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The biggest and toughest question every entrepreneur faces is “How much money do I put where, when and why?”  At the onset of a business venture that dilemma is generally due to limited cash flow paired with overhead expenses.  Later, as a business is established and profitable, the money dilemma stems from decisions about how to best save or reinvest any profits. While the latter is a more appealing dilemma than the former, both are rooted in the same quandary: how to make business & personal financial decisions based around objective advice from professionals.

For most business owners, they assume when they launch their business, they’ll be able to sell it later for enough profit to fund their retirement or next big venture.  The reality is that less than 4% of US companies surpass $1mm in annual revenue, making the likelihood of a sale that funds retirement exceedingly low. To protect against this reality, entrepreneurs must learn to compartmentalize their future financial plans and commit time to plan for multiple possible eventualities.  

Business success often requires focused attention on a singular purpose, and the process of planning is not meant to divert that focus. Rather, sound capital decisions happen where vision meets understanding. Planning is, therefore, envisioning a possible future with consideration given to the inputs that helped you get there. Clarity of choice helps you understand what is at stake and therefore what is at risk.  This understanding is grounding and necessary when big decisions must be made. 

So why all the talk about planning?  Simple; whether you are raising capital or funding operations from cashflow, business decisions are most often rooted in decisions around finance.  Owners’ personal and business balance sheets are often highly intertwined, especially for early-stage businesses or when you are using personal resources to fund the company. In my experience, the better the owner understands the relationship between their business and personal finances, the more opportunity they have to succeed.  Planning is simply the embodiment of gaining this personal knowledge and perspective and in my view, a critical part of the path to financial success. 

 So who does a business owner align themselves with for such advice?  What should it look like, and how and when is it best consumed? Seasoned successful entrepreneurs are no stranger to the constant solicitation of their capital.  Qualified tax advisors, investment professionals, and consultants are all vying for time and wallet share and all bring a cadre of ideas and opinions about how and where to place scarce resources.  This makes knowing who to turn to for help one of the single biggest challenges entrepreneurs face. I consider the following guidelines critical in the search for the right advisors: 

  • Find a true quarterback
    • Why: Your success boils down to your relationship with time.  By leveraging the right professional to help coordinate a variety of professional services on your behalf, you can pick up an enormous amount of it.
    • Who: This person or team should have a background in both business and personal finance and be well versed in complex interconnected financial decision-making. They are often financial advisors, but may also be CPA’s or other financial consultants.
    • When: The sooner the better. Trust and understanding take time to earn / convey.
    • What: This professional will be adept at organizing the people necessary to solve problems of requisite variety (those that take a variety of minds to solve).
  • Hire experience & pay well for it
    • Why: There is no substitute for experience when it comes to identifying solutions to problems. 
    • Who: Get recommendations from current trusted advisors or businesses that serve companies you know. In most cases, hiring that friend who is new to an industry to “help them out” seems like a win-win, but is often a lose-lose.
    • When: As soon as you can afford it and probably even before you can.
    • What: Experience often means 10 years or more of committed time to a practice.  Using Malcom Gladwell’s 10,000 hours framework is another good benchmark to consider.
  • Hire to values and seek objective advice
    • Why: Leading with your values in both business and personal relationships is a powerful way to develop long-term trusting relationships. Objective advice is a must; otherwise conflicts of interest and misalignments of goals can cause a rift in the best of relationships.    
    • When: Always, otherwise be ready for disappointment.
    • What: Ask value-related questions about: responsiveness, attention to detail, knowledge, candor etc. Ask questions about how the advisors live these values.

In my experience, exceptional outcomes spring from strong foundational roots.  While there may be no simple answer to “where, when, & how to place capital” for most entrepreneur’s the smart strategy for long-term financial success requires a focus on planning at the intersection of your business and personal financial life with professionals who understand your goals and are aligned with your outcomes. 

This post was written and shared with PHX Startup Week by Tyler Heymann from Prism Financial Concepts. For more information, please visit their website.