Typical financial challenges of entrepreneurs

- So now I want to take a look at some challenges that I've seen in entrepreneurs over the many years of working with entrepreneurs and I want to make sure, do you see this in yourself and if you do, let me give you some skills and some ideas on how to manage against this. So the first challenge is lack of knowledge or no financial planning skills at all. So people who start businesses tend to have skills in the area of their expertise. So what their business is actually in. It might be cooking, art, fitness, law, or even tech, but not finance. Most people don't start financial businesses necessary. So this is kind of normal, that you don't come in with a financial background and you're just like every other entrepreneur. Here's the good news. Almost all financial planning is pretty standardized, that meaning you don't have to reinvent the wheel here, and it's pretty easy to learn as you get used to it, and by the way, you can always adjust. Nothing is set in stone, so don't worry so much about, oh my goodness if I get it wrong the first time, it's locked in and people are going to hold me to it, because you know what? It's better just to adjust as your business starts running. And a couple other things that you can do, hire a consult that can guide you through the process about building your models. If you do have a very complex revenue model or financial model, you can hire a consultant to get through this but work with them. I want to make sure you participate in the process like I've been saying. And learn alongside those professionals. That's going to be the most important thing. Now, the second challenge is overly optimistic. By definition, entrepreneurs are overly optimistic about their businesses. So as a rule of thumb, any projects that you encounter, any business that you start, always takes twice as long and cost twice as much as you originally estimated. So just keep that in mind. I've actually lived by that rule and I kind of, every time I'm planning something and I budget for something, I always kind of double it in my head, and I say it's going to take twice as long. It's just because that's been my experience over 25 years in business. So believe it or not, this absolutely defines me. I am the quintessential entrepreneur with all the bad traits, some of the good traits but all the bad traits, which is I'm overly optimistic. It's funny that at Market Live, when I used to work with CFO, I would always see the glass is half-full. I would always see it, all this rosiness, oh everything is great and my CFO would see everything, that's glass is half empty and I just could not understand that we used to fight over it, well, we didn't fight, but we kind of fought over and over again about why don't you see it my perspective? I got to tell you, it was a very healthy balance and I'm really good friends with my former CFO today, because we understood each other. He understood my optimism and I tried to understand, although it was hard, his pessimism. Together, we balanced it out. So I've got some solutions to this problem of being overly optimistic because I've lived it all my life. First of all, fight the urge by putting in some extra padding in your estimates. Don't go crazy now. But maybe it's 1 1/2 x of what you were thinking of putting into. Next, I want you to understand the problems that could arise in your business, so that you can understand them and put them into your financials or at least the probability that something bad might happen, so you're not always optimistic. Continually revise. This is really important, because I want to make sure that you get into this habit of, as your business is growing and as you're getting feedback about your business, conditions change. So make sure that your financial planning changes along with those conditions. Run your plan by somebody who is not an entrepreneur, who's not necessarily overly optimistic. Maybe it's another financial person that you know. Maybe somebody, you know that person that always has their finances under control and is maybe a little pessimistic? That's more like my CFO. You might want to check that out. And finally, make sure you keep an open mind, especially if you know you're an optimistic type of person. You've got to consider this, or potentially the same goes for a pessimistic type person. You just do the opposite. All right, our third challenge I call Ready, Fire, Aim. This is also known as lack of planning. So entrepreneurs are notorious for Ready, Fire, Aim. What they do is they ready themselves, they fire, and then they go, oh, maybe I should do some planning, after they've already executed, right? So we want to make sure this doesn't happen to you as well, and this happens when you're actually building your financial plan. You forget to aim accordingly. Some entrepreneurs might have the urge to just scribble their financials on the back of a napkin, right? That's probably not a good strategy. I would say if that's you then you might actually want to consider not starting a business because you're just not serious enough about financial planning. But I don't believe that. I think that you can get very serious about financial planning, so a couple things I want to do to get you to not Ready, Fire, Aim, but Ready, Aim, Fire, assess the type of person that you are, so that you can prevent this from happening. If you know that you are, you kind of just fly off and you kind of do things at will and at random, which is one of the great things about an entrepreneur, they just kind of do things that pop into their head, that's fine. But then understand what you're doing and then compensate according for it. So don't allow yourself to start a business or spend a bunch of money on product development until your financial set in place. Make sure you do your financials first before you start investing in money. So surround yourself with people that can actually spot this in you and can catch you so that you make sure that you take the time to plan things out before you actually execute them. Force yourself to review your financials monthly. Just create that discipline in your business going forward so you can avoid this lack of planning situation that you can find yourself in. So the last challenge I want to talk about is financial fear. Many entrepreneurs have fear of dealing with a financial planner anything about financials in their company at all. And I've seen this over and over and over again with the entrepreneurs that I mentor, so I ask you some questions here. First, do you find yourself avoiding this topic completely? Anything that deals with financials, you avoid. Do you push off financial planning to do other things? Do you hate dealing with finances in your personal life? I don't like finances, I can tell you personally. I try to avoid these sometimes as well, but I've had to conquer my fear over running a business for the last 25 years. So you might have these issues too. Don't worry but I want to get, I want you to acknowledge them so that we can resolve them, right? There's nothing bad about having this fear. So I want you to look inside yourself and figure out where the fear comes from. Here's a couple of ideas. First, lack of knowledge. You might actually have a lack of knowledge and that's creating the fear. You don't really understand financials. Another is that you have a fear of facing the facts. You're kind of worried about, God, maybe my business isn't feasible after all and I don't want to look at my financials. I don't want to know that my business really isn't going to work or maybe I thought I had more money than I thought, right, and that's not good. I don't want to dig into things and realize something that's scary or that I have to deal with, so I just push it off. Also, there are deep, a lot of people have deep-seated money issues. They have anxiety around dealing with money. This comes from early childhood, or it comes from your parents, and it's just embedded in who you are. It's embedded in your DNA. It's okay because we can get around it. Don't worry, or you have a fear of losing money. A lot of us have a fear of losing or just going backwards, so we again, we avoid it. We just ignore it, right?