Financial Advice For Founders
The holidays always spur on great gatherings, great conversations, and possibly, great business ideas! Last year, I did an Ask Me Anything for individuals who want to become business owners. The number one question when becoming a business owner is “where am I going to get the money?” Below, I respond to their (and maybe your) most burning questions about taking the leap into becoming an entrepreneur financially:
Q: What would be your number one piece of advice for someone who is starting a business, but is already strapped for capital and liquid assets in their personal finances?
Ellie: Great question. We know that 8 in 10 Americans are in debt. So, not only are some strapped for cash, but most of us are literally running at a deficit. Your business income will always fluctuate, but the truth is your debt will come every month on time. My advice is simple: if you’re in debt don’t quit yet. It is tempting when we have a new idea to say goodbye to our current job, but it is so important that you get your debt either gone or paid down significantly before jumping in the uncertain world of startup cash flow. By doing this, you are setting yourself up for a greater chance of success for your new venture by having the freedom to absorb some uncertain months rather than going back to your 9–5.
Q: What are some of the critical tools you need to have in place when you first start a business (and what can wait)?
Ellie: There are lots of things you can use when starting a business. This really depends on your business size and how much money you are bringing in/managing. My number one recommendation when you’re starting out (regardless of size) is finding a trustworthy accountant. Most people do not have one for their personal lives, but when it comes to business, this is instrumental. The rules of the IRS are complex, and a good accountant can save you money, time, and energy (specifically around April 15th!) It is important to ask around and get a recommendation if possible.
Q: What do you see people spending time/money on that they don’t need in terms of financial management (could be tools, services, processes, etc.)
Ellie: I think most tools that founders spend money/time on for their business’s financial health is money well spent. What I don’t see enough of is founders investing in their own financial knowledge. You can hire people who can manage things for you (accountants, lawyers, tax professionals, advisors, etc.) but if you can’t tell the difference whether they are good or not may potentially put you in a precarious financial situation. Investing in your own financial knowledge will not only help with your current venture but futures businesses to come.
Q: Are there good resources for improving financial knowledge?
Ellie: Absolutely! I recommend a good old-fashioned trip to the library. Here is a list of books to get you started:
I Will Teach You To Be Rich — Ramit Sethi
The Money Book for the Young, Fabulous & Broke — Suze Orman
Rich Dad, Poor Dad — Robert Kiyosaki (controversial on helpfulness but very accurately describes the mindset shift)
The Millionaire Next Door — Thomas J. Stanley & William D. Danko
Q: What are things you see entrepreneurs doing that you think they should outsource to a professional/service (taxes, invoicing, bill payment, business setup application/paperwork, etc…)?
Ellie: The internet is a beautiful place, and most things can be automated. There is a difference between outsourcing and automating. Once you have your business systems down, everything should be automated aka you don’t need to touch it to make it happen. Outsource = accountant for taxes. Automate = invoicing/bill payment/payroll should all be in a centralized hub. Your options would be QuickBooks, ADP, Paychex. After that’s done, you need to take time to review it — ideally every day depending on volume but once a week will do. Picking a specific day helps keep things consistent.