Perhaps elite is a fitting word.
They voluntarily go into harm’s way taking risks mere mortals would never dream of doing.
Entrepreneurs creep silently into the night for long hours — often for little pay and no glory.
In the world of business, entrepreneurs are they are the Navy SEALs of the work force. Like the top warriors, entrepreneurs also enjoy a few of the benefits of membership; relaxed grooming standards, flexible hours, and they often get to ditch the uniform.
My analogy is silly, but these two groups share traits the majority of the population does not. They are both minority groups who do not follow and often rebel against authority.
The traits that enable entrepreneurs to achieve great things also attract risk.
Entrepreneurs should not follow the same “rules,” especially when managing money.
Here are three money strategies critical to entrepreneurs.
Entrepreneur always say, “I can make more money by investing in my own business.”
Business owners resist market investments because investing in their own company provides them with more control, but that ignores why they should consider the stock market.
Entrepreneurs tend to overestimate the probability of success. Small business owners face inordinate risk, so they must be optimistic, but the odds are against their long term survival.
If you reinvest all earnings back into your business, you might earn more, but you risk losing everything.
Entrepreneurs should invest in the stock market, not to earn more profits, but instead to diversify capital among multiple businesses.
Use your business to earn money, then spread some of those earnings around several investments so you’re never exposed to the risk of a single investment.
Entrepreneurs ride the cash flow roller coaster with wild cycles up and frightening trips down. Unlike the employee’s predictable cash flow, business owners have erratic cash flow and must handle money differently.
Traditional financial planning frowns upon hoarding large amounts of cash because of the missed opportunity of growth in other investments. However, it’s more important to have emergency cash because the entrepreneur’s cash flow is so unpredictable.
It’s difficult for the start-up owner to save a lot of cash. They are usually boot-strapping and need every dollar just to get started. I’ve been there more than once, but as soon as you can, or preferably before you get started, build up a cash reserve of at least 20–40% of your annual net income.
That may seem like a lot, but this is only the starting point. Depending on the stability of your company, more than 20–40% is often better.
Cash is king, especially for the entrepreneur. It allows you to make better business decisions, take advantage of opportunities, and operate from a position of abundance.
Build Your Personal Balance Sheet
Like the elite Special Forces, most entrepreneurs are not driven primarily by money. Money can be a tool to keep score, but it’s often the thrill of the chase that provides the rush.
This unique personality breeds risks. The entrepreneur’s tendency is to inject every cent of profit back into the business for the big payday at the end. This is usually necessary in the beginning, but it’s a high risk philosophy that must be reeled in as soon as practical.
In the end, owning a business is about building your personal net-worth so you can live life on your own terms. You must extract profit from the business and move it to your personal balance sheet.
That’s emotionally hard for many entrepreneurs. We would rather invest in new equipment, employees, or advertising before taking money home. However, it’s important to introduce rules that force you to take profits.
If you wait until everything is right, that time may never come.
Remember the oldest rule of personal finance—Pay Yourself First.