$treet $mart$ (vol. 30)

Finance Insight

As entrepreneurs, we have proven our business acumen, but is our personal financial plan up to par? I have worked with many successful entrepreneurs who take a proactive approach to ensure their businesses thrive, but often neglect their own financial well-being, which can lead to financial disaster in the future.

Top 5 financial mistakes that we most often make as entrepreneurs

1.) Creating Economic Value Only Within The Business

Is our business our biggest asset? Too often we focus only on accumulating value in our company, neglecting the need to create personal liquid assets in our name. In the event of a business failure, that lack of diversification can be catastrophic. At the same time, relying solely on business assets for income can leave us vulnerable to tax changes.

2.) Not Planing For An Exit In The Future

Don't let a big offer blind you to your financial reality. Many times we make the mistake of assuming that a large sum will secure our retirement dreams, only to find that it falls short. This happens when we fail to consider our cost of living, both now and after the business is sold. Without a clear understanding of these expenses, we risk being forced to work for someone else rather than enjoying the retirement we envisioned.

3.) Not Investing In Key Employees

The most vital aspect of securing our financial future is to secure the financial future of others - most importantly employees.  Making an investment in our employees by way of pay, benefits, etc. creates exit optionality for us in the future like exiting the day-to-day, selling to a financial buyer who will leverage the in-place team, or selling at the highest exit price possible.  The best financial investment we can make is to build a team that can run the company without us. Great people are our best asset, so we have to invest in them.

4.) No Succession Plan

Unexpected events like illness, disability, and death can wreak havoc on our business if you're not prepared. Even less dire situations can cause trouble if you're suddenly called away. That's why it's essential to plan for the future, including the possibility of a family member or key employee taking over our business someday.

5.) Failing To Actively Forecast Cash Flow

Cash may be king, but cash flow is the queen that determines whether your business can afford new equipment, pay off loans, or reward top talent. To make confident financial decisions at every stage of the business cycle, forecasting cash flow is crucial. And if your company isn’t scaled to support in-house financial experts, we must outsource to CFOs and controllers. With their help, we always know whether financing or paying with cash makes sense, and how much you can safely withdraw from the business.

6.) BONUS: HEALTH

The most overlooked financial investment is our health.  I know countless entrepreneurs who sacrifice their physical, mental, and emotional health because they are "too busy" or chasing the almighty dollar.   We will easily give up our health, to pursue money, only to give up our money to get back our health.  The game is long, and if you want to play well into your 70s like me, then daily investments in our health start right now.

Best,

Samson

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