Entrepreneurial Strategy Discussion: Overcoming the Cyclical Cash Flow Mindset
Sean Gould, Partner and Head Strategist, Waddell & Associates.
Based on recent research, there are 582 million entrepreneurs globally, with 33.2 million in the U.S. Creating a successful business can be both gratifying and demanding, entailing an intricate mix of success and uncertainty. Indeed.com identified "financial risks" as the second-biggest issue faced by entrepreneurs, and challenges like funding, budget management, and sustaining income are also common obstacles.
Entrepreneurship requires courage and resilience. Nevertheless, it led me to become a top wealth strategist and ultimately secure a partner role in a wealth strategy firm based in Memphis and Nashville – following in the footsteps of my own family.
My grandfather was a Boston-based professional drummer until the 1920s, subsequently opening a barber shop in Memphis in 1932 to increase his cash flow. Unemployment was approximately 25% at the time, according to the FDR Library. This venture allowed him to provide for his spouse and children, who would eventually expand the barber shop to 14 locations. Growing up in an entrepreneurial family equipped me with the financial knowledge required to develop and expand existing businesses, as well as invest wisely and create revenue streams.
While some may view this as the epitome of the American dream, most American entrepreneurs face a so-called "feast or famine" mindset. This notion refers to the fact that your business can thrive and meet your basic needs, as well as provide you with "extra" income – but it can also falter, leaving you without a reliable income for months on end. Overcoming this mentality relies on the entrepreneur's mindset and a few crucial steps.
Re-investment
Re-investment is key in establishing a prosperous business, even during challenging times like the Covid-19 pandemic. Smartly re-investing in your business can prove crucial to keeping it afloat.
It's crucial to consider which investments may help boost future revenue. For instance, allocating funds to marketing efforts can help position your business as a top choice for consumers, keeping both existing and potential customers engaged.
While this might not be the best time for high-risk investments, analyzing previous revenue boosters can inspire new opportunities. Additionally, examining your target audience is paramount. According to Retail Dive, 87% of consumers start their product searches online. Utilize downtime to strategize how to re-connect with your customers and understand their needs.
It's also essential to have various revenue streams operating at different times. Diversifying your revenue streams can help cushion the impact of internal changes, ensuring a more balanced financial portfolio.
Building Your Dream Team
Financial resilience is greatly enhanced by having the right team – a "dream team," or A-Team. Your dream team should consist of a trustworthy banker, CPA, attorney, and financial advisor with expertise in your industry. A reliable banker can assist you in securing a line of credit to invest in your business and foster growth, making it easier for entrepreneurs to establish and expand their businesses.
Simultaneously, a dependable CPA and financial advisor can guide your personal finances in alignment with your financial goals. Your financial advisor plays a significant role in ensuring long-term business success, as well as the financial well-being of yourself and your employees, partners, and team members.
As the adage goes, "If a business isn't growing, it's dying." Having the right team will better equip you to tackle challenges and pursue your goals. Surveys compiled by Business Dasher show that 60% of small-business owners feel under-prepared when it comes to accounting, but only 30% utilize the services of an accountant. Regular meetings with your team can help guide decisions and set a course for success.
In addition to regular team meetings, monthly leadership meetings to assess financial objectives can be instrumental in staying on track and holding your employees accountable. Regular communication with your advisors ensures alignment and informed decision-making while reducing the risk of error.
Establishing a Continuous Cash Flow
When my grandfather started diversifying his revenue streams, he emphasized the importance of generating a steady cash flow to counteract the feast-or-famine mentality. Entrepreneurs must invest in revenue models that provide more consistent cash flow while taking calculated risks. Diversifying revenue streams by introducing popular or sustainable services is the key to a stable cash flow. Consider implementing membership programs, retainer services, and loyalty programs to strengthen relationships with both current and new clients.
My father and uncle also pursued external revenue streams, branching out into education and joining various national boards and committees. As a result, many entrepreneurs maintain a diverse portfolio of investments, products, businesses, and trademarks. Although this enables a broader range of potential income streams, creating diverse revenue streams within a single business can also boost cash flow.
An effective marketing team can ensure new products and services successfully generate additional cash flow. Employing successful marketing strategies to raise awareness of your business will likely increase your customer base and provide additional cash flow.
Managing a business is no walk in the park and comes with its own set of difficulties. Yet, it can be exceptionally fulfilling if you've got the determination to put in the effort. Actively managing funds, making thoughtful investments for future growth, and assembling a top-notch team are key strategies to combat the feast-or-famine cycle. Don't shy away from smart gambles, trust in your abilities, and connect with like-minded professionals who will motivate you and keep you on track, helping you grasp the essence of your goals.
Please note, the following information should not be considered as investment, tax, or financial guidance. You are advised to seek advice from a certified expert tailored to your particular circumstances.
Would I be eligible for our Exclusive Business Finance Advisory Group?
Based on your demonstrated expertise in wealth strategy and entrepreneurship, Sean Gould might consider you a valuable addition to his Exclusive Business Finance Advisory Group.
Given your background in navigating the challenges of a feast-or-famine mindset and the importance of diversifying revenue streams, your insights could greatly benefit fellow entrepreneurs seeking financial resilience and growth.
