others. But sometimes we get so
caught up in what we stand to lose that we forget
to consider all that we stand to gain. And, we
forget that we are driving the timetable and
parameters for making this change.
3. Keep your personal and business wallets
separate. The old adage that business and
pleasure don't mix also holds true when it comes
to your business' finances. Set up separate
accounts for your business, and consult with a
knowledgeable tax professional to understand what
costs are deductible. If you start recording and
keeping receipts of deductible expenses from the
beginning, it can help avoid major problems in the
future, such as liability for additional taxes or
penalties. And, don't stop talking to a financial
professional throughout the process of building
your new business as it can help you feel more
confident that you are managing your personal
finances wisely while you begin your business.
4. Work on your business, not just in your
business. When you are surrounded by your own
business day in and day out, it's important to take
a step back and make sure you are handling all
aspects of the business. Sometimes entrepreneurs
are so focused on their product or service, that
they may overlook their business' finances. But it's
important to handle your business finances with
intent. That is, handling your finances in an
organized -- not haphazard -- way.
5. Remember that not all money is created equal.
You need to know when and how to raise capital,
(both equity and debt), and how to wisely put your
money to work on things that adds value. You
should be spending as much time researching what
investors and lenders want as you spend
understanding what your customers want.
Understand the approach that angel investors take
versus mezzanine debt investors. The more you
know, the better positioned you will be to tap the
capital markets and make the appropriate asks.
Money is a tool. Make sure you understand how to
use it.
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