What’s more important, experience or education?
Why choose just one when you can reap the benefits of both?!
In this article, we compiled the most useful and relevant wealth management tips we could find from experienced startup leaders to educate you on how to handle all the financial planning questions that are bound to come up in both your personal and professional life as a founder.
Save yourself some trouble and a lot of time — just keep reading for the best wealth management advice from other founders like yourself who have already been there and done that.
Why Wealth Management Matters for Startup Founders
As a startup founder, you’re in a unique position.
If all goes well, at some point you’re going to have an opportunity to handle a lot of money — whether that’s money you’ve raised or money you’ve made via sales.
While having a lot of cash dropped into your lap can of course be a great challenge to have, if you never learn how to manage your and your business’ wealth effectively, it can be a challenge that ultimately puts you out of business or, worse, in serious personal debt.
In many cases, wealth is the fuel that goals need in order to become a reality. Wealth management is the key to maintaining and growing that goal-fueling wealth.
How you manage the wealth your startup generates is important for growing your business, hiring employees, spending what you make efficiently, staying legal and compliant, and more.
And as your own wealth (hopefully!) grows along with the success of your startup, everything from asset management to estate planning becomes vital if you want to reach both your personal and financial goals.
4 Wealth Management Tips for Running Your Startup
On that note, here are several tried-and-true tips for founders — from founders! — that will help you manage financial assets within your business effectively.
Maintain Your Runway at Any Stage
In startup lingo, runway is the length of time you can stay in business with the money you have in the bank. It’s determined by dividing the amount of money you have by how fast you spend it each month.
So, for example, if you spend $10,000 a month and have $50,000 in the bank, it’s reasonable to say your runway is five months.
Runway is typically a term used for startups that still aren’t generating enough of a profit to remain solvent without outside funding. And while it’s especially important that these businesses are careful about calculating and maintaining a strong runway (you should figure out your own, but 18 months is common for small startups), it’s important that even larger organizations stay vigilant when it comes to how much they have to spend, how much they’re regularly spending, and how the difference between the numbers will impact their ability to grow and/or ride out tough times. It's one of countless reasons to always be mindful of your risk tolerance.
“Getting money in the door is great, but high expenses can blindside you if you’re not putting money away for a rainy day,” said Nathalie Lussier, Founder of AccessAlly. “Having a buffer in the bank gives you confidence that you can keep the doors open long enough to get more cash into the business, and it also helps reduce entrepreneur stress.”
Bill Your Partners Consistently
In addition to having cash set aside, having cash coming into your business on a regular basis — or at least on a predictable basis — is key.
What can you possibly do to ensure this is happening?
You can take a tip from Aaron Schwartz, Founder and CEO at Modify Watches, when it comes to wealth management:
“We have small and big partners, from local boutiques to the Major League Baseball Players Association,” Schwartz said. “When we started Modify, we had stated payment terms, but were always flexible with partners. Ultimately, the lack of clear policies significantly impacted our business. Not only did we create more work through negotiations but we also lost track of receivables, which puts us at a risk with cash.”
To sum it up: Have billing terms and stick to them no matter the partner — or risk running low on cash and wasting a ton of precious time going back and forth to collect payments.
Remember That Cash (Flow) Is Still King
If you didn’t get the point above, allow us to reiterate: Cash flow is vital to running a successful startup.
But before we dive into the founder tip that proves it, here’s what you should know about it.
Cash flow is “ … the money that is moving (flowing) in and out of your business in a month.”
Cash flows into your business when you make a sale to a customer or fulfill an order for a partner. Cash flows out when you pay business expenses (which come from loans, rent, taxes, etc.), pay employees, and more.
A common way for founders to improve cash flow is through equity compensation — which means giving employees a partial stake in the company in lieu of a higher salary.
Because you want to maintain a positive cash flow, meaning more money is flowing in than is flowing out. After all, you can’t pay off your liabilities or fund any growth tactics if you don’t have enough money in the bank to cover them — or at least you can’t for long (and without ruining your personal credit).
Just ask our next founder. It’s especially important that small businesses understand and maintain a healthy cash flow, because when you’re just starting out — well before it's time for an IPO or any other big liquidity event — your sales will likely be smaller and you’ll unfortunately also have a harder time getting loans or other funding.
“I wish someone had told me that P&L isn’t the only indicator for the health of your business— looking at and managing your cash flow is at least a weekly activity,” said Raoul Davis, CEO of Ascendant Group. “Just because you’ve got big contracts coming in doesn’t mean you’re safe. If you ever want funding, you have to be vigilant about managing your cash flow and keeping your daily account balances high.”
Hire Professionals to Do What You Can’t
What can we say that Derek Flanzraich, CEO and Founder of Greatist, doesn’t already say so eloquently?
This is where our wealth management tips and our home renovation tips intertwine: There will be things you don’t know how to do (such as accounting — or electrical work). Learn how to recognize them quickly, learn how to get over yourself and admit defeat, and learn how to source awesome professionals who can take over when handling certain matters becomes a waste of your time and sanity.
And in addition to an improved quality of life and workplace culture, there’s another reason to go with the pros when business becomes complex: you need legal advice to stay ahead of regulatory issues.
Take it from our next founder, a financial pro himself, that there is probably a lot that you don’t know about regulations and laws when it comes to running a startup:
“If you’re not clear on your regulatory obligations, beware of missed deadlines, costly fines, and time wasted attempting to correct these issues,” said David Ehrenberg, Founder and CEO of Early Growth Financial Services. “Startups are responsible for more than state and federal taxes; look into franchise fees to the state in which you are incorporated or established, state and local business licenses, 1099 filing, and 409A valuation for companies with employee options.”
If you didn’t catch most of that, you know it’s time to hire advisory services. Because some professionals can do what you can’t.
When you focus on running your business and letting the professionals you hire do their jobs to keep you above board and on track, life will be a lot better for everyone involved.
7 Personal Wealth Management Tips for Founders
Once you have a system in place for managing your startup assets, it’s time to switch your focus to making sure you’re effectively managing your wealth in your personal life.
Manage Your Wealth in One Place with Kubera
This insightful Twitter thread from Loom Co-founder Shahed Khan is chock-full of advice and recommendations gleaned from his experience in the startup world. And while we’ll explore many of his tips in this section, let’s start with one of our favorites: Tracking your wealth portfolio using Kubera.
What is Kubera?
Kubera is the only all-in-one portfolio management dashboard that’s built to meet modern demands.
Kubera’s custom infrastructure includes a variety of financial aggregators so you can connect almost all of your different banking, brokerage, crypto, and other accounts (see ‘em all here) to monitor your assets and how they change and grow over time.
Interested in tracking individual stocks or cryptocurrencies? Add Kubera’s trackers to your dashboard to always keep an eye on the market.
In addition, flexible fields make it easy to manually input and track any other kind of asset — from a domain name to a valuable piece of art — so you can see a complete picture of your net worth. Plus our integrations with leading asset experts (such as Zillow in the U.S.) enable users to track the real-time market value of your homes, vehicles, or web domains.
Finally, Kubera’s automated currency conversion feature means you can input assets in their native currency and choose your preferred currency to get a real-time view of your overall wealth.
There are multiple ways to get started with Kubera today. Sign up for a subscription. Or, whether you’re a financial pro or want to work with Kubera with the help of your financial professional, learn more about Kubera’s white-label solution.
Consider Secondary Sales if Business is Going Well
In the same Twitter thread mentioned above, Shahed Khan also spoke of using secondary sales to “de-risk yourself financially” as a founder.
A secondary sale is the practice of selling your shares in your company before selling the entire company (if you plan to do so). While this can be a way to reduce your ties to the company — it’s also a great way to free up some of the cash you need to keep your startup, and yourself, afloat.
Khan notes that you might not have to look far for buyers when it comes to a secondary sale, as existing investors are often interested.
He also goes on to give lots of great insight and advice about secondary sales, but the piece we’ll focus on here is his ultimate recommendation to talk to a legal advisor as well as a CPA with experience in startup transactions to make sure you’re maximizing your results and covering your bases.
While secondary sales were once looked down upon as a sign of a founder’s lack of confidence, Khan’s commentary further shows that the tide is turning on this opinion and that it’s a viable element of wealth management planning.
Keep Saving for Retirement, No Matter What
This is (almost) the last time we’ll mention it, but in his epic Twitter thread Khan makes another recommendation that we just have to shout about: Founders should continue to make the maximum contribution to their IRA (or whatever type of retirement account they choose) every year! In 2021, the limit is $6,000 for people under 50 and $7,000 for people older than 50.
IRA stands for individual retirement account. An IRA is an alternative to an employer-funded retirement fund such as a 401(k).
For many people, a non-self-directed IRA that’s managed by a broker or robo-advisor is a great fit.
But if you know what you’re doing, Khan recommends going with a self-directed IRA which gives you the power to make your own investment decisions and also cuts down on the fees that a broker would normally charge.
Startup life can be risky and uncertain — keep investing in your retirement fund so the state of your future isn’t.
Diversify Your Wealth Assets
It wouldn’t be a well-rounded round-up of wealth management tips if we didn’t talk about diversification!
Diversification is the practice of investing your wealth in various sectors.
Why bother? Because a diverse portfolio full of uncorrelated assets (as Robert Blecher mentioned above) is the key to a healthy and forward-looking investment strategy. That's because it's better equipped to ride out the unpredictable ups and downs that impact all asset classes. For example, if the stock market goes down but you’re also invested in art and crypto that is doing well, you don’t have to worry about the value of your entire portfolio crashing.
Typically, portfolios with a thoughtful mix of diverse wealth assets generate better returns and experience lower losses than those that are poorly diversified.
Have a Business Plan for Your Personal Life
We don’t want to dole out any militant advice here, but we really clicked with Imagine Easy Solutions and SOTA Partners Co-founder Neal Taparia and his wealth management tip to treat your life — yes your personal life — similar to how you treat your startup.
We’re not saying you have to clock in and out for every daily task or tell your spouse to put some time on your calendar if they want to chat.
What Taparia’s advice all boils down to is committing to a few key wealth planning and investment management steps: figuring out your major life goals, working backward to establish a reasonable roadmap to reach each goal, and evaluating progress monthly.
Use Your Network to Hire Out the Tough Stuff
Following along with the above point to treat your life just a little more like a business for entrepreneurial success is a tip that echoes another we saw in the business wealth management section: Hire wealth advisors for the stuff you don’t want to or don’t have the expertise to handle.
We like Loom Co-founder Shahed Khan’s take on it:
“Hiring a CPA: Reach out to your immediate network & ask who they use. Interview a ton of people. I highly recommend hiring someone who has direct experience in handling founder/employee liquidity (vs. a generalist CPA). It'll save you money & headaches in the future.
“Hiring a Financial Advisor: Lean on your network and investors for intros. Don't be afraid to fire your advisor if they aren't producing results. Fees can have a wide range based on your total AUM. ~1% is typical, but fees add up over time.”
Just like you would in your startup, carefully select the investment advisers you want to work with and trust them to do the tough stuff. For instance, you may want to tap a registered investment advisor as a fiduciary. And if you have kids (and a high net worth) it could be worth commissioning a family office.
But treat wealth advisory experts like you would any other partner and hold them accountable to provide the support and results you expect.
Unpopular Opinion: Decide How You’re Going to Spend Your Money — Before You Even Make It
What better wealth management tip to end on than one that’s a little unconventional?
Founder of Agency Growth Secrets Josh Harris recommends founders spend their money before they make it — mentally, anyway.
“Someone once told me, ‘If you don’t know how you’re going to spend your money, then you’re never going to make that money.’” said Harris. “I’ve tested this theory myself and with others, and it has held true.”
If you look at his advice, it really does make a lot of sense!
What Harris is really saying lines up again with treating your personal life more like a business. He’s advising that instead of just planning to make a “lot” of money, you should choose a specific amount and then outline why you want to make that amount — which requires you to think about how you’re going to spend it before you’ve actually even seen a nickel of it.
Thinking this way helps founders, and everyone else, think a little more carefully about what’s important to them in life and how much profit they need to generate to support the things that matter.
Keep Learning About Wealth Management
Since we know how important of a topic it is, our tips on wealth management don’t end there.
If you’re still quite new to the practice of managing your wealth and could use some practical investment advice, check out our guide on How to Manage Your Wealth for Beginners.
For another round-up of financial tips from the pros, check out Wealth Protection: Financial Experts Share Their Tips.
And if you’re ready to finally track down the best tool to help you with wealth management, be sure to read How to Choose the Best Wealth Management App in 2021.
