Resources and guidance for entrepreneurs at all stages.

FinancialPlanning forEntrepreneurs

A good plan starts at the end

Some axioms and resources to get started

The (pre) startup

Cash Flow Index debt system

The hustle

Capital choices

Funding

Run your house like a business

Here to help

If you’re an entrepreneur, a would-be-entrepreneur, or something in between,you’ve come to the right place. Wespeak your language; after all, we leftcareers in the Air Force as fighter pilots,jumped into business ownership andlived to tell about it. Along the way, westarted helping business owners andstartup founders merge their personaland business financial plans. We founda ton of similarities with our story andour clients’ stories.

We just happened to be lucky enough tolive at the intersection of the advice wegave and how we ran our own business.

As such, we’ve been able to helpentrepreneurs plan. For lots of things.Starting something new, improving anexisting business, transitioning out oftheir business, building retirement plansfor their business…

We’ve found that most entrepreneursfocus on the task immediately in front ofthem (we’re guilty of that, too).However, each season of a business’ lifeshould be planned by first identifyingthe ideal end-state, and then workingbackward to create achievable goals andmetrics that help the train stay on thetracks.

For example, your business plan (ifyou’ve gotten that far) has a financialsection. Maybe even a strategy section.But where is the roadmap that connectsintermediate-term goals and metrics tothe strategic success that will eventuallyvalidated your financial projections?How do you determine where to allocatecapital to achieve those goals? How doyou ensure your personal finances stayhealthy while you concentrate on thebusiness financials? Let’s take a look…

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Axiom #1: Personal and business financial plans areawesome as singletons, but typically fall short whenmerged together. Personal financial plans are toospecific to deal with the dynamics of starting abusiness, and business financial plans are toogeneral to provide actionable guidance towardalleviating your personal financial stress.

Unanswered questions from both plans: What’s mypersonal burn rate? How much runway do I have…seriously? When do I need to do something else or risk notreaching my long-term financial or lifestyle goals? Whatmetrics do I really care about? What intermediate-termgoals give me the highest probability of long-term success?

Axiom #2: Financial maneuvering room is theultimate outcome of entrepreneurial financialplanning.

Financial maneuvering room: The opportunity to explorevarious courses of action or outcomes, unencumbered byfinancial uncertainty.

Axiom #3: No matter where you are on yourentrepreneurial journey, the majority of businessesfail because there was/is no market need for theirproduct, they ran out of money, or they didn’t havea solid team.

These are all solvable issues that you can tackle NOW – nomatter if you’re working on an idea, buying a franchise,incorporating your business, or have years of businessownership under your belt. We just happen to focus on thefinances!

Targeted Wealth Solutions:Shameless plug? Hardly. Welive and breathe planning, andwe have services designedspecifically for new andseasoned business owners.

Startups.co:A great resource for education,business plans, mentors,funding, market testing, andproductivity.

Strategyzer.com:Business models, customerresearch, and more.

50/30/20 Budget:A free Excel budget that usesthe 50/30/20 framework (moreon that later) to help you getyour personal finances inorder as you focus on yourbusiness.

Y Combinator Startup Library:A free educational resource forthe aspiring startup founder.

Coursera Entrepreneurship Courses:No matter what stage you’reat, these courses can help youstart and grow your business.

According to a study by CB Insights, nearly athird of startups fail because they run out ofcash. Cash flow is king.

Starting something on your own can be daunting; it can bedownright frightening if you haven’t optimized yourpersonal finances to support your entrepreneurial efforts.We recommend that new business owners and foundersshift from the accumulation-centric advice of mostfinancial experts and focus on cash flow.

If you’re bootstrapping your endeavor (or even if you’vegenerated some capital from outside investors),maximizing cash flow for your personal finances can helplengthen your business’ runway and take away some ofthe financial distractions while you focus on building yourcompany. This is even true for franchise owners.

Raising your insurance deductible, eliminating non-performing investments (after getting tax advice), andscouring your bank statements for “stale” subscriptions areall easy ways to increase monthly personal cash flows.

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Building your runway

Take stock of all of your incomesources: part-time work, aspouse’s salary, rentalproperties, etc.

Right-size your expenses: Weuse the 50/30/20 spendingframework, where 50% of yourincome is dedicated to needs,30% to wants, and 20% tosavings (or the future). You mayhave the ability to consolidatedebt for a lower rate within yourneeds bucket, and you probablyhave some room to trim back onyour wants. This will free upsome monthly cash flow. Youcan redirect some of the 20%bucket to fund basic needs onceyour emergency fund is good togo.

About that emergency fund: Fornew business owners, werecommend an emergency fundthat covers both personal andbusiness basic expenses for theamount of time it would mostlikely take you to find a new job.

Manage your personal debt likea business: We like GarrettGunderson’s Cash Flow Indexwhen it comes to analyzingdebt. You can check it out onthe next page. This methodranks debt based on howefficient it is from a cash flowperspective, and can help youget rid of debt while you’re stillworking so that you have morefree cash flow when you startyour business.

A method to evaluate the efficiencyof your debt, as popularized byGarrett Gunderson.

Step one:Take each debt balance and divide it byyour minimum monthly payment.

The result of this step gives you an“index number” for each debt you have.

Step two:Rank your debt based on the rangesbelow (from least efficient to mostefficient):

0-50 “Danger” zone; Try to acceleratepayments on this debt to get rid of it(ideally before you start a new venture).

51-100 “Caution” zone; Be aware thatany floating interest rate increases orshrinking principal balance will soondrive this debt into the “Danger” zone.

> 100 “Efficient” zone; Continue tomake the minimum payments to servicethis debt.

Example:$21,000 car loan with $700/monthpayments

21,000 / 700 = 30

This debt is in the Danger zone!

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While you’re hustling to grow yourbusiness, don’t forget to protectyour assets and plan smartly fortaxes.

We recommend finding and interviewingindependent insurance broker whospecialize in business owner policies andprofessional liability coverage.Depending on your industry and state,you may be required to carry certaininsurance. Take some time to do theresearch.

To protect your personal assets, makesure your life insurance coverage isappropriate (we like the calculator atlifehappens.org), and take a look atumbrella policies. Again, interviewing anindependent broker can help you findsomeone who’s committed to helpingyou understand the sometimes complexworld of insurance.

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How you incorporate your business (as aC-Corporation or S-Corporation, forexample) may have a huge impact onyour tax bill AND plans for the future.The Delaware C-Corporation is a popularentity type for startups due to limitedliability and the flexibility surroundingownership and stock options. However,an S-Corporation may be advantageousfrom a tax perspective, as the incomefrom the business is “passed through” tothe owners and taxed at their individualtax rates.

Here’s our advice: Go and find someCPAs that have experience working withnew businesses and interview them!You’re looking for more than a tax return– you need tax strategies, financialreporting, help with bookkeeping, and(eventually) payroll. Here in Colorado,there are plenty of firms that specialize inhelping new business owners.

As your company grows, you may find the need tofinance expansion (or current operations) by usingyour own cash – or someone else’s.

Funding is often a double-edged sword for business owners. The upside? Cash to help yougrow or make it over the next hurdle. The downside? The potential of over-extendingyourself with debt or surrendering ownership. There’s also the danger of poorly allocatingcapital once you have it. We’ll get to funding options shortly, but let’s cover allocationoptimization first (or, said another way, how to determine what to spend your hard-earnedmoney on to grow the business).

Define your win: We like 12- to 18-month time horizons for this exercise. So, pick a pointabout a year in the future and establish a realistic goal. Maybe it’s a certain level ofrecurring revenue from subscriptions, maybe it’s unique visitors to your garage, or maybeit’s just the launch of your first prototype. How do you know if it’s realistic? Find a mentorand ask. Chances are, there are people in your industry who have been there, done that,and are willing to pay it forward.

Break apart your win: For any given “win,” there are probably 3-5 unique enabling goalsthat if achieved will give you the highest probability of meeting your “win.” Each of theseenabling goals should be specific, measureable, achievable, relevant, and time-bound… andthey should also be broken down into bite-sized action items that you can tackle on a day-to-day or week-to-week basis. Build a schedule, develop metrics that track yourprogress toward these enabling goals, hold yourself accountable, and debrief yourwins and failures to carry important lessons learned into the future.

Once you’ve identified your enabling goals (again, we recommend bouncing these ideas off amentor), you’ve effectively found where you need to allocate capital.

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Getting your business through the first critical years may involve financing through various sources. Plan ahead.

At a very simple level, funding can be broken down into a handful of sources:

Bootstrapping – You do it yourself (or your friends and family pitch in) and fuel thebusiness as organically as you can. That may involve using your personal assets orgetting a side job.

Loans – If you have collateral, good credit, and positive cash flow, securing a traditionalbank loan may be an option. Small Business Administration loans are also in this group.

Grants – These funds don’t have to be repaid, but they’re tough to qualify for and arereally specific. Check out this article at fundera.com for more information.

Investors – You may be able to find angel investors willing to invest in your business inexchange for ownership equity. Check out sites like AngelList and gust.

If you’re thinking about becoming a franchise owner, you can inquire about financingoptions from the parent company.

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Simon Sinek

You’ve probably followed your passion or tapped into it as you’ve started a business(or are thinking about starting something). Budgets and investments are decided inpursuit of that passion, and planning is executed with that same passion in mind.

How do you run your personal finances? Do you follow a strict budget that makes youfeel guilty about spending? Do you listen to radio talk shows or podcasts that soundgood in principle but don’t really fit your personality or interests?

Here’s our fix. Run your personal finances like the entrepreneur or business ownerwould. Determine your passion and think about how spending, saving, and investingall work together to bring you closer to it. Your “win” may be more time with family…and your enabling goals may be achieved by spending on experiences instead ofthings, saving so that you can take more time off without worrying about coveringexpenses, and investing for a legacy that you want to leave behind.

Use the 50/30/20 budget to live within your means and prioritize your spendingon the things that matter to you.

Keep your personal financial plan up to date with current cash flow and savings– and be aware that you may reach a point where you’ll need to seriouslyconsider continuing your entrepreneurial endeavor at the expense of forgoinglonger term retirement goals.

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We’re not like most financial advisors and we’reproud of that. We help clients with personaland business financial planning, investmentmanagement, and business retirement plandesign… along with an integration among theirexisting professional partners (like CPAs andattorneys). The result? A comprehensiveapproach to helping eliminate financialuncertainty so our clients can focus on thethings that matter the most to them. Adistracted and worried mind is an obstacle toany endeavor.

If you’d like to talk about your personal orbusiness financial plan, your investments, orideas for the future, please give us a call orsend an email. We’ll schedule a 1-hourcomplimentary consultation to see how wecan help you reach your goals.

targetedwealthsolutions.com

brandon@targetedwealthsolutions.com

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aaron@targetedwealthsolutions.com

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