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“Let our advance worrying become advance thinking and planning.” – Sir Winston Churchill

For those of you who do not know me, I have started, managed and sold two start up businesses.  My first was a restaurant which grew to about $4 million in revenue, was profitable and employed about forty people.  My second business was a computer services firm which grew to $1.5 million in revenue and ten employees.

I sold my restaurant when I was 24 years old and felt like I had the “midas touch”.  It was successful out of the gates, was very popular in our community and grew beyond my expectations.  That first success had me convinced that I could do it again without much effort.  Boy was I wrong.  I made a ton of mistakes in my second business and paid for them. 

While I could probably fill many blog posts just listing my mistakes, I think my fundamental error was not developing a well thought out plan.  I am convinced that, had I put some thoughts on paper before starting my second business, it’s doubtful that I would have ever founded it.  This is not because it was a bad business, but more because it was the wrong business for me and what I wanted to accomplish. 

More on my second business in another post.

I often tell budding entrepreneurs that, knowing what I know today, I wouldn’t have invested in myself when I started the second business.  Instead of researching a market, identifying a problem, designing a solution, understanding how I was going to make money and assembling the right team I just “went for it”.  I’m convinced I did this because I had already been successful once, why not a second time?

Since selling the last business I have come full circle and am now a fervent believer in planning.  A business plan doesn’t need to be complex, it just needs to answer a few fundamental questions:

(1)    What is the problem?

(2)    What is your solution?

(3)    How are you going to make money?

(4)    Who are you?

I decided to post on this topic because of a recent email exchange with my sister-in-law.  For sometime now she has been convinced that an opportunity exists for her to develop a patient advocacy consulting practice.  I won’t butcher her business concept here, but suffice it so say that I agree with her (and have recent experience to bolster my point of view) and think she should do it.  But, I don’t think she should do it without a plan.

In our most recent exchange she wrote that she was, “at an absolute standstill.”  She thought it was because she didn’t know how to market the concept (although there are two physicians who have already agreed she has an interesting business in mind and one specialist has gone so far to offer to help market her business through his web presence).  But, in my view, she’s at a standstill because she hasn’t answered the four questions appended above.

She’s going to write the plan and I have offered to act as her sounding board.  The hardest part of planning is getting the first words on the paper, so much like she plans to be a patient advocate, I will be her “planning advocate.”  I will post on her progress here and hope to be able to announce the launch of her business in the not-too-distant future!

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Household financial management

I am putting together a financial management system for our household.  In the great words of one of Canada’s most respected think tanks, The Fraser Institute, “if it matters, measure it.”  We’ll be measuring our budget and keeping it simple.

Here is our system.  Use it, plagiarize it, criticize it or tell me what you do. 

(1)    We put together a system of accounts which is on a cash flow basis (both my fiancé and I receive the cash from our incomes several weeks after we earn it)

a.       Revenue which equals our combined income (as opposed to sale of capital assets).

b.      Expenses

  1. Cars – including fuel, insurance and maintenance
  2. Clothes
  3. Dog – all expenses related to our puppy
  4. Entertainment – including everything fun except going out to restaurants
  5. Groceries – all non-restaurant food items
  6. Household – all expenses related to the roof(s) over our heads
  7. Miscellaneous
  8. Restaurants
  9. Savings – in accordance with The Wealthy Barber this should be no less than 10% of your income (I like it to be 10% of gross income, not net)
  10.  Tax Provision – our income taxes are not deducted at source, so we need to put aside enough cash to cover our tax liabilities.
  11. Travel – personal travel including vacations and trips to visit family

c.       Net cash flow

(2)    Our accounts are listed in an accordion file folder that holds up to sixteen accounts (good for when we add more)

(3)    We collect receipts for everything we purchase whether paid for by credit card or by cash.

(4)    When we come home we each file our receipts under the most appropriate account

(5)    At the end of each month I enter the receipts into our chart of accounts, give my fiancés credit card receipts back to her for reconciling against her credit card bill.  I keep mine for reconciliation.   I throw out (recycle) the cash receipts.

(6)    We measure our actual results against our budgeted results and determine where we need to make changes.

This is a very easy system to follow, only takes a few minutes per month, ensures you know where your money is going and helps to monitor your savings. 

Let me know what you do.