In last week’s post on Laying a Financial Foundation, one of the tenets mentioned was: Choose Advisors Carefully.

Entering an arrangement with an advisor, whether contractural or not, is similar to a marriage. No, you’re not going to spend the rest of your lives together sitting on the front porch in rocking chairs while one shouts and the other one keeps saying, “What?”

But, you are going to work very closely together. You want that relationship to be the best experience for both of you.

Here are some questions to ask yourself and them before you “put a ring on it.” 

Purpose and Result

• What role will this advisor perform as part of my team? Too often we forget we’re building a team and our business is only as strong as the weakest link on our team. Be clear about the role each advisor will play before you interview them.
• What result do I want them to help me get? First, remember you are ultimately responsible for results. They are on your team to help you, not do everything for you. Further, you won’t know if  they are delivering the goods if you don’t clearly define the desired outcome beforehand.

Experience

• How much experience does the advisor have delivering the specific results I am seeking? Just because an advisor has a track record for delivering results doesn’t mean they have the experience or know-how to deliver the specific results you desire.
• What experience does the advisor have with the specific issues I’m dealing with? It’s important to be clear about your desired results and also about your current issues and challenges. You want an advisor who not only claims to provide the solution, but has experience with the direct problem as well.
• What is the average income and business experience of the advisor’s clientele? It’s important to select an advisor that has experience at the same level you are currently at. Otherwise they will be providing solutions that don’t actually apply to you. I’ve seen this happen quite a bit with accountants for instance. Accounting for an early-stage retail store is much difference than accounting for a 1031 exchange through a self-directed IRA. Much different. Find an advisor that matches your experience and income level.

Education

• Does the advisor have the educational requirements for the particular role I’m asking them to fulfill? This is self-explanatory.
• Does the advisor have the necessary professional credentials for the role I’m asking them to fulfill? Sometimes a basic education isn’t enough. Sometimes you’ll need someone with a specific designation in their industry.
• What does the advisor do to continue their education? This is often overlooked. I’m not looking for an advisor who did a bunch of studying and got a degree years ago. I’m looking for one who is a constant learner and understands the latest methods and trends.

Compensation

• How is the advisor normally compensated? Flat fee, partial payments, retainer, hourly, etc. Don’t be surprised when the invoice arrives in the mail. Make sure this is clearly outlined before you begin.
• Are the advisor’s interests structurally in alignment with mine? Will the advisor get paid regardless of your results? Does the advisor have any conflicts of interest? Make sure you are creating win/win compensation plans.

Communication

• How does the advisor normally communicate with clients and will this work for me? Most problems are not the problem, it’s usually communication or lack thereof that creates problems. Make sure you’ve outlined how best to communicate and share information.
• Who exactly will do the actual work and who will I be communicating with? It’s important to know if you’ll be dealing with the person delivering the work or with an administrative assistant or other person on their team.

Viewpoints

• How does the advisor feel about money? Money evokes all kinds of views, emotions, and beliefs. It’s important that you choose an advisor that is in alignment with your viewpoint on money. Otherwise you’ll experience too many differences, disagreements, and potentially even arguments.
• Is the advisor at a personal income/wealth level that is similar to me or similar to where I want to be? An advisor will always be a better fit if they have had similiar experience as you and if they deeply understand your challenges because they’ve experienced them personally.

Final Questions

• Who is the advisor’s biggest competitor? If they say they don’t have any, they’re lying. And you don’t want to do business with a liar. If they are hesitant to give you that information then the competition is probably a better option for you. If they are confident in their experience and ability to deliver your desired outcome they should have no problem sharing with you.
• What can the advisor do for me that the competitor can’t? This is a tell-tale sign whether or not this advisor is right for you. There should always be something clearly different or unique that will tell you the relationship will be a great one. Hint: It’s rarely price.
• Why should I hire you? Shockingly, a very under-utilized question. If you can’t be direct enough to ask this question and the advisor can’t be candid enough to answer it, neither of you should enter into any type of relationship.

Bottomline

Ask questions. Lots of them. Don’t jump into a relationship prematurely. When choosing advisors, do your due diligence and don’t be shy about getting the answers you need to make an intelligent decision.

What did I miss? What questions do you ask?

No related posts.

Purchasing for your business is inevitable.

But are you getting caught in the trap of using excess time and resources to save a couple bucks?

It happens all too often.

“If I just search for a better price, it’s worth the effort. Right?”

Wrong.

When I briefly worked for a Fortune 500 company implementing technology into businesses, some of my clients would boggle my mind when it came down to making decisions.

They would spend hours researching on the web between buying from my competition or me… for the same product.

Most of these times would be because of a price difference under $10. While I will agree that $10 is $10 and these decisions can add up to a healthy sum of money, what could those two hours be better used for?

Here is an example that I encountered far too often:

You need to update your marketing department’s Adobe software, you contact your trusty old supplier XYZ Software and they quote you $1750, (this is already $200 less than you paid for the last software version).

You being a savvy buyer decide to browse the web for a better price. After 30 minutes of “googling” you find a discount software site that has everything you need, for $30 less.

You think to yourself, “excellent, I just saved $30” … not so fast! What about shipping or tax? Damn. On to the next store.

A short while later, you find a new place to purchase the item. You add it to the cart, and find it is free to ship with no taxes taken out, nice!

Three hours, thirty dollars

Okay, so you just saved $30 by going with the online discounter but what did it really cost you? You spent a total of 3 extra hours shopping online (searching for the discount software store, reading their FAQ, making sure the site is legitimate, creating an account, checking out, confirming via email the order went through, and probably getting distracted more than once with other useless sites on the web)

What else could have been done in those three hours?

This is where a little economics sense pays off in this scenario; lets take a look from the outside. Three hours to save $30, that is $10/hour, how much do you make on average? I’m guessing it is probably more than $10 an hour.

What if we multiplied this scenario out over the year: 3 hours a purchase, 2 times a week, over 52 weeks equates to over 300 considerably less productive hours a year.

With this example, you spent 300 hours to save $3000, pretty ridiculous use of time and energy for an entrepreneur if you ask me.

So should you blindly trust your main supplier? No, far from it! But what this scenario does illustrate is that a successful entrepreneur creates a system for purchasing that can save money with the smallest use of time.

Keep an eye on the big picture. As an entrepreneur you have but one job: building your business.

Do you have any examples of this? How have you created a system for researching and purchasing equipment and supplies for your business?

No related posts.

While discovering something you’re passionate about and launching into business can be exhilerating, many small business owners don’t pay enough attention to core financial tenets surrounding the fiscal management of their business.

Let’s face it, very few of us have any formal financial education. Even fewer know much about business finance.

Most of us are just someone who discovered a skill or talent and wanted to build a business around it, came up with a brilliant idea and had the guts to take it to market and see what others think of it, or a “techie” that can program something cool that others want to play with.

Regardless of why we jumped into this crazy game of entrepreneurship, we have to remember we’re running a business and a business has a scorecard — that scorecard is our financial performance.

If you’re a savvy entrepreneur you know you must be working with financial professionals including a strong accountant, bookkeeper and maybe an in-house finance manager or CFO depending on the size of your company. But you can’t leave control of your company’s finances solely in the hands of advisors or employees.

Control starts with a basic understanding of several tried-and-true tenets. Understanding and applying these tenets will give you a leg up over most entrepreneurs and will ensure you work more intelligently and strategically with your financial advisors. 

Fundamental Financial Tenets

Cash is King

As long as cash is the universal medium of exchange, cash will always be king. Simply put, don’t run out of money.

Nothing else matters if you run out of money. Nothing else in this post and nothing else in your business. If you’ve borrowed capital, whether from your parents or a Venture Capital firm, know your burn rate (the net cash that is flowing out of your business each month).  If you’re on a shoestring budget, start hustling and start selling. Everything starts with the sale. If you’re intimadated by sales you either need to get over that quickly (like today) or hire someone who’s not intimidated because all business begins with the sale.

Financial systems and controls are critical

It surprises me how many early-stage entrepreneurs I work with that have zero financial controls or systems. On day one, yes day one, build financial systems and controls for all things money. Trust me if you don’t do it beginning day one you’ll never magically have time “someday”.

Personal guarantees are rarely your friend

Banks love personal guarantees. You should hate them. And you should avoid them if you can. If you can’t get financing based on the strength of your business you should question the validity of your business to begin with or if it’s the right kind of financing. Whichever it is do your best to avoid personal guarantees.

Measure everything money

Measure every dollar as it comes and goes. Build the discpline to look at your company’s “financial picture” daily. Yep. Every single day from day one you should have a snapshot of your financial progress. Financial measurements should not only track historical financial results, but where your business is headed as well.

A budget is beautiful

Budgets can be tedious, boring, and downright annoying, but they are necessary. Create an annual operating plan and budget. You need benchmarks to measure against. You need to know your goals and how well you are progressing throughout the year so you can act, analyze, and adjust accordingly.

Choose advisors carefully

This is NOT an area to save money. Don’t be tempted to use your uncle’s wife as a bookkeeper because she’ll give you a family discount. Don’t try to do it yourself because you think you don’t have the funds to outsource. Instead, focus on finding strong financial professionals that come highly recommended based on their performance, not who they are or their relation to you. Here’s a quick tip: You should never be an advisors largest client or smallest client. If you’re the largest client they’re experimenting with you and if you’re their smallest client they’ll ignore you.

Bottom line

A solid financial foundation is critical for the success of any company. It starts with these basic tenets and it starts on day one. Don’t neglect. Get started now.

No related posts.

Are you financially fluent?

Starting today, and every Friday for the foreseeable future, we’re going to talk finance.

Since we here at The Edge of Innovation don’t know exactly where your financial education lies we’re going to start from the basics and build from there.

Let’s jump right in…

Wait! Before we begin I want to remind you of the two great financial dangers:

“I already know that.”

AND

“This is too overwhelming.”

Routinely when I work with business owners I hear the phrase, “I already know that.”  The objective, of course, is not whether you already KNOW, it’s whether you currently APPLY.

For those of you who are financially fluent, rather than dismiss these basic financial lessons in the beginning blog posts, make the committment to challenge yourself on whether you are actually applying these principles to your business right now.

If you are one of the more inexperienced when it comes to financial fluency, it’s important for you not to gloss over these lessons and arrive at the conclusion that it’s too overwhelming.

Much of business comes down to a financial score. And when you don’t score well, you don’t have a business. At least not for long. Therefore, it’s imperative you know the financial score of your business and your personal wealth. (Which, by the way, are not one and the same)

Now let’s get started…

It’s starts with an understanding of where you are currently. Where do you fall on the financial fluency scale?

Financially Illiterate –> Financially Literate –> Financially Fluent

Financially Illiterate:

• Very little knowledge of finances.
• Always rely on others for financial advice.
• Don’t know the different between business finances and personal finances.
• Struggle to understand basic financial terms.

Financially Literate:

• Understand basic terms, but get lost on more advance strategies and concepts.
• Can read and interpret financial statements.
• Don’t always rely on others for financial advice, but rarely make strategic financial decisions.
• Generally do an average job of staying on top of both business and personal finances.

Financially Fluent:

• Understand and apply advanced financial strategies and concepts.
• Consistently evaluate both business and personal finances.
• Use advisors regularly, but remain in full control of all strategic financial decisions.
• Always take the time to learn from past financial mistakes to avoid repeating.

Take Inventory

This weekend, take a moment and take an inventory of your finances. Also take an investory of your knowledge and how well you are applying your knowledge.  Determine where you fall on the financial fluency scale. Write down your strengths and weakenesses. Determine what areas you want to improve. And, be sure to share with us so we can address them each week on Financial Fluency Friday.

No related posts.

Business owners benefit financially from their companies in two ways:

1) From the long-term appreciation of company value.

2) From payouts in the form of salary, benefits, and dividends.

Far too often small business owners focus on the latter rather than the former.

The key question to unlocking the true financial potential of your company is…

Am I solely concerned with creating an income stream or am I maximizing the long-term value of the most important asset I’ll ever own?

No related posts.

Most entrepreneurs are not finance people. Most are inventors or salespeople.  They believe a need exists for something and want to be the one to fill that void.

Very few entrepreneurs really understand the way business finance works until it is too late — and that often means the end of the business. I’ve seen this countless times in my 12 years as an entrepreneur and consultant. Hell, I’ve even experienced it first-hand.

Here are some things I’ve learned the hard way:

Lesson #1:

No matter how brilliant, creative, and blessed with talent you think you are, all meaningful transactions that occur in the life of your business will be most affected by the decisions you have made regarding how you have financed the business.

Lesson #2:

No matter how much you think you know about business finance, you are woefully uneducated. Do yourself a favor, hire an ethical, smart accountant early. But, don’t put all your trust in any one individual. Learn as much as you can about finance.

Lesson #3:

You will regret at least one major financing decision no matter who you are or what business you are in. Just know it’ll happen.

Lesson #4:

Most of the financial mistakes you will make will happen within the first three years. That’s why it’s critical to be more like a speed boat than a cruise ship. Act.Analyze.Adjust…as fast as possible.

Lesson #5:

You need to know that once someone gives you money, no matter how much they love you, it just became a business transaction. Your grandmother will sue your ass as fast as she’ll whip up a bundt cake once it becomes business.

Lesson #6:

If you are going to take professional money, take professional money. Amateurs may seem “cheaper,” but they aren’t. Don’t be penny-wise and dollar foolish.

Lesson #7:

Take money from as few, and as deep pocketed investors as you can. The fewer investors you have to deal with, the better. You’ll thank me when you aren’t sweating over closing a deal because your wife’s brother-in-law John has just a few more questions he wants answered first since he invested $1,000 three years ago.

There you have it. Seven simple lessons I learned the hard way. Let that not be you.

How about you? What lessons have you learned?

No related posts.

When was the last time you hopped out of bed, excited for the day to begin? To wake up with a smile on your face, knowing you have the chance to improve the lives of others around you? For most, it’s been far too long. And for some, it’s a daily routine.

But why is this?

In the history of the world, it’s never been easier to do what you love. To work where you want, when you want, if you want. And create remarkable lives for you and your loved ones. But it’s only possible with a passion for what you do.

The Hard Truth

Your passion takes money. It’s true. Those who say money isn’t everything, hasn’t lived without it for long. I’ve had days I was unsure if I’d be able to eat while praying my cell-phone isn’t disconnected and hoping that my last pair of jeans didn’t rip further beyond repair. Trust me, money is a necessity.

Don’t get me wrong, money does not cause success nor happiness. Money is simply the gateway to doing what you love. It creates the ability to help others, to travel the world, to support your favorite charity or whatever else you dream of doing.

But you will never achieve the financial strength needed by working a bullshit 9-5 job for someone else. Current business owners will agree with me on this. The only person getting rich in the corporate world are the owners, not the doers.

“Entrepreneurship is living a few years of your life like most people won’t, so that you can spend the rest of your life like most people can’t.”
- Unknown

So where does this leave us? Current wisdom tells us that if we go to college and get decent grades we’ll get a great paying job. Kiss your boss’ ass for 40-50 years, invest in a 401k and hopefully you’ll retire a millionaire. This advice is utter bullshit.

I don’t know about you, but I’d prefer to do what I’m passionate about today. To live the life I dreamed about as a kid. To support my parents who devoted their lives to supporting me. And wake up happy.

The Balancing Act

In comes this blog, The Edge of Innovation.

Greg Hartle and I have decided to help you find your passion while growing your business. And to cease your objections before they begin; a business should not require millions of dollars to launch. Nor a large factory and countless workers.

Today’s business models can be based on a laptop and Internet connection. One that utilizes innovative strategies mixed with the latest technology. And most importantly, a business that opens up a lifestyle conducive for helping others, for following your passion.

Does your business need to be your main passion?

No. Mike Rowe will tell you that someone needs to do the dirty jobs. But at the end of the day, whatever business you’re in must improve the lives of others. As well as facilitate a better life path. And ultimately, strive to create unlimited wealth beyond your wildest imagination. It’s possible.

We Need You

But no business owner will be able to enjoy their passion if they get stuck in the business. Becoming overworked is never fun, no matter how much you initially enjoyed the work. Therefore, this blog will act as an occasional motivator, instructor and mentor. Not just from Greg and I, but from you, the reader. We, in no way, feel we have all the answers. So the community that will be formed around this blog will be asked for input and advice. Lurkers are welcomed… but to truly receive the best benefit from this chronicle of business building concepts we hope you’ll ask questions, pose alternatives and hopefully become a regular contributor.

We look forward to the future with you.

No related posts.