One key to business success is understanding finance. While this may seem obvious, many new entrepreneurs have no idea how much money they need to start and run their business, says SCORE mentor and instructor Ernest (Val) Mathews.
Often, they have no idea what their cash flow will be, and they don’t have a fallback plan. But, Mathews says, the good news is that even someone new to business ownership can learn the basics of finance.
Mathews will discuss the strategic process of managing the financial resources of a small business at a workshop on Tuesday, January 8, at 6 p.m. at the Plainsboro Public Library. Register at princeton.score.org. Attendees will learn the basic elements of creating a budget, recording financial transactions, creating a financial statement, and other entrepreneurial responsibilities. The workshop will also cover strategic pricing and real costs, franchises, nonprofits, venture capital funding, and working with contractors.
New entrepreneurs often start their venture without a good business plan. So they wing it at each step of the way and end up failing, says Mathews.
At the workshop, Mathews will share “a first business financial model for success,” which starts with a spreadsheet that business owners can download from the SCORE website and use for their sales projections, expenses, and other transactions. “And if you mess it up, don’t worry about it. Just download another,” he says. “As your business grows, you may want to switch to a more sophisticated model, but the SCORE simple spreadsheet is designed to get your business started.”
New entrepreneurs are often eager to obtain outside investor funding. But, Mathews cautions, they need to understand the pros and cons before entering into an agreement with a venture capitalist. If the agreement requires you to give 51 percent of the company to the funder, but you want to stay in control of your business, obviously that would not be a good deal for you. Understand your obligation to the financer up front, he says.
Mathews has found that people who find a way to start their business with their own funds and stay solvent for a year or two before seeking outside investment usually do well. They start in a good position, he says, because they can make their own decisions, and with time can prove they have business sense. If they seek funding later, that makes them attractive to outside financers.
People who seek funding for nonprofit organizations have issues similar to businesses owners but also their own unique circumstances. Nonprofits need enough cash flow to keep the organization going whether it comes from endowments, corporate or individual donations, or tuition.
But Mathews finds that people often do not appreciate the full distinction between a business and a nonprofit. Occasionally, he will be introduced to someone who tells him they own a nonprofit, to which he responds, “No. You don’t own the organization. The nonprofit is a social and legal contract [based on] the idea that your organization will do good things like helping the poor and advancing social programs, and in turn, you do not have to pay taxes.” If you decide to end the organization, you can close it but you cannot sell it.
Despite the challenges a new business faces when competing with large corporations, there are advantages to being small, he says, giving the examples of flexibility and speed. The small company can literally make a business decision around the coffee table after sharing ideas and coming to a consensus with a few key employees or stakeholders.
Having the flexibility to work with contractors is another advantage. The independent workers will have more freedom to choose when and where they work, but you are not required to provide employee benefits or withhold and pay taxes.
Speaking of taxes, Mathews recommends that you hire a third party to handle your IRS requirements to avoid making mistakes that could lead to an audit. The third party has a legal obligation to the IRS to know what it is doing, he says.
The workshop will also cover an overview of blockchain technology and smart contracts. Because the blockchain process comprises a set of digital records of all ongoing transactions related to a given product, service, or event, it is often described as a transparent public ledger. The contract details can be put on the web so anybody can see the specifications and see who has contracted for what, he says. Mathews does not expect this technology to have an immediate impact on most new businesses today, but he recommends that entrepreneurs be aware of its existence.
Mathews’ expertise as a SCORE mentor is based on his experience working as a business/technical solutions professional. He was introduced to the business world by his father, who founded his own business in agriculture supply. Mathews earned a bachelor’s degree in physics from the University of Virginia and a master’s in business administration from the University of North Carolina. He also studied at DeVry University in New Brunswick, completing several courses covering business, computer forensics, and defense.
He has worked for more than 20 years in pre and post-sales, managing sub-contractors, and developing new services in commercial, government, and technical markets. He has held executive positions at Johns Hopkins Applied Physics Lab, IBM, AT&T (as a manager dealing with federal government projects), and a Russian-American telecom investment company. He has served as a solutions architect for an international oil and gas services project.
Mathews’ advice to his workshop attendees is to think of it as a starting point. He recommends reading publications like Inc. Magazine regularly. Within SCORE, he recommends the online library, which includes webinars, spreadsheets, podcasts, videos, and articles that focus on specific business needs. Learn as much as possible at the beginning stage of your business, he says, and continue learning as your business grows.