Why entrepreneurs go broke
The excitement of a new business venture or idea requires a different energy and skill set to the day to day of running a business. Entrepreneurs have skill set and vision to setup business but often need strategies in place to take the business to the next level and run it!
As the saying goes many businesses don’t plan to fail they fail to plan.
Have a Cash Flow Plan
When starting out in business good cash flow is an important foundation to ensure you can keep the business going and growing. Cash flow in business can be lumpy; I often refer to it as a roller-coaster ride. When I established Money Mechanics in 2009 I had plenty of energy and enthusiasm but no clients and low levels of income coming in. For the first two years I was either celebrating the wins or picking myself up and wondering if it was all worth it!
Do your research and numbers around what running your business is going to cost you. This will help with creating targets for income generation so you can make the business profitable.
Know your Lifestyle Number
Knowing what you need coming into your bank to run your lifestyle costs will assist while you embark on the entrepreneur journey. If you haven’t got your day to day lifestyle covered it can make or break the start up phase of a new business! In my 15 years in the financial services industry a lot of people do not know how much money they need coming in to cover their costs. Management of your personal cash flow can be the biggest challenge but also a great motivator to growing your business in the early days. Once it is profitable it will give you a great foundation to take things to the next level.
Throw money forward
Once your business is going well you need to have a plan for where you are going to redirect the profits you make! A great outcome of having entrepreneurial ideas are that the dollars that can follow when things take off. As part of your planning you should ensure you are taking money from your business to invest in your future. Many entrepreneurs don’t setup strategies to build up assets outside of their business. The aim being that one day those assets can generate your lifestyle income!
Get the balance right between investment for growth in the businessand strategies to create asset value outside of the business! The amount you reinvest and invest outside will depend on the business structure and your profit levels and business plans. This will diversify your approach and ensure you are not relying on the success of one strategy.
Build Your Advice Team
Being an entrepreneur and starting your own business can be lonely at times, I learned early on the value of having a good team around me. This advice team can help keep you motivated and accountable. They can assist in you being clear about your cash flow and profit plans and put in place a strategy to track these. These people can make the journey less lonely andcan provide a fresh perspective when times are challenging! My advice team includes my bookkeeper, accountant, lawyer, marketing guru and graphic designer. They are all in business themselves and add an external perspective to my day to day business.
Investing the time and energy in the right strategies and plans for your journey in business can help mitigate risk. It can give you an approach to achieve success and ensure you don’t break the bank along the way!
Seek out further advice and start your journey to being free around your money and creating wealth with understanding.
About Scott Malcolm
Scott Malcolm has been awarded the internationally recognised Certified Financial Planner designation from the Financial Planning Association of Australia and is Director of Money Mechanics. Money Mechanics is a fee for service financial advice firm who partner with clients in Melbourne, Canberra and Sydney to achieve their life and wealth outcomes. We are authorised to provide financial advice through PATRON Financial Advice AFSL 307379.
The information provided on this article is of a general nature only. It has been prepared without taking into account your objectives, financial situation or needs. Before acting on this information you should consider its appropriateness having regard to your own objectives, financial situation and needs.