This Is the Big Financial Mistake Successful Entrepreneurs Avoid

Getting the connection between your business and personal finances right is absolutely critical if you don’t want to end up run dry.

For more tips and strategies to help you be your productive best, pick up a copy of Charlie’s book Start Finishing, winner of the 2020 Productivity Book of the Year. Available on Amazon and other favorite booksellers.

Editor’s note: This is a guest post by Jacquette Timmons.

According to the 2016 Kaufman Index, while the rate of new entrepreneurs decreased slightly to 310 out of every 100,000 adults, business survival rates reached a three-decade high of 48.7 percent. The latter statistic is excellent news given the substantial role entrepreneurship plays in our economy and culture.

It is especially good news for the successful entrepreneurs represented in that survival stat, particularly as labor patterns shift and 50% of Americans are expected to become entrepreneurs by 2020 — either by choice or necessity.

Perhaps as you read this you, like me, are deep into your entrepreneurial journey. Or, maybe you’re a newbie. Or, maybe you express your Creative Giantness (can that be an expression?) inside a company and you’re an intrapreneur.

If you work as an intrapreneur, this post falls into the “good to know” category. But if you are an entrepreneur, this is a “tap on the shoulder” to get you to pay attention to a little-discussed truth that’s silently hurting a lot of us:

You and I may be good at what we create and deliver, but we don’t always do such a great job of making sure the success of our business translates into our personal financial success and security.

We wrongly believe a profitable and positive cash-flow business trickles down to our personal lives. Sure, this happens if you are intentional about it. But, the problem is that many of us aren’t deliberate enough about getting the connection between our business and personal finances right to avoid making this mistake. (By the way, I am not saying “we” to present a false sense of unity; I am saying it because it wasn’t until I realized that I was making this mistake that I was able to recognize it with my financial coaching clients and friends who are also entrepreneurs.)

As you read further, I want you to picture a Venn diagram where one circle represents you; another your business; and the third, money. We’re going to focus on that small area where all three circles overlap — because that small area just happens to have a profound and significant impact on your personal life and lifestyle; the business you have today and the one you want in the future; and your financial results (personal and business).

I may not know you and your business, but I feel confident in presuming you want to increase your impact, influence, and income. And, that your success is driven by the desire to be excellent in every way, on every level.

So if I were to look at your banking and credit card statements, they would reveal that you invest a great deal of time, energy, resources, and money to get better at delivering on what you do for your clients and customers. You take classes or hire coaches to improve specific skills; you conduct research to learn more about your market and how best to position your product and/or service; you invest in marketing and public relations to help spread your message; you identify ways to enhance your operations so that how your customer experiences you and your business is beyond compare. And to boot, you have clear business goals and a plan (even if not a formal business plan) — the progress of which you track, measure and manage.

But...

Have you designed your business model and sales process to factor in your personal financial goals, dreams, and aspirations, too?

If your immediate reaction to that question was “Of course!” — Is it? How do you know?

In the last three months, have you paid yourself beyond what was leftover; have you contributed to your personal savings account (not your “profit first” business account); have you contributed to your rollover 401k or IRA? If your answer is “no” to just one of these, then you’re making the big financial mistake most entrepreneurs should avoid.

This may be your only option when you’re getting your business up and running. But can you imagine the opportunity cost if you unwittingly do this for five years, ten years, or longer?

Your reasons for being an entrepreneur and taking on the risks that come with it are many and most likely extend beyond “just making money.” But getting the connection between your business and personal finances right is absolutely critical if you don’t want to give your business everything — including your future!

To get this connection right, I offer you a two-part framework. It will help you shift from making what you earn from your business “work” to designing your business so that it intentionally takes care of your personal goals, dreams, and aspirations, too.

Part One: Your Personal Life and Lifestyle

The Financial Wheel is an exercise I’ve been doing with coaching clients and workshop attendees for approximately 17 years. Its aim is to cast a spotlight on the choices you are (and are not) making and, in the process, help you see more clearly what you have; what you tend to do with what you have; and why.

To get started, grab a piece of paper and pen. Draw a circle as large as you can, and divide the inside of the circle so that you have four quadrants. Label the upper-left hand quadrant “earn;” the upper-right “save;” the lower-right “invest;” and the lower-left “spend.”

For the questions that follow, let your answers be what you want them to be, not what your current circumstances would dictate.

Beginning with save, how much do you want to save in the next 30-days? And by the end of this year? How much do you want to say you’ve saved by the time you reach the age of the oldest person you know?

For invest, moving beyond the usual culprits of the stock market and real estate, who are the people and causes that are important to you? List the names of 1-3 people and the amount of money you’d want to give them each year for the next five years. Similarly, list the names of 1-3 causes or organizations you want to support — what’s the amount of money you’d want to donate to them each year for the next five years?

For spend, what would be different about your lifestyle if money were not an issue? What would you do with your time; where would you go; what would you buy?

For earn, what do you want to pay yourself in the next 30-days? And by the end of this year? How much do you want to say you’ve paid yourself by the time you reach the age of the oldest person you know?

If you accepted my invitation to give yourself permission to think beyond your current circumstances, I can safely bet that there is a gap between what you’ve written down and your current financial reality. Yes?

That’s not as bad as it may feel when you look at the size of the gap, because that’s the data you need for ensuring your business is designed to support you.

Part Two: Your Business & The F.O.G.S. Framework

Think of FOGS as a framework within a framework. It’s a decision-making tool where the acronym stands for Finance, Operations, Goals, and Strategy.

When making a business decision, here are the questions to keep in mind:

• Finance: What financial impact will in have on my business — both as an expense and as a return on investment?

• Operations: How will it impact my operations?

• Goals: Will it help me meet my goals?

• Strategy: Does it support my strategy?

This is the FOGS filter in action. You can use it for everything — from evaluating a Facebook ad campaign to hiring a new team member.

Ultimately, every business decision is a financial decision. But the financial portion isn’t just limited to your business. Combining the Financial Wheel with FOGS takes this into account.

The equation that is FW + FOGS is at the core of all successful entrepreneurs who aren’t broke, whether they know it or not. And this is what happens when you factor a portion or all of your Financial Wheel into your business decisions.

As I am known to say, taking care of your personal finances is one of the best business decisions you can make. I hope it is a decision you’ll make on behalf of your business and your future. Because doing so doesn’t mean you aren’t giving your business your all — you’re just not giving it your future. That’s a difference that matters!