Coming back to money matters, today we intend to briefly consider some bad money habits that any wise entrepreneur should endeavor to avoid. Yes – some of these habits can to a great extend determine your entrepreneurial success or failure. Financial discipline is one of the cornerstones of entrepreneurial success. Just to confirm this, all the enterprises you see around you that have existed for years, decades and centuries, have sufficient financial discipline otherwise they would have gone the way of dinosaurs years back. Self-discipline is the starting point for an entrepreneur, because without it many things will be messed up before some business consultant or possibly an accountant even enters the business to create some money or financial sanity in the system.
I mentioned some time back that the force of habit is so strong. Habits that relate to how we see, handle, control and manage money are fundamental to business stability, success and growth. Don’t you think so? This brings to our attention the distinction between good and bad money habits. What are some of the bad money habits that must be avoided? What money habits are danger signs to an entrepreneur and his enterprise? If you were to offer some financial advice to that financially undisciplined entrepreneur friend of yours, what would be some of your considerations? I know there could be endless answers to the above questions, but let me just share with you some bad money habits I’ve seen with some entrepreneurs over the years.
- Uncontrolled withdrawal of cash from the enterprise is another very bad habit, though it mainly dwells with undisciplined entrepreneurs. Before you carry that cash or you issue that cheque from the business bank account, or instruct your accountant to do so, you need to guard up the loins of your mind and think. Is that withdrawal business expenditure, or your personal spending idea? Is it provided for in the budget for business expenditures and also in the enterprise cash flow budget? Is the amount and timing appropriate? We could go on and on, but I guess you know what I mean. Don’t you? Don’t get me wrong here; many profitable and financially stable enterprises can make provisions for withdrawals of some reasonable moneys by the owners without jeopardizing operations. It is not sin, as long as it’s done well. However, don’t just wake up and issue a cheque for a new car for your wife, because she has made you happy, and after all you have hundreds of millions on the business bank account. Don’t just get excited and promise hundreds of millions donation in a function, because the MC has described you as a very successful entrepreneur.
- Managing money reactively and not proactively is another unpleasant habit that can jeopardize your entrepreneurial dreams. Some of we mortals have this lazy approach to life, saying that we will cross the river when we get there, even when we have enough opportunity, time and other resources to prepare early to cross that river. Do you consider that you might not lay your hands on any canoe, wooden plank (for the brave ones) or any other means to cross, by the river side? Possibly the only equipment you could use for that deep river is thirty kilometers back so you have to cover another sixty kilometers to be able to cross that river. Can you just imagine this? Are you going to be lazy enough to discover that you need millions of money in two days when business creditors drag you to court? Are you going to run to the bank manager sweating profusely for emergency financing for an asset you knew years ago that you would need? Must your workers strike first before you remember that there is an expenditure called salary at month-end? Come on Mr. Entrepreneur!
- The inability to separate business and personal money is one plague that threatens many enterprises, and especially start-ups. Now, some of us entrepreneurs simply cannot get this basic fact that the enterprise is a separate legal entity or being (I know some people will argue that only limited entities are corporate beings). I don’t care whatever registration and legal processes you went through to register that business, if it’s registered anyway, or whatever form it is whether sole proprietorship, partnership, limited company or whatever. The point I’m making here is this – you and the business are separate entities and you should respect the business and also allow it to respect you! It is a bad habit to mingle finances of Mr. Entrepreneur and ‘Dollar Making Ventures’ belonging to that Mr. Entrepreneur. Do you get what I mean? How can you for example assess your business profitability with such chaos? How can you control your personal and family budget if personal moneys flow in and out of the business freely? How will you convince the taxman that the expenses you are claiming deductions for are indeed business and not personal expenses? You would need a lot of work and discipline otherwise you will ruin your business or even family life.
- Avoiding the bank, which I find comical in this age, is another habit an entrepreneur should throw to the end of the earth literally (remember that interesting thing about the bottle in the movie entitled ‘The God’s Must Be Crazy). Yes – when you throw it beyond the end of the earth it’s probably gone forever. Some entrepreneurs still think that the best place to keep business money is some big safe in the bedroom or in the business premise. Indeed, they want to take ‘personal responsibility’ for their hard-earned money. The banker might disappear with the money, isn’t it? Cheque books are inconveniencing and bank charges are too costly, aren’t they? Some will list for you names of some banks that went under. What an approach? Now Mr. Entrepreneur, I strongly advise you to have an operational bank account for your business. I say operational – yes, you must bank business money there always and use that account to make payments; not a bank account that suffers from cash drought when your turnover is high. Do you need me to enumerate to you the reasons for this advice? Possibly another time, not today.
- How about poor expenditure habits? Though somewhat related to uncontrolled withdrawal above, it stands out on its own as a major culprit. Beyond spending money on personal things or donations as mentioned above, some entrepreneurs have very bad spending habits even for the business. This could be lack of evaluation before spending, no spending checks and filters, no consideration of tax implications of expenditures, impulse buying for the business, moving with company cheque book in the pocket (ever ready to issue cheques) etc. You can name them. Mr. Entrepreneur, if you have these habits your enterprise might not survive for long. I believe you know this already? Don’t you? Haven’t you already learnt some lessons from a couple of the above spending gaffes? You might pretend all is well when deep inside you are regretting.
- Credit or debt management habit is the last but not least one I will talk about today. Are you the entrepreneur who dashes to money lenders when in need of funding? These folks may not ask you all the questions (even silly ones) a seasoned banker will ask, but by the time you settle down and think about the cost of the financing, you might become financially literate immediately. Are you an entrepreneur who easily fills in a loan application form simply because a bank marketer passed by and talked to you about cheap and readily available business financing? Before that form, have you assessed whether your enterprise needs the funding? Is there any investment the money is going into? Will the money be used profitably and generate returns higher than the interest the bank wants? Is your overall exposure on debt manageable for your enterprise? Don’t just borrow because you have heard that all your competitors are taking out loans from the banks.
You had better check yourself Mr. Entrepreneur. If you are disciplined enough along the above lines then you are way above common money plagues that terrorize entrepreneurs. If however you have some of the above syndromes then you need some medication. Understanding your medical condition is a good start to getting the right medication. Never be a victim of ignorance my friend. Keep the entrepreneurial dream and fire burning. Focus on your future and avoid the pitfalls that can easily take you and your business down. I don’t think you are now ready to be part of history, are you? Remember the force of habit is very strong. Adapt good business habits, and soon you will be soaring with winds beneath your wings like an eagle.
The Wise Entrepreneur