The Financially Savvy Entrepreneur

Navigate the Money Maze of Running a Business

Emily Chase Smith

• Publisher: Career Press
• Year: 2014
• Print ISBN: 9781601633170
• eBook ISBN: 9781601634696
• Topic: Business
• Subtopic: Entrepreneurship
• Index: Business

80 percent of small businesses do not receive outside funding; they bootstrap (and beg and borrow) to make their business dreams a reality. As these businesses grow, the hasty financial decisions and systems put in place during their infancy inevitably crumble.

Banishing CPA-speak, The Financially Savvy Entrepreneur offers time-strapped entrepreneurs—indeed, all business owners—simple and innovative tools to maintain business and personal financial health.

Here's an understandable, step-by-step plan that will help you:

Understand how an entrepreneur's financial considerations differ from their traditionally employed counterparts.

Appreciate the danger of failing to revisit start-up decisions and give you a roadmap to ease financial entanglements.

Establish a business that can stand on its own financially.

Chapter 1:
The Runway Equation

The Runway, and Its Friendly Companion, Baselining

The constant concern of entrepreneurs is that we’ll run out of money before we can make our business idea a reality. We face this at the beginning of a business venture and several times throughout its life as we jump from tree to tree in the quest for the top. This is what keeps us up at night. Money worries sap our creativity and dampen our drive.

And it’s not only the money to run the business we need to worry about; it’s also money to run our lives while we build the business. As we saw in the Introduction, we are not 9-to-5-ers who receive a paycheck from the top floor. We eat what we kill, and we need to kill enough to feed ourselves, our families, and our business. That’s a lot of zebra.

The concept of the runway is something I first discovered on The Lifestyle Business Podcast, from lifestyle entrepreneurs and those who write about lifestyle design. It provides a great framework for the idea of how long you can continue down a path before running out of time or money. It’s modeled on the idea of the amount of runway an airplane needs in order to take off: With enough runway a plane can get into the air. Without enough, you have a tragic situation.

The idea of the runway is best understood in the context of the lifestyle entrepreneur’s reality: that of a twenty-something straight out of college, with big dreams. So picture yourself at the beginning of your working life, with all your entrepreneurial zest, but none of your hard-learned lessons. Now take away all ties to the physical world except for the love of your family. Now you have no encumbrances, but you also don’t have the resources you may have come to rely upon—no savings, no 401k, no home equity. As you fashion your life from scratch, what would you do to launch your big dream? Eating ramen noodles, the staple of college students the world round, comes immediately to mind. As a free bird you might rent a small apartment in a less-than-desirable area of town. If you were really hardcore you might couch-surf your way to nearly zero overhead. Your car would be sold or downgraded to the bare minimum. Meat might not grace your plate for weeks. This type of lifestyle is known as baselining. And as the young and naïve understand, baselining allows you more runway—in other words, more time—to make your dream a reality.

The runway concept is equally applicable to the more seasoned entrepreneurs with existing businesses and established lifestyles that don’t lend themselves well to friends’ couches or weeks of ramen. Remember our bastion of progress, David? One of his pivotal steps was to take a long hard look at his business and personal expenses and cut them where he could. Cutting his expenses down to the lowest necessary amount gave David the wiggle room he needed to bring his books strongly into the black.

Let’s take a look at the elements of the runway to see how you can use it to your advantage. The equation, penned by this non-math nerd, is:

Time + Money = Runway.

Let’s break it down.

Time

I don’t know about you, but when I conceived the idea for my business (and the one before it and the one before that) I thought I was just about the most brilliant, intuitive, creative businessperson who ever hatched a business plan. My mad, former-secretary typing speed of 60-plus words per minute was no match for the fast flow of cutting-edge ideas pouring from my head. A 30-second elevator pitch couldn’t contain me; there was just so much to say. I was white hot. Six months later I looked back on that efficiently typed business plan with disdain. A little reality showed many of my cutting-edge ideas to be more suited to the cutting-room floor. I had spent large amounts of money on ridiculous ideas, and I had much to regret. I know I’m not alone in considering my business plan to only be worthy of lining bird cages.

When traveling, conventional wisdom says to take half as many clothes and twice as much money as you anticipate you’ll need. Similarly, a seasoned entrepreneur knows that every business, even the ones that get your blood flowing, will take twice as much time and twice as much money as you plan. How can that be? Robert Burns said it best: “The best laid schemes o’ mice an’ men / Gang aft agley.” (In other words: The best laid schemes of mice and men / Often go awry.) Time gives us the opportunity to be successful. Think about your goals when you started your business. What was your revenue goal? How long did you think it would take to achieve it? (It’s okay to stop for a little chuckle here.) Imagine your timeline had been set in stone and your business had a self-destruct button set for that date. Would you have been frantically trying to figure out which wire to cut, or cruising Monte Carlo in your Ferrari? I’ll say it again: you’ll need twice as much time and twice as much money as you think you’ll need. Can I hear an amen?

Take “The Donald” for example. As of this writing he has filed business bankruptcy petitions four separate times.¹ When I practiced bankruptcy law full time, I used to joke that we should give him a punch card: after four he gets the fifth one free. If even The Donald, a billionaire business mogul endorsed as an expert by no less than reality TV, doesn’t get it right every time, how can we mortals expect anything more of ourselves? And note that his failures resulted in bankruptcy: the white flag, the most drastic solution. You know he threw a lot of Hail Mary passes with the full strength of his fortune and influence before those petitions were filed.

Despite our brilliance, each of us needs time to identify our target market, design the product or service that will best appeal to them, market, tweak, pivot, and market some more. You can’t come up with an idea, test it, and make adjustments in a few days—at least, not well. It takes time. Time is both the friend and enemy of business. We need time to refine all the elements that make us successful, but if we run out of time, what we planned to do next matters not.

As entrepreneurs without a venture capital benefactor, we need to factor in the personal side too. Even couch-surfing ramen-noodle eaters need some money. The rest of us need even more. Some of us have other people like spouses, children, and older parents relying on us for support. Time is our frenemy there too. If we don’t have enough time to make our business successful, we’ve not only let down ourselves, but we’ve also let down those who trust and rely on us.

Remember, Time + Money = Runway. So now let’s look at the Benjamins.

Money

As much as we may hate to believe it, money is the lifeblood of any enterprise. Without it the enterprise comes to a halt. Have you ever seen a hungry entrepreneur? The desperation is obvious. You can smell it a mile away. My heart goes out to that frantic business owner turning over every rock to find the magic gold coin to continue on just one more day. And yet, like a desperate girl looking for a boyfriend, no one is less likely to be offered that coin.

When we’re talking about money we need to consider both sides of your life that use money: the business and the personal. I’ve devoted an entire chapter to how to put together a strong decision-making process for business expenses in Chapter 4, so I’m going to devote this section to a discussion of personal expenses. But first, a story.

There is an old Cherokee legend about a grandfather teaching his grandson about life. “There is a fight going on inside me,” the wise grandfather said to his grandson. ...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Dedication
• Contents
• Preface: Entrepreneurs Are a Different Animal
• Introduction: When the Sheriff Comes a-Knockin’
• Chapter 1: The Runway Equation
• Chapter 2: Getting the Teenager off Your Couch
• Chapter 3: The Numbers Game
• Chapter 4: What’s Eating Your Lunch?
• Chapter 5: The Most Important Business Plan You’ll Ever Draft: The Exit Plan
• Chapter 6: Keep the Cash a-Flowin’
• Chapter 7: Untangling the Money Spaghetti
• Chapter 8: Fun with FICO
• Chapter 9: Negotiation Strategy When Haggling Give You Hives
• Chapter 10: Settling Debt for Pennies on the Dollar
• Chapter 11: When All Else Fails, Raise the White Flag
• Conclusion: You’ve Got This
• Notes
• Index
• About the Author