6 Ways We’re Managing Our Finances and Our Emotions While Starting A Business

by Silicon Valley Blogger on 2007-04-0521

I’ve related our story time and again about how my spouse has been bitten by the high-tech startup bug. What I haven’t mentioned before was that this is his second jaunt into the world of financial uncertainty, cultivating a glimmer of an idea that may just be worth the risk and enticing us that it’s going to be better this time around. The last time he did this, it took 10 years before something positive panned out, after which he took a nice, stable corporate job that made me sigh with some relief.

So when that that day came in the summer of last year, when out of nowhere the spouse proclaims that he’s got the itch again, I’m once more having a bad case of deja vu. What follows were some angst-filled torturous discussions centered on one subject: MONEY.

After all, it was not just the salary that was going away — it was also the generous benefits, the ESPP plan, the annual option grants and decently matched 401K. All those concrete perks that took care of us all these years have now been replaced by pure faith over an idea that’s still in draft mode.

Now that we have gotten over the shock of change and my grief over the shelving of a nicely constructed 10 year life plan, we have settled into our new roles at home and in the financial front, and are now simply concentrating on the future. I will admit that for a while, I was consumed with thoughts of what we had lost: security, predictability, smooth sailing towards a healthy retirement. But since I lost this battle — I feel like Lynette Scavo in the show “Desperate Housewives” when her husband Tom decides to put all their savings into opening a pizza shop — tentative at first, but now a strong supporter and contributor to this entrepreneurial and household partnership.


So while we’re in the thick of all these developments, what is it that I can impart to you? Maybe some pointers from the entrepreneurial treks we’ve lived through:

How To Manage The Financial Stress Of A New Business or Startup

business risk

#1 Really watch your budget and spend carefully.
You may already be a budget hawk, but you may want to hike up your discipline a notch. Though we’re watching the business spending somewhat, it’ll be harder to control this spigot than we would our household spending given startup costs and requirements. So at this time, we’ve focused on controlling our household budget more carefully. So far, we’ve turned away from the usual temptations that trigger our impulse buying and have been more astute about where the money goes. We haven’t travelled in a while and have instead opted for day trips, and have avoided buying big ticket items except out of pure necessity.

#2 Maintain some liquidity.
It goes without saying that whatever you intend to use as capital should be parked in a relatively safe place. Because of our low cash flow, we’ve decided to keep a good part of our savings in cash to keep ourselves liquid. This is to allow us to pay bills as well as to have something at the ready to fuel the ventures we’re trying to run. Another way to fund a business is through loans and obtaining credit; either way, you’ll need some cash on hand if you’re attempting to bootstrap yourself in the initial stages of a business.

#3 Implement a growth plan that you can be comfortable with.
Pace your growth to keep control of your expenses as well as to preserve your equity. There’ll be that point in the business when more hands may be needed on deck; which means hiring people — most likely, consultants — to assist with the skills gap. It is cost beneficial to hire free lancers when you’re not at the stage to employ full time workers, especially when there’s not enough work for anyone else to be able to productively tackle. We learned that outsourcing to another country can be a risk for a small company at this stage, so we’re staying out of that path for now.

#4 Invest in the business with your own funds but be open to other people’s money.
Nothing lends more confidence to an idea than putting up your own money at stake. Even if the spouse is angling for venture capital down the road, by investing some of our money into his (and his partner’s) company, this allows less dilution in equity once outside investors are invited to participate in the venture. But relying on other people’s money at some point will allow for the option of receiving an income stream once more.

#5 Give yourself a timeframe upon which to make progress.
I mentioned earlier how difficult it was for us to decide to let go of the stability of a paying job, especially for this family of four. The only way I’d agree to it was if the spouse promised to give it a go for a certain period of time commensurate to our agreed upon “business budget and schedule”. The plan is to get investors into play within this time limit and if the idea hasn’t made promising progress beyond this period, then we would have to regroup. We can only rely on a portion of our hard-earned savings built for the last 20 years to tide us over; thus, we have given ourselves between a one to two year timeframe to make things happen. This allows us just enough cushion to cover our household expenses without seriously jeopardizing our future if things don’t work out.

#6 Get part-time jobs, contracting work or other side income to tide you over.
I’ve heard of would be entrepreneurs keeping full time jobs while growing a side business. Legend has it that this worked for Pierre Omidyar, who founded eBay ostensibly by accident as he worked full time while maintaining a hobby that turned into that renowned auction site. But we’re doing the opposite: my spouse has ditched the full time employment for full time risk and what he claims is uninterrupted productivity. In the meantime, we’ll supplement our income with whatever’s available, to ease the financial burden even just a little.

How We Cope With Uncertainty

Instead of looking back, we’re keeping our eye on the hopeful prize. I’d like to add as well, that any kind of entrepreneurial effort of this sort is a team effort involving the entire family. After all, it’s the whole family that sacrifices during the “drought”. So yes, we try to be cautiously optimistic and apply some partial suspension of disbelief. Because no matter what, we’re crossing our fingers that we’ll have something left to show at the end of this experience…for our efforts, sacrifices and the chances we’ve taken.

Copyright © 2007 The Digerati Life. All Rights Reserved.

{ 12 comments… read them below or add one }

Paul April 5, 2007 at 11:17 am

Great Post! I’m an engineer trying to build a real estate business in my spare time. I blog about my exploits as a release of sorts. Even with my job there are lots of financial uncertainties – cash flow is really a struggle between the investing and sale and the whole family bears the pressure.

One area you didn’t mention is the struggle to ignore the business and spend time with family or just relaxing. I tend to work 14+ hours per day and haven’t found a good way to balance work and family in the early stages of a business startup.

Silicon Valley Blogger April 5, 2007 at 1:04 pm

Hi Paul,
Yes, the family vs business vs job obligations all fight for priority given the all too limited resource of time. That was one reason we actually had kids late in life; it was to focus on job, career, business, relationship and building our finances, which in itself was already a juggling exercise. I wish you luck with your venture! I look forward to following your exploits… :)
-SVB

frugal zeitgeist April 6, 2007 at 4:46 am

Good for you; you’re walking into this with your eyes wide open and a solid financial plan. I’ll be interested in watching your progress.

Sun April 6, 2007 at 11:49 am

SVB: I can see you have a solid plan for both your business and your life (not everybody has a long term plan, including me :)). Hope it will help you success!

limeade April 9, 2007 at 5:31 pm

I’m also an engineer that’s interested in real estate investing. It does get difficult to balance all the aspects of life but I’m working on it. I look forward to seeing how everything pans out.

-limeade

Silicon Valley Blogger April 9, 2007 at 9:55 pm

Didn’t realize we’re all engineers here :). I guess we’re all diversifying, right? There should be some interesting developments over the year that I look forward to sharing with you. And I’ll also be checking out how you guys are doing with your investments/businesses.

Ola April 23, 2008 at 5:50 am

Hello,

Paul – you have a very nice blog!
Emotions are very important in business, as much as being clever, smart. Good contact with people and good communication and managing with emotions is helping easily to make a business plans.

David Carter May 22, 2008 at 8:07 pm

Hey, no way guys, I am a future engineer (current student). Were there any updates on this business? I am dying to know. You didn’t even seem to tell what type of business he was looking to start. I am very interested now. I will keep searching the archives, dont be afraid to email me :).

Mystic Madness April 15, 2009 at 12:29 am

i think human beings are as such emotional fools. Also they dont realize this till the time they get deep into some trouble. Definately controlling emotions is one of important aspect. Thanks for the article.

Scott Lovingood July 1, 2009 at 12:38 pm

Any updates? I am a chemical engineer that started a business on the side (a Liberty Tax franchise – two full time jobs during tax season but limited to then) and kept my full time corporate job for 4 years doing it. I can only imagine how tough it would be to go start up full time.

I much prefer the chicken entrepreneur path. Start something on the side, grow it until it is a somewhat known entity and then dive into it to make it grow faster.

How did everything turn out? I would be very interested to know. Since you are still blogging I am going to assume you didn’t end up in debtors prison :)

Chris December 23, 2009 at 7:35 am

Great post. One important thing to realize is that you should set up a business to work for you, not for you to work for your business. Most people start a business and create the worst possible boss….themselves.

Chris

Michelle May 6, 2010 at 2:09 am

I agree with all your tips, especially with Number 1 and 4. My partner believes that getting into business is a big risk, but worth it as long as you plan it well, he also ditched his full time job to pursue his own business. So far, he has been able to put up two pharmacies and both are doing quite good. During the process, or the start of everything he was quite a tight spender, watching everything that goes out of his pocket and only buying things he really needs. Whatever income that comes out from the sales during the first few months went back to stocks, bills etc until finally the income grew till it was big enough for some extra things eventually big enough for the second store. During the growth of his first store some of his family members would eventually offer him cash to help out, and it turns out quite beneficial at times.

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