Keep Your Wallet Closed: Smart Financial Strategies

For New Entrepreneurs

Smart Financial Strategies for new businesses: Starting a small business or a new entrepreneurial venture requires strategic financial planning and resources. Mainly, financial resources and cash flow to build and then sustain the business in its early stages. I reckon that many people have innovative ideas for a startup or a new business, but they often find themselves stuck when it comes to the financial aspects of actually bringing their business to life. Even worse, when they pour their money into the business and things don’t go as planned, they can end up financially broken and discouraged from seeking other opportunities.

In general, I believe the first rule in business, especially expensive ones, is “never invest your own money.” For personal financial security, it’s advisable to explore various startup funding options and potential investors, in any form, from individuals to organizational collaborations.

It’s not a big secret that launching a startup involves understanding and managing common risks and financial challenges and setbacks that can discourage our efforts and drag us into personal financial difficulties. This highlights the importance of developing a comprehensive financial plan for new startups.

Before I address all the eyebrows raising, we all agree (I hope) that a financial plan is one of the most important foundations for our startup. Without it, we put our efforts and investments in great, unnecessary risks, extending far beyond the scope of the calculated risk, which exists in the DNA of any business or startup. The financial plan is not just about cash flow, incomes, and expenses of any kind. The financial plan should also detail sources of initial investment and strategies for sustainable business growth in the early stages, when it doesn’t yet produce the results we aim for – this stage is another genome of the startup DNA, and it’s necessary for the evolution of any business.

Another block of the financial plan, before the ‘euphoria’ from the numbers in the cash flow tables, is the wakeful assessment of the timeline in which the business would go from infancy to at least the teenage stage. This assessment needs to be based on profound professional market research and, in some cases, pilot runs that provide an understanding of the period the business will need our support to survive.

We also need to assess the cost of the business in this period of infancy. How much would be needed to sustain its activities in the quality and quantity needed? This requires assumptions of “sales” beside the assumptions of fixed costs, such as logistics, utilities, marketing, administration, and other costs. We need to know, or at least have an idea, of how much money this business will demand from us in the infancy stage.

Yet another important block is defining two key assumptions in our plan. One assumption is defining the growth stages of the business – what activities we will need to add or expand to achieve our vision for the business. The second is what conditions need to happen to initiate the sequence of that stage. In short, look at it as a ladder. To arrive at the top, you need a step-by-step approach towards achieving your goals. The decision of each step we take needs to be based on fulfilling a certain matrix of conditions that, in its existence, supports our efforts of expansion.

After we have these answers in the financial plan, we can indulge ourselves in the cash flow planning process. This is when we analyze the expenses and income and predict the profitability of the business. I always advise that, at this stage, it’s better to notch our assumptions downwards, providing a marginal spectrum for unexpected challenges along the way and to navigate our actual environment while executing our plans.

You need to understand that a financial plan is not a standalone plan. It’s part of the business plan and is influenced by other efforts and insights of the plan, starting from our vision and goals, the uniqueness of the idea, through marketing and branding, to legal and ethical considerations.

A well-devised financial plan sets a roadmap that helps us assess our growth and success along the way, but more importantly, it gives us the boundaries and conditions in which the business needs to operate.

Depending on the scale of the idea and the size of the investment (initial and infancy), we now need to look for the suitable startup funding strategies to execute our plans. As I said, the first rule is “never invest your own money”. This is particularly true for high-figure investments and demanding, expensive ideas. In this case, it’s advisable to seek funding that can vary from investors to collaborations with established companies, to funding programs in your region of activity. This funding would ease our stress when it comes to balancing our personal finance with the needs of the business.

Of course, this is not always possible, and it depends entirely on the scale of the business and its potential. There is a big difference between a family business aimed at sustaining a family and falls under the principles of small business financial planning and a global business with a much larger scale of operations and development requirements. This doesn’t mean there is a contradiction between the two kinds. It’s widely possible, as I have seen, for a local family business to evolve into a multi-million corporation with global growth. The difference is the initial point from which we start our journey. The feasibility of external funding and investment is measured depending on that starting point.

Here comes the second rule. If we can’t secure external funding, we change the first rule semantically to ‘never invest more than what you can afford to lose’. In this scenario, the initial and infancy stages of the business are often underpinned by personal funds or family resources. This approach inherently multiplies the risk, touching directly upon our personal finance and potentially affecting our personal sustainability and family relationships. Therefore, establishing a secure financial safety net is crucial, creating a clear boundary between personal finances and business investments.

Starting a business requires the investment of resources, Time, Energy, and Money. Just like we plan our time and energy, the money needed must be planned thoroughly. We start the business by allocating a portion of our money to it. This portion must be balanced (each according to their needs) between the business and personal life. It needs to be sufficient to sustain the business in its infancy stage, including marginal securities, and at the same time, keep our personal finances stable.

We can use our funds set aside for investment or business, seek loans from banks or other financial institutions, and seek partnerships. The idea is that the funding here relies on our own ability, which needs to be dichotomized between our personal finance and our business requirements.

In this case, the financial plan becomes even more crucial to be crafted in a detailed and comprehensive way. We need to exhibit high awareness and keep our feet on the ground in our planning, expanding our margins. The business account needs to be defined and allocated, having specific uses and allocations that align with our plans and support our business to pass the infancy stage.

If our new business faces unexpected challenges, and we decide to seek other opportunities, then the invested capital, that we were prepared to risk, becomes  a tangible risk that needs careful management. Of course, I am a big supporter of believing and not giving up. However, life is all about value. Entrepreneurs need to evaluate the value of their endeavors constantly. This value is a simple equation between inputs and outputs. We should strive to create a successful business that brings our dreams to reality, yet be focused and aware of the value of our activities and not dwell in a cyclical matrix that drains our resources and blinds us to other opportunities. Remember that each resource has its alternative use, and you should always consider that in your assessments.

A business is like a child or better, like a person. We need to invest in them to support their evolution, having a set of rules and conditions in our support and guiding them to the stage of independence and self-sustainability. Just as we wouldn’t just give money to our children without boundaries and a set of conditions and values to support their usage of that money, we should have a system that corresponds with the same principles of values and conditions when investing more money into our business during its infancy stage, a system that is includes  the sources and uses of that money.

The goal is to pass the infancy stage, where the business is building itself, gaining momentum, and generating flow without having our personal finances crushed. Once we pass to the teenage stage of the business, we should have met our first condition: the business is sustaining itself autonomously and generating some profit.

Once we are here, we can say we are close to shore. Now, depending on our plans for expansion stages, we can move the scale of the business upwards and expand our operations. The main difference now is that the business is paying for its own expansion; it doesn’t come from our pocket and doesn’t collide with our personal financial stability. Actually, the opposite is true. At this stage, the business is supporting our personal stability and contributing to our financial resilience.

It is crucial to understand that a business cannot be a pit without a bottom. No matter how high our hopes are for the business, it cannot sustain itself without support. The entwined relationship between our professional endeavors and personal lives is delicate and needs careful handling. Though hope is important, we can’t live on hope alone. We need to see the value in our investment of resources. A well-devised financial plan, incorporated into a thoughtful, down-to-earth, and effective business plan, is our way to ensure the sustainability of our business.

The art of assessment and awareness of risks, combined with a clear vision and structured plan, is our main strategy to survive the infancy stage of the business and bring it to the stage where it can sustain and expand itself by itself, giving us the financial benefits we aim for. This stage will be the teenage stage which will act as the foundation for the adulthood stage of the business where the business starts to meet our expectations and goals.

In conclusion, when we say ‘don’t invest your own money in a business,’ it always has multiple facets to consider. It depends on the scale of the business firstly, and on our practical planning secondly. If you cannot acquire external funding, frame your personal funding as external, define and allocate a budget and a supporting system that supports your business plans in a conscious manner and with wakeful assessment. You need to ensure that if the risks overcome the opportunities, you can pick yourself up and move forward without much destructive consequence on your personal finance.

As we navigate the complex yet rewarding journey of starting and sustaining a business, it’s crucial not to walk this path alone. I encourage you to actively seek more knowledge, consult with financial experts, or join entrepreneurial communities. Whether you’re on the brink of launching a startup or in the struggle of managing one, remember that the right guidance can make all the difference. Reach out to a financial advisor, attend workshops, or expand your knowledge by reading more literature on business finance management. Your entrepreneurial journey is unique, and so should be your financial strategy. Take that step today to ensure your business is not just a dream, but a growing, sustainable reality.

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