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Entrepreneuring Your Personal Finances

Written on September 22, 2009 by George Krueger & Mary-Lynn Foster in Money

personal_finance Bigg success is life on your own terms. You are the entrepreneur of your life. Entrepreneurs look at the world through a different lens than do large company CEOs.

For example, large companies and small companies use different financial models. Large companies generally have the ability to raise large amounts of money when they need it.

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For small companies, it’s much more difficult. So it’s more critical for small business owners to watch their cash flow. For us as individuals, our financial model is much closer to the entrepreneur’s.

The two decisions

There are two types of decisions which we must think about: investing decisions and financing decisions.

For large companies, these two types of decisions are independent. They decide what they will invest in. They determine how they will finance their firm.

In an entrepreneurial firm and for us as individuals, these decisions are interdependent. We invest in the things we can finance. It could be a new business or a piece of real estate. But it could also include a new car or a new house.

If we have an idea for a project, we first must either have the needed financial resources already available or we have to sell someone on funding it.

If neither of those is true – if we don’t have the money or we can’t sell someone on funding it, we can’t do the project.

Now let’s look at four ways to think entrepreneurially about your personal finances:

Bootstrap
Entrepreneurs understand that they have limited resources. They recognize it, but still make the most of what they already have. You can carry that same attitude into your personal finances.

Retain earnings
This is what we call it when a business saves money. Pre-fund your projects when possible. If you know that you need financing to make an investment, why not finance it yourself? That’s financial freedom.

If cash is king, reserve borrowing capability is queen.
Protect and preserve both your credit rating and your credit capacity. Then you’ll have the ability to fund your bigg opportunity when you see it.

Create value with your projects
Simply stated, Value = Cash Flow ÷ Cost of Capital.
Entrepreneurs must understand that capital comes with a cost. It may mean giving up a stake in the company. It may mean sharing the money with partners or bankers. In all cases, it requires a reasonable return on the money invested.

As an individual, your capital comes with a cost as well. You have to share some of the money you will make in the future with your funders. So just like an entrepreneur, you need to understand if the benefit you will receive from the project makes it worth the money you’re investing.

To determine this, look at the incremental cash flow from any project you consider. If the return on your investment exceeds the cost of the capital needed to fund it, you should do the project and vice versa.

Let’s say you have an old car that’s requiring a lot of repairs. You see that you can save money if you buy a newer car and pay interest. That’s a project that’s worth doing.

Smart entrepreneurs and wealthy people look at every cash outlay as an investment. They want to make sure they’re getting enough value out of the investment to make it worthwhile.

Now that value may be somewhat fuzzy – like it makes you happier or adds to your sense of well-being. In any case, thinking entrepreneurially about your money leads to bigg success.

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Thank you so much for reading our post today. Please join us next time when we’ll talk about the long and winding road to bigg success. Until then, here’s to your bigg success!

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Freedom Or Security – Which Do You Choose?

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10 Danger Signs for Business – Part 2

Written on March 12, 2009 by George Krueger & Mary-Lynn Foster in Business, Management

danger Last time, we discussed 5 of the 10 signs that your business may be heading for trouble. All involved looking at the structure of your top line, your sales. Now we want to move on to the next five signs.

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#6 – High employee turnover

When you lose employees, customers are affected – they deal with less experienced people who don’t know your business or the customer’s needs as well as long-time employees.

There’s a concept from Harvard Business School called The Service – Profit Chain. It says that employee satisfaction leads to customer satisfaction. Customer satisfaction leads to revenue growth. And revenue growth leads to profit growth.

So the chain starts with employee satisfaction. High employee turnover is often a sign of unhappy employees. That is why this is such an important early warning sign. Plus the costs of training people so they’re fully productive are significant.

#7 – Costs rising faster than sales

Costs rise for a number of reasons. As your sales rise, so will your costs. If they don’t, why do you need that cost at all? So rising costs are expected. However, it’s a bad sign if costs are rising faster than sales. You have less and less profit on each dollar of sales.

#8 – Disproportionate purchases from one vendor.

Sign #5 was being too dependent on a single customer. We don’t want to be dependent on any vendor either. This applies not just at the enterprise level, but within product categories as well.

If you’re too dependent on any one vendor in any one category, your vendor may have too much leverage in your business. They can pass on cost increases to you that you may not be able to pass on to your customers.

So it’s important to diversify your vendor base or at least have a back-up plan for needed supplies. Maybe you still use your vendor, but you know who you would go to if need be.

#9 – Unwarranted increase in receivables

It’s great to make sales, but not if you don’t get paid! That’s worse than not making the sale at all because it costs you money to make a sale. Slow paying customers also create problems because you can’t pay your bills with receivables; you need cash!

This is one of the biggest challenges facing small businesses right now. Their customers are paying slower, which means receivables are growing. Make sure you’re the squeaky wheel – you have to keep after them, make some noise, so you stay high on the list. Consider offering a discount for early payment or, even better, change your terms to cash-on-delivery if possible. And best of all, ask for prepayment. But that’s a whole other show!

If you can’t afford to offer a discount, make sure you’re charging a late fee and notifying your customers regularly of their balance due. Get on the phone and call them. See when they will pay and then follow-up if they don’t.

#10 – Unjustifiable inventory build-up

Depending on your business, inventory may be even less liquid than receivables. First, you have to sell it; then you have to collect on the sale.

Inventory that’s not turning over is dead-weight. So if your inventory is building up too fast, your business will likely experience a cash crunch at some point. Get slow moving inventory out the door, even if you have to give it away!

How does that help, you ask? Because space is costly for any business. And shelf space is an incredible asset for retailers. Having a product sitting there as dead weight costs any business a little bit; it costs retailers a lot!

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Thanks so much for reading our post today. Join us next time when we ask, “Do we need to take the social out of social media?” Until then, here’s to your bigg success!

Subscribe to The Bigg Success Show in iTunes.

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Direct link to The Bigg Success Show audio file:
http://media.libsyn.com/media/biggsuccess/00349-031209.mp3

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(Image in today's post by asifthebes)