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.
About the Author: Greg Hartle is co-founder of New Methods. And also founder, co-founder, investor, and/or strategic advisor with over a dozen businesses. Greg also speaks and consults professionally with businesses, non-profits, and other groups on 21st century capitalism, leadership, and integral life strategies. Connect with him on Twitter and Google+
