Commit to Non-Negotiable Financial Rules of Engagement

Last week, you looked at how much capital you will need to start and operate your business. Now, it’s time to set some financial ground rules that will govern how you use your resources. We know, we know. Being a Female Maverick is all about going for it, and not holding back. But unless you’re lucky enough to share a bank account with Bezos or Buffett, there’s always a limit to what you can and should do with money. Set yours and stick to it by following this unbreakable rule to the letter.

Before we get into the details, let’s review where we’ve been and where we’re going:

If we had to pick the most important rule in the Female Maverick Manifesto, establishing non-negotiable financial rules of engagement would definitely be at the top of our short list. It might seem counterintuitive given the “bet the farm” mindset that we, and all entrepreneurs, need to have. But exercising discipline around finances on a day-to-day basis is what’s going to prevent impulse buying and set you up to go all in when you need to swing for the fences (more on that soon).   

Acknowledge your (and your business partner’s in our case) views on money.

Money is a weird thing. Two people, raised the same way, might have completely different views of spending, budgeting and investing. Some Female Mavericks will ante up willingly, maybe too willingly. Others will hold on to every last dime and not make needed investments to further a business. Some think of debt like a golden opportunity a la the Wolf of Wall Street. For others, leg irons come to mind.

We were pretty scared early in our careers, watching some very smart people we knew run into some very dangerous financial problems with their businesses. While these experiences could have been enough to put us off our own dreams, instead, we made a point of considering what went wrong and how things could have gone differently.

More often than not, these failures came from a “bet the farm” expense moment that simply wasn’t timed right, i.e. they scaled employees too quickly or signed a lease they would “grow into.” Other times, a highly concentrated customer base caused the trouble. As Beth’s ex learned the hard way, if you are highly concentrated in just a few large accounts and one of them stops paying, previously unthinkable scenarios like filing bankruptcy or sparring with a very angry (and litigious) landlord can quickly become your reality.

Put some guardrails in place.

To keep from having to go down these or similar paths, set some rules before you start. Your own financial safeguards will be unique based on your own personal financial history, experiences and the type of business you are launching. The important thing is to make your non-negotiable list of money rules and stick to them.

You can use ours as an example or a good place to start:

• Keep a minimum balance and don’t dip into it. We always keep two months of operating expenses in the bank. We literally remove it from the cash portion of our balance sheet, so we aren’t tempted to spend it.

• Manage expenses against recurring revenues. If you can, keep project revenues out of the equation when it comes to covering your monthly expenses. This was important for us given the lumpiness of our project income. Even if we were having a gangbuster quarter or year on the project revenue side, we kept employee costs equal to our recurring revenues. This allowed us to stay disciplined and ensured we had the investment capital when we needed it.  

•  Justify and limit any debt. We will only take on debt if it meets two criteria: 1) It is for investment purposes AND 2) it is an amount that one or both of us has the personal funds to cover if needed.

• Scout out your sources early on. To be well-positioned to access capital when you need it, start courting banks, credit facilities and investors ASAP. We started on day one, long before we needed any actual cash. We updated our future lenders / investors quarterly and shared our thought leadership and marketing materials, so we remained top of mind. This paid off in our second business. When we needed a credit facility to cover a few important hires quickly, we had one in place within the week.

• Commit to being collectors first and business owners second. Do not allow unpaid invoices to pile up. Our receivables aging schedule comes home with us every night. And we aren’t scared to litigate to get our money.

• Take it out of your own pocket first. In the early days, we would not take on additional debt to cover a new employee. Instead, we reduced our own compensation or distributions. If our personal take reached zero, then no more new hires until we could generate more cash.

Always remember that cash is king, and your bank is not your friend.  

Both of our dads taught us these two critical business lessons, and they are important to keep in mind as you build your own financial rules of engagement. The reality is you can bill all you want, but if you can’t collect it, your revenues, for all practical purposes, are zero. Second, banks won’t ever have your back. Yes, they will smilingly invite you to a fancy golf outing every year. In the same breath, they will call your credit facility. They will freeze your funds. They will do whatever is in their best interest, not yours.

What’s Next?

You now know what you will and won’t do when it comes to money and running your business. So, it’s time to get out there and get investing in your future, right? Wrong. Timing is everything. And being able to practice patience is crucial when you are launching your business. Go out too early, and risk draining that precious capital. Go out too late, and you miss the wave cresting and find yourself in catch up purgatory. We fell victim to poor timing one too many times. Next week, we’ll share the gory details, so you can learn from our mistakes.