How to keep your very first million

The following excerpt is from Scott Duffy’s book Breakthrough which explains essential strategies that help you keep money you make in your new business. This is the first part of the piece which will run into two series.

Based on years of experience training and coaching, I know the number-one mistake entrepreneurs make is mismanaging their money from the start.

Part of the explanation is obvious. I know this sounds basic, but you’d be amazed how many entrepreneurs don’t go through the trouble of separating their business accounts from personal accounts. The result can lead to a significant amount of stress for any new business owner or even personal catastrophe.

This doesn’t have to happen to you. There are some basic strategies you can apply today to make sure of it.

Create a solid financial model for your business

Determine where your company’s cash will come from and what expenses will soak it up. Then estimate how much time the business will need to create enough profit and free cash flow to be self-supporting. Once the business generates enough cash to operate on its own, you can reduce your personal exposure.

Once you’ve estimated how much money you’ll need, cut your revenue projections in half. Then cut them in half again. Then do it one more time, to balance out your natural optimism. Now take the amount of time you think it will take to get started and double it. Building sales and free cash flow always takes longer than most entrepreneurs expect.

These numbers may be hard to digest, but this approach will give you a reasonable sense of what you’ll need and how long it will take to get to a place where you no longer have to contribute outside capital to make ends meet.

If you’re launching a business that involves personal financial risk, here are a few more things you need to do today.

Determine how much money you’re willing to risk

Odds are, much of your business’s funding will come from you. Unless you have a track record in business or some very deep-pocketed friends, raising money from investors could be difficult. Will the money on the line be your family’s entire nest egg, or just half? Are you going to bootstrap or borrow? Keep a photo of your family nearby when you start writing checks as a reminder that you may be risking their future as well as your own.

Talk everything through with your spouse or significant other

You must do this before jumping in. It’s essential that the two of you agree on how much to put on the line. If you don’t, that’ll create problems down the road that will distract you from your business (and potentially ruin the relationship). You’d do better to risk less and be on the same page than risk more and have your spouse be worried and resentful day after day. You should never go so far on the edge or put yourself at so much risk that if things don’t work out, it becomes hard to bounce back. (Continues next week)

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