Money isn’t really about money. Another great irony of management and planning is that questions about money, questions that seem quantifiable and objective are really and profoundly subjective. These three questions will take you to deep, dark places.
1. What are the owners’ goals for personal wealth, charity and reinvestment?
Business plans can fail before they start because the owners are unclear about what money means to them. And if you’re in a family business where no one’s clear about money, well, you might as well go hide under the bed now.
Here’s a trick question: What’s the difference between what you need to earn and what you want to earn? Here’s the trick answer: either charity or greed. To find answers you can live with you’ll need to dig deep into your upbringing, religious issues and differences of opinions with your spouse. Don’t even think about setting financial goals for your business unless you’re clear about the financial goals for your life.
2. How do we balance short- and long-term expectations for overall ROA?
Let’s say you and your spouse are the 65-year-old founders of a successful business, planning to retire next year. Your three kids (and two of their spouses) are managers; your eldest is prepped to be successor. But over the next ten years your building needs expansion and a $1,000,000 piece of equipment needs replacement. You’re the boss today, but are these really your decisions? It’s not a financial decision first, it’s a moral one. Sorry.
Service firms suffer from the inter-generational hand-off, too, even if they’re not related by blood. It’s common for the founding partners of a law firm to retire at the same time their clients do, leaving their firm without the key accounts. Oops.
What do you care if your business survives you? Why should you make another sacrifice, just at the end of your career? Because what you’ve created will be important to people other than you. Even if you’re the 100% owner, that doesn’t mean you’re ethically free to let it roll off a cliff. Lots of people get hurt when you make unwise long-term investments. The challenge is to be able to look bravely twenty years into the future.
But you don’t need to be facing retirement to be facing conflict over short- and long-term investments. Scott Mosley, an expert in how business and personal wealth intersect, says, “Risk comes in many shapes and forms. What seems risky to you may seem riskless to the rest of your management team. Defining clear and common definitions of risk across your business and your personal assets is a great place to begin when thinking about money.”
3. How could we more actively help our employees protect their financial health?
No need to recite the dreary statistics about American savings habits. But this problem hurts employers because staff can either be panicked into jumping ship for fifty cents an hour or, conversely, they can be too complacent, passing up opportunities they could earn from hard work and good ideas. For all our talk, many Americans simply don’t understand money.
Money is all in your head
I was a mediocre Economics student, but I remember this definition: “Money is a store of value.” In other words, money, however you get it, is a kind of stockpile of your hard work, creativity and sacrifices. It represents your life. Now wrap your head around that.
What’s your killer question about your money? Please comment below.
December 15th, 2009 at 10:30 am
Derrick:
Great thoughts. Even more reason that owners need to be proactive in PLANNING THE EXIT from their companies. There are a lot of things to consider and put into place to ensure your “baby” continues as a prosperous going concern after you are ready to step away. Most owners are not aware of many of the available financial strategies to make their businesses worth more before they sell them, and of the need to go through a good planning process to ensure a smooth and successful exit.
December 20th, 2009 at 10:39 am
Rick: It’s a puzzle to me that business owners, who have poured their lives into their businesses, so rarely take the few steps needed to add a huge amount to their wealth, not only for their own sake, but for their spouse, children and grandchildren. An upcoming post is going to be about the surprising amount of courage needed to plan, analyze and change your business. Thanks for your comment.