Advice on how to run your business better is free and plentiful, but not all of it is worth taking. That's particularly true when it comes to your finances.
For smart tips on managing the money side of your company, it’s best to listen to people who’ve successfully been there, done that—their words of wisdom come directly from the trenches and may help you out when you're not sure what money moves to make.
With that said, there's also financial advice you want to steer clear of. So here’s my list of the top eight money tips you should never follow.
1. Grow Your Business by Raising Money
The reason this piece of advice is a flop is because it suggests that raising money—in and of itself—is the end result, rather than a means to an end. While there may be times when you need an infusion of cash to accomplish a goal, the mistake is in making raising money your primary objective. Investors want to bet on success, and the real value of a company isn’t how much cash it can raise but how much good, successful work’s being done. Don’t spend your time chasing other people’s money (which is far too easy to spend). Instead, spend your efforts earning your own money.
2. Have Five Years of Financial Projections
Now I get it: You may have had to create some projections for your business plan in order to get the startup funds you were seeking, but it’s time we called financial projections what they really are—a guess. Trying to forecast where you’ll be in five long years is an exercise in futility and is often simply a waste of your valuable time. You’re much better off investing your energy in developing an action plan to target a specific market and then executing it than piddling around, trying to figure out projections that may never come true.
3. To Make Big Money, You Need a Big Business
Let’s face it, the bigger your business grows, the bigger a target you are for your competitors. In fact, the riches are often in the niches—smaller marketplaces with far less visibility and competition. You really don’t have to be big to be profitable.
4. Save Money by Hiring Friends and Family
This piece of advice may actually be the worst, because you can end up wreaking havoc not only on your business but also on your personal life. You may think that hiring a friend—a known quantity—is a safe bet, but you must remember that your shared history isn’t based on your business. First and foremost, business relationships should be centered on your business. Hiring friends and family is almost certain to put you in the position of making business decisions based on your emotions and your personal ties rather than on what’s fiscally sound for your company.
5. Beat the Competition on Price
It’s possible to win the price game—but those bids are usually only successful if you’re a big company (think Walmart). The fact is that low price equals low margin, and success only comes when you do a huge volume in sales. Small businesses are much better off leaving the price competition to the big boys and focusing on other areas. If you’re selling your brand based on quality or convenience, you’ll be able to charge a premium price, and your margins will look much healthier.
6. You Have to Spend Money to Make Money
Yes, money makes things easier, at least in the short term. But here’s the thing: Money makes you lazy. It’s when you’re on a tight budget that you’re forced to become innovative—to find unique ways to solve problems—and that’s where the magic happens. Throwing money at a problem is rarely the solution. So take a step back, and find an efficient, creative way to accomplish your goals. Then the money will start to flow.
7. Leverage Your Debt
There's nothing more dangerous and addictive than OPM (other people’s money). Once you’ve had it, you’ll continue to crave it—that easy solution lets you kick the can down the road rather than doing the hard work of solving your problems. If you continue to spend, thinking that your debt will—at some mythical point—resolve itself, you’re wrong. Don’t jeopardize your future earnings by burying them under a mountain of debt.
8. Pay Yourself Last
So many of us started out believing that only by sacrificing our paychecks could we get our business off the ground. This last piece of advice is responsible for more burned-out, bitter, resentful, failed entrepreneurs than I can count. Think about how you’d treat your very best rock star employee. You’d treat them like gold and keep them happy, right? Well, you are your best employee, and you owe it to yourself and your company to pay fair value for your valuable work. Don’t sell yourself short: Your business should support you, not the other way around.
We've all heard these catchy little pieces of advice so often that it’s far too easy to believe they must be true. But your company’s future is far too valuable to risk it on trite sayings that will create far more problems than they’ll solve. If you really need help, get your advice from successful folks who have real experience on their side.
Read more articles and see exclusive videos in OPEN Forum’s special section on Managing Your Money.
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