Why Good Personal Finance is Necessary for Running a Business

Why are we writing about personal finance and investing on a blog about entrepreneurship?

My co-founder often says to me: We’re writing a lot more about and creating solutions for personal finance topics. How are our personal finance solutions helpful to entrepreneurs and small business owners?  

My response: Because cause I can. And because I find it interesting. I’m an entrepreneur, and by definition, my own boss, so I can write about anything.

Cheekiness aside, mastering personal finance is a critical cornerstone of succeeding at entrepreneurship. Getting business owners’ personal finance in order and ideally on auto-pilot enables entrepreneurs to 1) pursue their dreams, and 2) preserve their wealth.

• If their business endeavors succeed, without financial discipline, a successful windfall will evaporate as quickly as it came.
• If their business endeavors struggles or fails, learning to be frugal and lean will offer them a chance to continue pursuing their ambitions.

How Business Owners’ Finances Affect Their Business

Your Credit Score

There are also more direct reasons that business owners should take extra care of their personal finances. As a solo business owner, your personal credit history for example becomes your company’s credit score when you first start out. Whether or not a bank will provide a loan for your business in the beginning will have a lot to do with whether or not you are a good person to go into business with. The bank will do diligence and underwriting on you.

A Cushion If (When) Something Goes Wrong

Most new businesses fail. Starting a business is hard. It takes time, trial and error, and a lot of practice to get good at starting and running a business. There will be a lot of failure before there is success. Coming from a position of wealth (or at least of good financial health), will allow you to recover from failure faster and keep going.

Practice For Being Your Own CFO

Getting good at running your own personal finance is a microcosm of running a business’ finance. It gives you regular and consistent practice while your business is in the pre-revenue stage. When it comes time to run your business’ money, you’ll be in a position to manage your company’s finances.

Personal Finance = Start-up Finance

Pretty much all of the personal finance concepts that I espouse to are the same frameworks I use to help founders run their start-ups. There are a lot of corollaries and similarities. You’ll notice we don’t talk extensively about the typical personal finance topics like “how to get out of debt” or “build an emergency fund.” We assume that our readers have neither of those issues. (Do let us know if we’re wrong.)

Our Target Demographic (we think)

Their characteristics

Our readership, as we hypothesize and if we have any, are likely to have the following characteristics:

• Want to start a venture backed company, become independent advisors, investors, or small business owners
• Have some level of savings, no debt, and are college educated, likely to also have a higher education degree
• Have some level of wealth and sufficient cash to meet their needs for the next six months to a year

Their problems

These individuals will have different problems. Their problems about personal finance fall along the lines of:

• How can I still pursue my dreams of starting a company while making enough money to have a family, pay for childcare, live my life?
• How can I quit my 60+ hour week soul-crushing corporate job to do something I find meaningful like start a green-tech business or join a non-profit board?
• How can I live my life and run my company as leanly and frugally as possible, so my start-up’s runway will last longer?

Our solutions

In all of these scenarios, these folks have various problems that can generally be solved by:

• Making the money they do have work harder (ie invest wisely)
• Be as frugal, scrappy, and lean as possible (ie reduce burn and extend cash runway)
• Spend into growth areas responsibly (ie revenue generation)
• Think analytically about how to frame and solve their personal finance problems (ie developing a FP&A mindset)

All four of those solutions are easily solved by focusing on their personal finances.

The 2nd and 3rd points above are most closely related to how a founder skillfully manages resource allocations in a company, which requires extensive practice. Spending lavishly in the name of “growth” is easy. Being extremely frugal is doable. Striking a balance of both spending generously on some areas while pulling back aggressively on others is a financial management skill that takes years to master.

Learn Once, Apply Twice

As we write about personal finance, we hope that the topics, examples, and frameworks we provide will also help entrepreneurs run their own businesses more profitably. We’ll go into more depth than most personal finance blogs about our own learnings on business entity structures, explore tax topics we’ve run into, stock options, and all those topics that live at the cross section of personal finance and starting a business.

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