Emotions and Economics

You have a great idea and you want to start a business.  Regardless if you are creating a new product/service category or you are entering a segment with established competitors, there are some basic “Best Practices” that you should adopt.  Following are the top three –

Set a plan – The cash flow of any business is critical to its survival.  Project for the next twelve months when you will recognize revenues vs. incur expenses.   This matching of revenues and expenses may be slightly complicated if consumers are not paying for your product or service immediately, i.e. you extend credit.  Now re-set your plan if your revenue expectations are 50% lower than what you expect.  Can you adjust the rate at which you incur expenses or will your cash be tied up in supplies?

Staff your business top down – You have strengths and more than likely, your business is linked to those strengths.  But it is unlikely that you are a specialist in all disciplines required to run a business efficiently.  For example, if you need a Finance resource, hire an experienced executive for your management team that can add value in multiple areas.  Just as important, a specialist can provide you with objective feedback required to make you successful and avoid mistakes.  Along the same lines, as soon as possible distribute responsibilities.  One person should not be responsible for Sales and Compliance.  Strategies in one area may contradict strategies in the other.

Draft your Policies and Procedures as you develop – If you make a decision, document it.  Now look at it from all sides, i.e. what risk am I assuming, how will this decision impact the customer experience, is this policy the most efficient.  Regardless of the size of your company, a document that defines how the organization will act in a specific situation is critical to avoid confusion and reduce risk.

As an entrepreneur, you are emotionally invested.    This emotion is the critical ingredient needed to make you successful.  Your creativity will separate you from your competition and will hopefully bring customers.  The purpose of the aforementioned Tips is to control that emotion.

Nothing destroys economics more than emotions.  I learned this concept in school, but have seen it played out with the 30+ small and mid-size companies I have managed, as their financial support.  If actual results do not follow your expectations, your Plan, People and Policies and Procedures will help you get them back on track quickly.

These tips are not just for companies starting out, but should be adopted by companies of all sizes.

What is your experience?

Author: Regis Quirin
Visit Regis's Website - Email Regis
Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.
© Copyright 2012 Regis Quirin, All rights Reserved. Written For: CFO Tips - What you need to know, to be a CFO TODAY!

Regis Quirin

Regis Quirin is a financial executive with 23 years of corporate experience, i.e. New York Stock Exchange, JP Morgan Chase, and GMAC ResCap; and 15 years working with small and medium-sized entities, i.e. joint ventures, start-up entities, established businesses. In 2014, Regis published "Redesign to Turnaround Underperforming Small and Medium-Sized Businesses" available via Amazon.

31 thoughts on “Emotions and Economics

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  13. A quick comment on startup budgetting.

    In 2008, VC’s were advising startups to have aproximately no less than 24 months of operating costs in the bank to be able to weather the harsh economic environment.

    I haven’t checked recently but would be very interested to see if this has changed much 4 years later in 2012.

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