The Tribune

Most persons aspire to one day own and operate their own business. As one looks at the profile of successful business owners, they tend to be smart, hard-working, tenacious and highly-focused individuals who, despite all odds, overcome the many challenges. A recent Dun & Bradstreet study indicates that businesses with fewer than 20 employees have only a nine per cent chance of surviving a decade. Great strategy, skills and a will to survive are thus vital to the success of the 21st century entrepreneur.

It is often quite difficult to recognise the truly successful entrepreneur, who has been able to keep their doors open for an extended period of time. Many who are successful in business may fail when it comes to their own finances. Too often these talented entrepreneurs concentrate so intensely on their business that they neglect their personal financial planning or, in many cases, never separate personal from business finances.

Consider a local taxi driver who records a total of $104,000 in gross sales receipts for one year, but renders himself cash and asset poor by the end of that period. One would think that even basic management of his financial records could render taxi driver "John Doe" a reasonably successful entrepreneur. John Doe, though, must pay closer attention to any number of factors preventing him from reaping the benefits of his labour. Many are simple matters, such as recording every transaction he makes, curbing impulse spending, and minimising fund leakage on vices.

Our discussion today takes a brief look at some of the common mistakes successful entrepreneurs make that impede their financial well-being, while offering suggestions for addressing each concern:

• They do not implement proper benefits, such as health and life insurance, and retirement plans.

This, unfortunately, befalls too many small business owners. When one begins a business, benefits are often a low priority. Costs may be prohibitive. As time passes, the question of purchasing proper benefits is often not revisited, even if the business has now grown and added employees so it can take advantage of significant group discounts. These matters need to be taken care of as soon as possible.

• They do not properly provide for their families should the unexpected occur.

Many small business owners scrimp on life or disability insurance, rationalising that "my business is worth millions of dollars" and "if I die my family will be taken care of once the business is sold". What they fail to consider is that without them, the business is likely to be worth far less. Good life insurance or a rock solid plan of succession is crucial at any stage of the game.

• They do not save money outside the business.

Small business owners have a tendency to become so focused on their company, pouring money into it so it can grow and prosper, that they fail to save for their future. They may enjoy a very upscale lifestyle while the business is alive and well, but end up with nothing to show for it should the business fail.

This is why some small business owners end up working well into their 70s - and even 80s. They never drew sufficient cash out, and have no choice but to continue working. To prevent this from happening, money needs to be invested during profitable times to fund retirement plans and a diversified investment portfolio. This does not mean sucking the business dry, but rather not putting all one's eggs into a single basket (the business). This way, even if the business ends, the owner can enjoy a comfortable retirement.

• They do not establish a viable succession plan or exit strategy.

Many small business owners work very hard to build a successful enterprise and, shortly before they plan to retire, they suddenly wonder: "What am I going to do with my business?" By then it is usually too late and the business dies. As a result, while the company may have sustained the owner's lifestyle for many years, it suddenly has no value.

A plan needs to be put in place five to seven years prior to retirement. It all starts with looking at where the owner wants the business to go (along with having the value of the business assessed). Is there a family member to take over the business? Are there key employees? What about selling to a competitor? If the decision is made to pass the business on to a child, should it be sold or gifted?

There may not be any choice if a sale is necessary to fund retirement. Finding someone who is willing to take over the business is quite different from someone who is capable of running the business. We have seen too many businesses run into the ground by the next generation of ownership. The consequences can be catastrophic, costing the owner his or her retirement stream of income.

The core problem is that, too often, business owners live only for today, with no thought of tomorrow. They need to understand that running a successful business is just the first hurdle to achieving financial security. They still need to keep their eyes focused on the finish line.

• NB: Ian R. Ferguson is a talent management and organisational development consultant, having completed graduate studies with regional and international universities. He has served organsations, both locally and globally, providing relevant solutions to their business growth and development issues. He may be contacted at tcconsultants@coralwave.com.