Personal Financial Planning for Entrepreneurs

Personal Financial Planning

for Entrepreneurs

Manage Your Money Today

Maximize Your Money in the Future

Guidebook & Workbook

January 2022

INTRODUCTION & OVERVIEW

Money cannot buy happiness. But money can create options and opportunities for you.

The purpose of this book is to help you take control of your finances – both today and in the future

– to help you have all the options and opportunities to create the life you want.

This book is NOT an entrepreneurial finance book. This book is NOT about how to succeed as an

entrepreneur. This is a book about personal financial planning for entrepreneurs. Of course, as

entrepreneurs, your business life and your personal life will overlap in many ways; and certainly your

financial lives will overlap. If your personal financial life is a mess, it will be difficult to succeed as an

entrepreneur; and, if your business finances are not under control, it will be difficult for you to

achieve your personal financial goals. This book will help you take control of both financial lives. In

general, this book provides some finance theory and concepts that will help you develop a long-term

financial plan – that can be applied to both your personal and entrepreneurial lives.

We encourage you to approach this book with an open mind and an open heart. And we encourage

you to make this experience as personal as possible. Everybody is different – and everybody has

different financial knowledge, different financial foundations and different financial futures. We

have tried to use concepts and examples that provide a variety of perspectives that will help you see

yourself in this work. But you have to make this experience about you and your future. Customize

this experience for yourself so you can take control of your financial future and create all the options

and opportunities that you’ve ever imagined for yourself – and for your business.

We cannot promise that going through this book and all of its exercises will make you a billionaire

or even a millionaire. But we do promise that mastering the tips and tools in this book will help you

sleep better at night, will make you less anxious about money, and will help you make decisions that

take your life forward. This book is designed to help you turn money from a source of stress to a

source of control. Now relax, prepare to think, and enjoy the financial planning journey to come.

PURPOSE & AUDIENCE

The purpose of this book is to help entrepreneurs – whether you are an ambitious high school

student or a retiree with a desire to turn a hobby into a business – become more comfortable talking

about finance and thinking about personal finance. Ultimately, the goal is to help you become

confident and self-sufficient with managing your own finances – from borrowing and budgeting to

saving and investing – such that finance empowers both your personal and entrepreneurial lives.

The first version of this book was written for college students. And many college students want to

become entrepreneurs. Since one of the themes of this book is to help you own your financial

future, and since most entrepreneurs want to own their professional futures, it only seemed natural

to design a personal financial planning book for entrepreneurs. This is that book.

Being an entrepreneur creates many unique – and challenging – financial management situations.

Many entrepreneurs start their business as hobbies, in their dorm rooms or in their homes. At first,

there is very little separation between your personal financial lives and your business financial lives.

This is natural. In some cases, it can lead to some helpful financial planning opportunities – such as

with tax strategies and working with family members. But it can also lead to many tricky financial

planning challenges – such as building credit, insurance, liability and working with family members.

The better you manage these opportunities and challenges, the happier you will be.

There are certain sections in this book that are designed exclusively for entrepreneurs, such as

Chapters 1 and 7. Chapter 1 discusses what you need to do tomorrow to take control of your

financial life as an entrepreneur. Chapter 7 discusses some tax strategies that may be of interest to

you as an entrepreneur. The balance of the book provides generic financial planning perspectives

that are hopefully useful to any reader; where possible, we have tried to put the conversation into

terms that are more relevant to entrepreneurs – such as with budgeting, borrowing and retirement

planning. In some situations, we ask you to imagine your future self, perhaps 1 or 5 or 10 years in

the future; exercises such as these can be useful to all readers, whether you’re an entrepreneur, a

student or a college professor. Try not to limit yourself – challenge yourself to think creatively about

your present situation and about your goals and dreams for your future self. This book is about you.

There are 8 chapters in this book. Chapters 1 is about the financial life of an entrepreneur. Chapters

2 and 8 try to help you think about money and financial planning. Our focus is on behaviors,

emotions and actions; we talk about the philosophy of money. We want you to think about your

own personal relationship with money. In Chapters 3, 4, 5 and 6, we talk about the technical aspects

of financial planning; these chapters cover: Budgeting, Income & Expenses, Borrowing & Debt

Management, Saving & Investing, and, Insurance, Retirement & Taxes (generally). Then in Chapter

7 we focus on some unique tax planning issues that will be of interest to most entrepreneurs. We

conclude with Chapter 8 where we introduce some general financial planning strategies to help you

own your financial future. We want you to think about both the short-term and the long-term. This

can be difficult for entrepreneurs – but it is essential for successful financial planning. As you go

through this book, we think you will come to realize one critical fact of financial planning for

entrepreneurs: everything is connected, for better and for worse. The more you plan and control

your finances, the better off your business will be. And the better your personal life will be.

This book is a public good. Nothing in here is proprietary. Please print it, copy it, share it, use it.

AUTHORS & COLLABORATORS

Most of this book was written by Brian Bolton ([email protected]).

Brian is a Professor of Finance and the Dwight W. Andrus, Jr. / BORSF

Eminent Scholar Endowed Chair in Finance in the Moody College of

Business Administration at the University of Louisiana at Lafayette. Brian

joined UL Lafayette in 2019 after serving at IMD Business School in

Lausanne, Switzerland, Portland State University in Oregon and the

University of New Hampshire. Brian earned his PhD in finance from the

University of Colorado at Boulder and his MBA in finance and strategy

from the University of Texas at Austin. As of 2020, Brian is a CERTIFIED

FINANCIAL PLANNER

candidate.

Brian has been teaching finance, economics, business and leadership since 1999 and loves his job

because he gets to learn from hundreds of amazing students every year. And he loves taking what he

learns from his students in the classroom into the finance laboratory for his research pursuits. Most

of Brian’s research is focused on the relationships between the different stakeholders – or owners –

within a firm and how to design systems that optimize those relationships to maximize the value of

any firm. In 2015, he published his first book Sustainable Financial Investments: Maximizing Corporate

Profits and Long-Term Economic Value Creation, which studies the short-term and long-term tradeoffs

associated with making investments with natural, human, social and financial resources. Brian is

currently writing another book titled A Culture of Ownership, studying how organizational culture is

created and how it can be managed to create value for individuals, companies and societies.

Brian started this Personal Financial Planning project to help all of his students learn more about

personal finance, financial health and financial planning. As student loan debt has increased, as

various economic and social crises of the 21

century have challenged all of us and as the world has

become increasingly more complex and more inter-connected, it has become more and more

difficult for many people to take control of their finances and to achieve financial independence.

And having worked with many executives and entrepreneurs in various programs, it because clear

that there was a need to expand this financial planning perspective to adults and entrepreneurs.

Thus, this book on Personal Financial Planning for Entrepreneurs was born, looking to address situations

that are unique to entrepreneurs such that they can hopefully take control of business and financial

situations and to get on a path to financial independence, both personally and professionally.

When you read “I” or “my” in this book, that is coming from Brian’s perspective. But Brian (I) is a

finance guy and not an entrepreneurship guy. Many other UL Lafayette faculty have helped create

the book you have in your hands. Professors Geoff Stewart, Josh Bendickson, Chase Edwards and

Reed Nelson have helped make the entrepreneurship content unique. Professor Bill Ferguson wrote

much of the insurance section in Chapter 6. Christine Williams, Maria Slater, Rachel Sam, April

Jones, Kendall Laster, Mary Farmer-Kaiser, Philip de Mahy, Badar al Hamdani, Elizabeth Green,

Monica Long, Jonathan Shirley, Kevin Guillory and many others have provided suggestions, content

and direction to this entire project. If you ever see them Lafayette, be sure to thank them for their

contributions. Consistent with Brian’s passion for learning from his students, as you will note in the

Appendix, dozens of former and current students have contributed their thoughts and suggestions

on how all of us – students, adults, entrepreneurs – can take better control of their financial futures.

And this is the last time Brian will refer to himself in the third person. From now on, he is I.

Table of Contents

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TABLE OF CONTENTS

CHAPTER 1: 10 Things Every Entrepreneur Needs To Do Now

Separate Your Business & Personal Lives Build Your Team

Create a Business Plan Write Your Personal Biography

Establish Finance & Accounting Systems Document & Track Everything

Create Business & Personal Financial Plans Determine Your Financial Net Worth

Determine Your Risk Tolerance Communicate & Plan With Your Family

CHAPTER 2: Taking Control of your Financial Future:

Goals, Values & Financial Planning

What Does Money Mean to You?

Thinking About Money – The Lottery

Mindful Decision-Making

What’s Important to You – Your Values

Why Financial Planning?

Having the Right Mental Attitude

What Are Your Financial Dreams?

CHAPTER 3: Budgeting: Income, Expenses & Net Cash Flow

Saving for Your Dreams & Goals

Types of Budget Plans

Budgeting 101: Income – How Much Money Do You Make?

Budgeting 101: Cash Today vs. Career in the Future

Budgeting 101: Expenses – How Do You Spend Money?

Budgeting 101: Thinking About Spending Less

Budgeting 101: The Behavior & Psychology of Spending Money

Budgeting 101: Determining Your Net Cash Flow

Budgeting 101: Net Cash Flow & Tracking Your Income & Expenses

Your Financial Net Worth: Your Tangible & Financial Assets

Your Financial Net Worth: Your Short-Term & Long-Term Liabilities

CHAPTER 4: Borrowing & Debt Management

Paying Interest on Student Loans

Good Debt vs. Bad Debt

Student Loans & Financial Aid: The Nitty-Gritty of This Kind of Good Debt

Credit Cards: Selling Your Future to Pay for Today

Your Credit Score: One of the Strangest & Most Important Numbers in Your Financial Life

Making Decisions About Paying Debt

Having the Right Attitude About Debt

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CHAPTER 5: Saving & Investing

Assessing Your Risk Tolerance

Saving & Investing: What’s the Difference?

Saving & Investing: What’s the Difference? In Numbers

Investing – How Do You Do It?

Risk: How Much Can You Handle?

CHAPTER 6: Insurance, Taxes, Retirement & Other Special Topics

Insurance: What Do You Need & When Do You Need It?

Property & Casual Insurance Health Insurance

Disability Insurance Life Insurance

Income Taxes: We All Have to Pay Them – But We Don’t Have to Overpay Them

Retirement: What Are Your Options

The Lottery: Tempting, but Dangerous

Your Career: A Few Pieces of Personal Finance Advice

CHAPTER 7: Tax Strategies for Entrepreneurs

Choice of Legal Entity Track & Record Everything

Home Office & Personal Equipment Issues Depreciation

Mileage, Food & Other Business Expenses Charitable Donations

Self-Employment Issues Hiring & Paying Employees

Hiring Family Members Options for Paying Yourself

Retirement Planning Estate Planning

Strategies for Timing Cash Flows Effectively

CHAPTER 8: Strategies, Goals & Plans

The Psychology of Personal Finance

Some Financial Behavior Math

What is Money & What Does it Mean to You

Some More Financial Behavior Math

Your Values Drive Your Actions

Goal-Setting & Financial Planning Frameworks

Connecting Your Habits with Your Goals

What’s Your Financial Fitness?

APPENDIX: The Student Advice Wall

Advice from Current and Former Students

APPENDIX: Worksheets for You to Continue Practicing

10 SIMPLE RULES TO HELP YOU OWN YOUR FINANCIAL FUTURE

These 10 simple rules apply to everyone – not just entrepreneurs. In Chapter 1, we introduce the

most important financial rules that every aspiring entrepreneur needs to embrace.

1. Nothing is free. You have to sacrifice something to receive something good. Every benefit has a

cost.

2. Be mindful of short-term vs. long-term tradeoffs. Is a short-term indulgence worth a long-term

sacrifice? Top Ramen costs $0.25 per meal. Gourmet ramen can cost $20 per meal. You decide

what your priorities are.

3. Debt can change your life – both for the better and for the worse. Don’t let debt destroy your

life and determine your future.

4. Interest is your friend – if you are receiving it. Interest if your enemy – if you are paying it.

5. Save and invest as early as you can. Small savings today can create enormous opportunities in the

future. Let the magic of compounding be your friend.

6. Financial advisors and other professionals can provide excellent guidance to you – but they do

not exist to be your friends. You need to own your financial situation so you can know when to

reach out for help and to know what you can do for yourself.

7. Other specialist advisors may be able to provide services that you cannot do yourself – tax

accountants, insurance advisors, lawyers. They can help you execute your plans effectively.

8. Insurance seems really boring – until you need it. It is usually a very small price to pay for a lot

of peace of mind.

9. Accelerators, incubators, universities, small business development associations, economic

development centers, pitch competitions…Most cities have incredible resources for

entrepreneurs that are either free or very inexpensive. They want to invest in you. They want you

to succeed. Use them…because, ironically, once you succeed, you won’t have access to them.

10. Don’t assume that your parents or friends know everything about finance. By the time you finish

this guidebook, you will know more about personal finance than 75% of Americans.

And, because we like you, here is one more free rule for you that should govern everything you do:

11. Always make sure that what you do with your money aligns with your personal values.

Chapter 1: 10 Things Every Entrepreneur Needs To Do Now

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CHAPTER 1

10 THINGS EVERY ENTREPRENEUR NEEDS TO DO NOW

TO TAKE CONTROL OF YOUR FINANCIAL LIFE

This is a personal finance book. This is NOT a how-to-be-an-entrepreneur book. This is NOT even

an entrepreneurial finance book. This book is all about personal financial planning.

However, as any entrepreneur knows, there will be an enormous amount of overlap between your

financial life as an entrepreneur and your personal financial life. Much of your happiness and success

as an entrepreneur will depend on how well you manage the blurring of these two worlds. In some

ways, this overlap can provide some significant benefits – perhaps in terms or tax savings. In other

ways, you want to manage this overlap to avoid some significant challenges – perhaps in terms of

personal and business liability. As such, there are a number of actions we recommend you take –

immediately – to better position both your personal and entrepreneurial lives so that you can take

advantage of the potential benefits and avoid the potential challenges. This chapter is about just that

– helping you do what you need to do as an entrepreneur today to optimize your personal financial

life – recognizing that your personal life and business life will overlap constantly.

As we will discuss in Chapter 2, any conversation about a financial plan begins with identifying your

goals. What are you working towards? What are you trying to achieve?

The primary reason we focus on identifying your individual goals is because everyone is different; we

all have different personal finance goals. And all entrepreneurs are different and have different long-

term business goals. However, as we provide advice on balancing your business and personal

financial lives in this chapter, we assume that all of you share some common preferences: you like

money, control and flexibility and you do not like stress, liability and dysfunction. This is for you.

Happiness

Long-Ter m

Goals

Business

Goals

Family

Goals

Short-Ter m

Goals

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But before we get to philosophizing about goals and happiness and such, let’s get down to business.

If you are like most entrepreneurs, you are motivated by accomplishment; you get excited about

getting stuff done. So we want to start this book by giving you a list of items that you can do – or

should do – as soon as possible in order to take control of your personal financial life. Most of

these items are as much related to your business as they are to your personal life; that’s the point.

The two worlds will constantly (naturally) overlap; we want you to address these 10 items in order to

create both separation of worlds and alignment of goals so that your personal life and business life

complement each other, not compete with each.

Thus, in no particular order, here are 10 projects you should focus on – soon – in order to take

better control of your personal financial life…as an entrepreneur:

1. Separate your business finances from your personal finances.

2. Build your team.

3. Create a business plan.

4. Build your personal biography.

5. Get organized. Establish your finance and accounting control systems.

6. Document everything. Track every penny that you spend or earn.

7. Create 2 separate financial plans: for your business and for your family. Be specific.

8. Determine your financial net worth of your business.

9. Determine your risk tolerance – for both business and finance.

10. Talk to your family. Coordinate with your family.

We could have offered 20 more tips. But let’s just start with these 10. Some of these you may be able

to complete tomorrow. Some of these may require months of effort. And most of these will evolve

and change over time. If you begin taking control of your personal, business and financial lives right

now, there’s a much better chance that you will be able to both survive and thrive as an

entrepreneur.

A goal without a plan is just a dream. So let’s start planning, let’s start achieving our goals.

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SEPARATE YOUR BUSINESS FINANCIAL LIFE

FROM YOUR PERSONAL FINANCIAL LIFE

You have a personal checking account, savings account and credit card.

Now go get a business checking account, savings account and credit card. Get multiple business

accounts if you like. Maybe you get multiple business credit cards for multiple purposes – one for

office expenses, one for product or production expenses. It’s not a problem to have your business

accounts with the same bank or institution where you have your personal and family financial

accounts; however, it might be beneficial to have them at different institutions to keep things clean.

Why do we want to keep our business and personal finances separate? For many, many

reasons…here are seven (hopefully) good reasons to keep these worlds separate:

1. Tracking is much simpler. We’ll talk about creating your accounting systems in a bit; having

separate, distinct accounts makes tracking much more effective.

2. What if the Internal Revenue Service audits you – either you personally or your business?

Having separate accounts and separate records for each of your worlds will make it much

easier to tell your story. With the IRS, there is an implied “guilty until you prove yourself

innocent” attitude; having separate, clean financial/tax histories will help you prove your

innocence.

3. How are you going to tell your financial story to investors or banks? If I’m an investor, and

I’m looking at your financial performance, and I see personal activities and business

activities, I’m going to wonder how serious you are about your business succeeding. I want

to invest in the future of your business, not your 12-year old’s new braces. Keeping the

worlds separate will make it easy for you to tell the story of your business.

4. As your business grows, you are going to add more and more employees. You never want to

be paying employees – and social security taxes and benefits – out of your personal accounts.

Only do this through designated business accounts.

5. What if there is a change in business ownership? Maybe your partner decides to leave, maybe

you decide to leave. You do not want changing business relationships to compromise your

personal financial world.

6. What if there is a change in your personal life? What if you get divorced or get married?

What if you move? What if you bring your children into the business? Again, shocks like

these – which are very common – can affect both your business and personal lives. Separate

records can help such transitions be smoother than they otherwise would be.

7. Liability! We will talk about legal issues in the next section – and then again in Chapter 7. But

one of the most important decisions you have to make as an entrepreneur is how you want

to structure your business from a legal liability perspective. If there ever are issues in the

future, having separate accounts will make your life easier when that happens. You do not

want to risk losing your house should a customer not like the cookies or tables you are

selling; protect yourself.

That’s just seven reasons – as we go through the rest of this chapter, you will likely think of a dozen

more reasons to keep your personal financial life separate from your business financial life. You will

also see that all of these reasons connect to two issues: you want to protect your money and you

want to reduce your stress. Separating worlds will help you with both.

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BUILD YOUR FINANCE & ACCOUNTING TEAM

One of the best things about being an entrepreneur is that you are your own boss, you control your

business life and you control your future. You can wear shorts to the office every day, you can start

happy hour a 4pm every day and you can make every weekend a 3-day weekend. Of course, such

decisions may affect the growth and profitability of your business, but it’s still all up to you.

As an entrepreneur, you are responsible for all decisions that affect the business. That’s both good

news and bad news. In many ways, you will be a Jack-or-Jill-of-all-trades, responsible for strategy,

product design, sales, finance, legal, manufacturing and all other aspects of the business. Realistically,

there are going to be aspects of your business where you need help. You’re going to find that there

are some things that others can do better for you…and they can do without you giving up too much

control of your dream. Finance and accounting are probably two areas where you can use help.

We highly recommend you consider which finance and accounting experts can help you achieve

your business goals. By this, we do not mean you need to hire them as full-time employees on your

payroll; we simply mean find professionals that you can either have on retainer or easily meet with

periodically. You may have multiple meetings as your business is starting-up and then just quarterly

meetings as your business stabilizes. But you probably want their help.

1. Consider finding and hiring – periodically – a tax accountant to help you with tax-related

issues. And…hire them NOW. Do not wait until tax season. Do not wait until you have a

problem or until you are preparing a return.

Engage a tax accountant very early in the process – because then they can be consultants and

advisors, helping direct you to structures or decisions that will help you achieve your

business goals. The IRS tax code is thousands and thousands of pages long. You do not

want to know them all. Hiring a tax accountant as part of your team will allow you to focus

on the business issues and let them worry about the tax code. And, they should be able to

tell you about tax strategies that can save you money – both at the business level and for you

personally.

Always remember that you are hiring them, not the other way around. You need to shop

around; you need to interview them. If a friend recommends a tax accountant they have

worked with, but that accountant has never worked in your industry, you may want to

continue shopping around. As an entrepreneur, you will be learning about your business and

industry constantly; you do not want your tax expert to also be learning the industry at the

same time (or, worse, you do not want to be training them). Find an expert who makes your

business life and personal life better; they work for you, make them help you.

2. Consider finding and hiring a great attorney – even before you officially start your business.

They will be able to help you with structuring your business (e.g. bylaws and governance

issues), with deciding how to incorporate your business to minimize personal legal liability

from business actions, and with contracts and other legal documents that only authorized

attorneys are allowed to execute.

Again, you want an attorney on retainer or on speed-dial before you open for business. You

want them to help you avoid mistakes, not to (just) help you clean up prior mistakes.

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And, again, you want an attorney who knows your business and your industry. Some legal

issues will be common to all companies; but your business will have enough unique aspects

that you will want an attorney who really understands what you are trying to do. If you find

yourself training an attorney more then they’re helping you, you need to find another

attorney. Keep shopping around until you find someone who makes your life better.

At a minimum, all entrepreneurs should consider having a tax accountant and attorney as part of

your semi-permanent team. Do you need anyone else? It depends.

You are going to establish a banking relationship for your business. It never hurts to go beyond just

establishing accounts and try to establish relationships with your bankers. You may not think you

need debt or other banking services when you start your business, but having friendly and

professional relationship with a banker might make acquiring bank debt easier should you need it.

And, as your business grows, you may seek capital from outside investors. While that may be a long-

term vision for your business, connecting with angels, with venture capitalist, with incubators and

other potential investors early on in your business’s life might be helpful. You have to decide.

As a reminder…only bring in team members that help you. It is not your job to make them rich. It

is their job to make you rich (or to make your life easier and happier). Research them. Interview

them. Question them. And then put them to work helping you achieve your goals.

CREATE A BUSINESS PLAN

If you go through any incubator or entrepreneurship training program, you will most likely be tasked

with creating a business plan for your new start-up venture. Different programs will have different

ideas of what a business plan is. Some business plans will be 3-page summaries of the business and

its goals; other business plan will be 100-page documentaries of everything the business is and hopes

to be. There are lots of different versions; you have to create what’s best for you.

I would actually advise you to have two separate business plans (sorry) – one internal, one external.

1. An internal business plan is for you, your business partners and your employees. This can

include goals, benchmarks, key milestones and other strategic visions. This can include

margin, pricing, purchasing and wage information. This can include legal structure, bylaws,

leadership and governance information.

The purpose of an internal business plan is to help you run your business. It exists only for

you and your employees, to refer to on a daily or periodic basis as your business grows.

2. An external business plan helps you sell your story, your business and your products to

outsiders. This is a marketing and pitch document. This does not include any of your

business secrets, but it is designed to get outsiders excited about partnering with you. Maybe

you can use this to bring in employees, or investors, or big customers. Make it fancy, make it

convincing, tell a great story.

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You can decide whether this external business plan is a simple black & white or color

document you create on your laptop or whether it’s a professionally-designed pitch. As this

will be the primary way you tell your story to outsiders, you want it to be convincing; most

entrepreneurs will find that you get what you pay for and investing in a professionally-

designed business plan for outsiders will be worth every penny.

How to structure this external business plan? I would recommend having a 2-3 page

executive summary, that includes visions, goals, competitive advantage, people and some

brief financial information, plus 10-15 pages of detail. Nobody is going to read 100 pages.

People may only read 2 pages. Give them a great executive summary and make them want

more. Make it exciting, engaging and convincing. Help them fall in love with your business.

How is a business plan a key personal finance issue?

Because it will help you connect to outsiders – who may give you a loan, who may give you an

investment, or who may become an employee, customer, or partner. The business plan should make

it clear what the economics of the business are – how is the business going to make money. Being

able to tell this story – both to outsiders and to inside partners – will help you execute on your

strategies and will help them find ways to help you. Make it easy for others to love your business.

BUILD YOUR PERSONAL BIOGRAPHY

I’m a finance professor. I’m used to working with spreadsheets and financial statements. I’m used to

running complex calculations to determine what a business is worth and where value comes from.

As an entrepreneur, all of the value in your business comes from YOU.

You are, without question, the most important and the most valuable asset your business has.

Anything that every shows up on a spreadsheet or financial statement will come from you. Your

business will only have value if you create it.

Thus, being able to tell your personal and professional story will be a huge part of your business

plan, of your strategy and your operations. People – both insiders and outsiders – want to know who

you are, what you have achieved and what you want to accomplish. Tell them. Make them want to

become your partner.

• Banks will want to see financial information before making a loan. But as an entrepreneur,

much of the financial information is really just information about you. They want to know

that YOU will be able to repay the loan…as the leader of the business.

• Investors will be investing in you, not the operations or strategies. They want to know what

your goals, priorities and skills are. Tell them. Get them excited about working with you.

Investors just want to make money; tell your story to show them how you’re going to help

them make money…because if they make money, you’ll probably make money.

• Customers, suppliers, employees and other partners want to know who are. They may not be

investing money the way banks and investors will, but they will be investing time and energy

in you and in your business. Convince them that the return on their investment of time and

energy will be immensely rewarding for them.

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• Earlier in this chapter we recommended separating your personal and business lives. When

you create your business plan and build your personal biography, feel free to combine these

stories. Talk about your education. Talk about certifications. Talk about previous business

experience. Talk about your successes – and your failures – because you can focus on what

you’ve learned and how you’re going to grow. Be selectively transparent; never lie, but

assume people are going to learn everything about you eventually. Take control of the story

so you can build your personal biography into an asset for your company.

Being an entrepreneur includes a whole lot of storytelling. You want to be clear, consistent and

convincing. You are the most important asset your business has. Make it easy for people to fall in

love with you, with your story and with what you’re going to do with the business.

GET ORGANIZED

ESTABLISH YOUR FINANCE & ACCOUNTING CONTROL SYSTEMS

Quicken. Quickbooks. Xero. Freshbooks. Kashoo. ZipBooks. Sage. Wave. Excel. A spiral notebook.

There are dozens of finance and accounting software programs available to small businesses. Over

time, you may use many of them over the life of your business. Regardless of which one you choose,

one thing is certain: you need to pick something and make sure you have established finance and

accounting control systems from day one of your business.

Now that you’re starting a business – or turning a hobby into a money-making machine – means you

are bringing something very important into your life: Stakeholders.

With your personal life, hobbies and finances, the only people who have a direct, vested interest in

what you do are you, your family and your friends. Now that you are running a business, there may

be many other people who have a direct, vested interest in what you do: customers, employees,

suppliers, partners, investors, the bank, neighbors, the community, the city council, the Internal

Revenue Service, regulators, competitors and possibly the media. You never really know who will

impact your business – nor how.

Getting organized with your finance and accounting activities is essential – both for managing the

day-to-day activities of your business and for communicating your story to your stakeholders.

Establishing finance and accounting records for your business can…

• …distinguish between personal expenses/income and business expenses/income.

• …help you tell your story to key stakeholders.

• …protect you from legal liability should some incident occur at home or at work.

• …protect your family from unnecessary financial, legal or personal burdens.

• …make sure you’re getting every tax benefit possible, for your family and your business.

• …help you track every penny you make or spend.

As an entrepreneur, you may be more of a visionary than mathematician. But don’t be scared of

these systems. The first 2 hours might be a little painful for you. After that, every second you spend

organizing your financial and accounting worlds will only add to your business value and personal

piece of mind. Make that small investment up front to reap enormous rewards later.

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DOCUMENT EVERYTHING

TRACK EVERY PENNY THAT YOU SPEND OR EARN

Did you sell some items out of inventory today?

Did someone give you cash, as a tip or for your services?

Did you drive 20 miles to meet with a prospective customer?

Did you spend $100 to file for a permit?

Did you use a tool you got for your birthday 12 years ago to make a table for a customer?

Every activity you engage in – whether there are direct cash flows or not – can be considered an

activity of your business. Identifying and tracking every activity will be essential to you managing

both your personal and business cash flows.

The Internal Revenue Service has many rules that make certain expenses tax deductible (that’s

good). For example, if you spend $1,000 on your origami hobby that you intend to gift to friends

and family, you are out of pocket $1,000 and there are no tax benefits. But if you, instead, intend to

sell your origami creations for $2,500 online or at the community fair, then the $1,000 you spent

now becomes tax deductible (so your net expense falls from $1,000 to maybe $700 or $800).

What differentiates a hobby from a business expense? In general, the difference is your intent: did

you intend to generate a profit from the business? The IRS rules change periodically, so they may be

different depending on when you read this, but the current safe harbor rule is that if your business

earns a profit in 3 out of 5 years, then it really is a business for tax purposes and not a hobby.

However, if your hobby does not earn a profit in 3 out of 5 years, then it is incumbent on you to

convince the IRS that you intended to run this activity as a business, to invest considerable time in

the activity and to ultimately earn a profit. Tracking every penny can help you tell this story.

What about that tool you got for your birthday that you’re now using to generate money? It’s now

an essential asset of your business. In theory, when you started using it for business purposes, you-

the-individual transferred the tool to you-the-business and now the business owns it. Maybe you can

identify a price that the business paid for it (either with or without cash; there does not have to be an

exchange of cash for there to be an exchange of value). The business now owns it and the business

may be able to depreciate it…which means recognizing periodic expense which will reduce the

taxable income of your business. That’s good for the business. Of course, you-the-individual just

sold something for value, and you-the-individual may not owe taxes on the sale or transfer. But at

least now you have the cash flows and financial activities allocated to the proper entity.

Tracking every penny is not just for the IRS. It’s for you – and for all of your other stakeholders. It

can be essential for working with your bank, for protecting yourself from regulators, for creating a

paper trail for potential legal liability or for enticing customers and investors. Your accounting and

financial records can tell the story of your business better than anything else. Tracking every penny

that comes into or goes out of the business can make your story more powerful and convincing.

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CREATE 2 SEPARATE FINANCIAL PLANS

ONE FOR YOUR BUSINESS, ONE FOR YOUR FAMILY

You’ve built your financial and accounting team. You’ve legally and practically separated your

personal and business financial lives. You’ve set up your finance and accounting systems so you can

track every penny related to your business.

Now take a step back and ask yourself one simple question: What are your goals?

What are you trying to achieve with your business? Maybe you aren’t really using your business to

achieve any significant financial goals. Maybe you just really enjoy the work and you want to earn

enough money to cover your family’s bills and expenses. Those still count as goals.

So let’s do an activity: let’s make 2 lists:

With List #1, write down the Top 5 financial goals of your business.

Let’s think about both short-term and long-term goals. Maybe you want to get cash to pay for the

supplies you bought last week. Maybe you want to hire 2 new employees. Maybe you want to

upgrade your website. Maybe you want to move your food-cart into a 5,000 square foot brick-and-

mortar restaurant. Maybe you want to retire in 10 years and pass the business to your children.

At the end of this chapter, there’s space to include even more goals – and I would encourage you to

create a fancier list of your financial goals in some other document, possibly your business plan. A

goal without a plan is just a dream; goals lead to plans and plans lead to actions. Make some goals.

1. _____________________________________________________________________

_____________________________________________________________________

2. _____________________________________________________________________

_____________________________________________________________________

3. _____________________________________________________________________

_____________________________________________________________________

Chapter 1: 10 Things Every Entrepreneur Needs To Do Now

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4. _____________________________________________________________________

_____________________________________________________________________

5. _____________________________________________________________________

_____________________________________________________________________

And now let’s do the same thing…but for yourself and for your family. Try to force yourself to

make List #2 completely independent of your business – just focus on your personal finance.

With List #2, write down the Top 5 financial goals of yourself and your family.