Entrepreneurs are frequently believed to be tremendous risk-takers — but that’s a misconception. That doesn’t match the reality of how great entrepreneurs run their businesses.
Here’s how you can be entrepreneurial with your finances, without taking huge risks.
TAKE CALCULATED RISKS
Contrary to popular opinion, great entrepreneurs don’t routinely “roll the dice” or “bet the farm.” Sure, it takes some risk to launch a business or expand an operation. However, wise entrepreneurs don’t act recklessly. Instead, they take calculated risks. They also minimize risk by creating business plans, studying their industries and evaluating various alternatives, such as buying new equipment versus leasing.
In your own finances, you can take some calculated risks, too. For example, you might decide to invest more heavily in stocks or to purchase rental real estate — decisions that should be made with careful consideration, not haphazardly or on impulse.
KNOW YOUR NUMBERS
Any entrepreneur knows that his or her business can live or die based on key metrics like cash flow, revenue, profit and the cost of acquiring each new customer. Likewise, you should also know the numbers that most affect your financial health.
Regardless of whether you run your own company or work for someone else, there are several bottom-line numbers you should regularly track, including your net worth (the value of the things you own minus how much you owe), your monthly expenses and income, as well as your effective tax rate.
SURROUND YOURSELF WITH GOOD TALENT
Have you ever noticed that entrepreneurs who try to wear too many hats often get overwhelmed? Some business owners suffer a fate even worse than burnout. When they try to do too much, they wind up watching their companies go under.
It’s impossible for one person to know how to do everything required to run a thriving business, such as invoicing and accounting, operations, marketing, sales and so on. That’s why savvy entrepreneurs find good talent to help play key roles in a business. Those other people can be full-time employees, part-timers or freelancers who work on a contract basis.
By the same token, you should know your limitations and understand when you need help with your finances. According to a 2015 CFP® Board survey, 40 percent of Americans have a financial advisor. If you’re not one of them, chances are that you could benefit from the professional guidance and money-management experience that a financial advisor can offer. You don’t have to have a full-time money manager at your beck and call, but you’d do well to have a trusted advisor with whom you can check in quarterly or annually about your finances.
Even the most successful entrepreneur can tell you about a time when things in the company went wrong, when business was in a long slump — or even when he or she flat-out failed at something. But small business owners learn to push forward in the face of adversity or failure. Many legendary entrepreneurs actually consider failure a gift, a chance to learn from past mistakes. As Henry Ford said, “Failure is just a resting place. It is an opportunity to begin again more intelligently.”
The willingness and ability to pick yourself up, move forward and try to do better after you’ve erred or suffered a setback doesn’t define just smart entrepreneurs. It’s also a hallmark of people who are entrepreneurial with their finances. When you learn to fail forward, you know that mistakes and failures may create painful, regrettable circumstances. But these conditions can be temporary and don’t have to define your financial future.
Regardless of whether you run your own company or work for someone else, there are several bottom-line numbers you should regularly track.