Nine Personal Financial Planning Challenges for Entrepreneurs (Part Ii)

[THIS IS PART TWO OF TWO POSTS]

No, they are not like us. It’s not just the money. It’s their fibre, mindset and modus operandi. Entrepreneurs are a unique species compared to businesspeople and this should be reflected in their financial planning—but typically it’s not. After researching and advising over 500 entrepreneurs in Canada and beyond here are pointers for entrepreneurs to consider for sound financial strategizing.

 

5.  Succession Planning

Entrepreneurs typically flat organizational structures. Henry Mintzberg, McGill management guru, notes how the emphasis is on art and craft of the practitioner, not the science of system. The structure is entrepreneur-centric. These businesses are a reflection of the entrepreneur, which then over time with youngin’s, becomes a reflection of the family.

The issue of family succession and transition planning is vexing. It can be done successfully—but it requires a deft touch, clear communication and realistic self-assessment. Yet, the clichés point to the opposite: rags to riches to rags within a few generations.

Will and estate planning can be complicated within families when there is more to divvy up. Throw in a family business, founded by an entrepreneur-parent and the gremlins surface. Many businesses don’t transition well from an entrepreneur to professional management, and he odds are worse in the family context. A botched succession plan will cost a lot of money.

 

6.  Giving

Research shows that entrepreneurs are exceptionally generous. Once they get a windfall, they are more prone to share the wealth rather than salaried individuals and professionals who have spent a lifetime fuelling a desired life style.

Look at the donors to university, charities and worthy undertakings throughout Canada. Remove the entrepreneurial contributions and the landscape looks different. A former Dean of McGill Law School once told me that the biggest donors were law graduates who went into business.

Entrepreneurs can give regularly on the way up by making it part of their plan; getting a windfall at some point down the road is the icing on the cupcake.

 

7.  Debt

Debt is a double-edged sword. It may be a way to grow the business, but it can cripple cash flow. Tales are legion of entrepreneurs who launched a fledging enterprise into a conglomerate in partnership with MasterCard and VISA. Entrepreneurship textbooks are replete with tales of entrepreneurs regaling comrades-in-arms about having 12 credit cards maxed out before hitting the mother lode. They make it into the textbooks when it works—the multitude of other slink into a mass entrepreneurial graveyard.

 

8.  Family

Many entrepreneurs have families—they just tend to forget that. Let’s look at the male species of entrepreneur. They often have a wife and children. The shibboleth is that entrepreneurs have three sets of books: one for themselves, one for their partners and one of the CRA. They selectively share details with their spouse. They are prone to take inordinate risks that can put their family security at risk.

Many spouses like security. They don’t like the idea that the family home is part of the security for the next great entrepreneurial adventure. Or that private schools and family holidays may be in jeopardy if things don’t quite work out as hoped.

 

9.  No Advisors

Entrepreneurs aren’t good at following advice. They have succeeded by proving everyone wrong. But, at some point and in some circumstances, a recalibrated approach is in order. I have witnessed entrepreneurs heading towards the abyss secure in the notion of their own acumen, despite venturing into new and unchartered waters. They are riding the hubris of the last success, but heading for the shoals of the new adventure.

The problem is that many entrepreneurs don’t heed advice. Very few entrepreneurs can succeed in multiple fields. Rare is the entrepreneur who succeeds in a succession of disparate ventures. Much more common is the entrepreneur who thinks he can and spends his previous stockpile proving the rule that he can’t. At some point, it’s a good idea to get a sober second opinion.

 

Conclusion

The odds are stacked against entrepreneurs—more fail than succeed. Let’s not quibble about numbers, but we can agree that it’s risky business. The Millionaire Next Door identified seven factors of the wealthy. One is that they often accumulated their wealth through having founded and built up a business. So, many of them were entrepreneurs. We know many succeed and become the financial bright stars against a backdrop of a mass of grinders and plodders. But, for those entrepreneurs who don’t hit the mother lode, there can still be a safety net of support, rather than falling financially flat