These entrepreneurs make millions of dollars, but they wouldn’t be worth what they are now without clear financial strategies. We asked them for the best piece of financial advice they had to offer to another entrepreneur.
Here’s what they said.
Get super rich
You don’t need to just get rich. You need to get super rich. Entrepreneurs need to stop thinking about R800 000 or R5 million. Think tens of millions — north of R300 million. The definition of entrepreneur is someone who puts their money at risk to make more money. Entrepreneurs need to redefine what ‘more money’ means.
— Grant Cardone, top sales expert who has built a $500 million real estate empire, New York Times bestselling author of Be Obsessed or Be Average, and host of The Cardone Zone.
Look for a 5x return on everything
Some investors have so much money to invest that they push their entrepreneurs to spend the money to ‘scale’.
My advice: Raise their money, but don’t use it unless you know that every rand spent brings in five. If you aren’t spending for at least a 5x return, you should be saving for a rainy day. — Tim Draper, founding partner of DFJ.
Spend money to make money
Money is made to be spent. Don’t desperately try to hold onto it like it’s scarce, otherwise you’ll miss opportunities that can change your R1 into R10. Pick your best shots, plunk down your money and take a chance on it. Don’t hang onto too much money. It has very limited utility just sitting in a bank account. Spend it and see how far it can take you. — Barbara Corcoran, founder of The Corcoran Group and one of the Sharks on Shark Tank US.
Buy and hold
Mentally divide your financial strategy into two parts: Positive cash flow and owning long-term wealth-creating assets. Don’t mix them together.
To create positive cash flow, you must have a skill that’s relatively rare and in demand. Positive monthly cash flow doesn’t have to be that much; it just needs to be enough to survive and not stress you out. Then you can be patient with your long-term wealth-creating assets because you have the cash flow.
For example, a lot of people buy real estate just to ‘flip’ the properties, which is fine if your full-time business is the real estate flipping game. But if you ask Warren Buffett, the real way to create long-term wealth in real estate and the stock market is via a ‘buy and hold’ strategy. You buy solid businesses and real estate with solid rentals, hold them for a long time and let compound interest (which Albert Einstein said is the eighth wonder of the world) work on your behalf. — Tai Lopez, investor and advisor to many multimillion-dollar businesses who has built an eight-figure (US dollar) online empire.
Related: Build A Financial Model
Learn to invest early. Budget a portion of your income to automatically be deposited into an investment account with the lowest monthly fees. Once the account pools up, make your first few investments right away. Most entrepreneurs make good money but never put it to work for them. I only work for money to acquire assets and have the money work tirelessly for me. Passive income is the only way to become wealthy. High earnings won’t change the future, only passive income with consistent growth eventually offsets all your living costs and gives you a high quality of life. — Com Mirza, CEO of Fitness Expo Dubai and ‘The $500 Million Man’; failed in eight companies back-to-back and today runs a nine-figure (US dollar) empire with more than 600 employees.
If you don’t change, you won’t survive the ever-changing business world. That doesn’t just include new technology or a new advertising model, but also the business model, which has always been the core of failures in businesses. Kodak and Betamax both failed because they didn’t evolve. — Jay Georgi, founder of Nadvia and operations/management/profits-retention coach.
Build from the ground up
Success has a formula: You must focus on what is in front of you. Human nature is immutable and we are programmed to avoid a loss. It’s common to fear the unknown future of entrepreneurship. My strategy is to build from the ground up. As the son of a contractor, you learn that the building is only as strong as the foundation. In my practice, delivering solutions that save individual employees thousands of dollars creates indirect savings of millions of dollars for the organisation. We benefit everyone in the organisation by focusing on how to improve the financial well-being of individual employees and their families. — Craig Lack, CEO of ENERGI and creator of Performance Based Health Plans.
Invest in people
Hire the best talent you can find for your company, who will become extensions of you. It’s okay to invest in good salaries if that gets you the right team players. Invest in people and don’t think small. You’ll only grow with the right people. To be the best, you must hire and nurture the best. — Manny Khoshbin, president of The Khoshbin Company and author of Contrarian PlayBook; arrived in America at 14 nearly homeless and now has a nine-figure (US dollar) net worth.
Know your numbers
Entrepreneurs are naturally enthusiastic and see the very best possible outcome. They don’t need encouragement. However, they don’t often know the numbers. They’re so focused on their outcome that they don’t see the lag time and the cash flows required to maintain the process. They also don’t bank the money, but spend it before they have earned it. Have a really good accounts team that gives accurate, timely, effective information so you can make great decisions, create the leadership required as an entrepreneur and, ultimately, true and consistent success. — Roy McDonald, founder and CEO of OneLife.
Cash flow is king
Turnover is vanity. Profit is sanity. Cash flow is reality. Focus on profitability and remember that cash flow is the lifeblood of business. Have strong cash management strategies in place at all times, including: Minimising cash tied up in the operating cycle (receivables outstanding and inventory held), increasing gross margins where possible, negotiating extended payment terms, holding cash reserves, and having bank or other credit facilities available for times of cash flow crisis. — Adèle McLay, business growth consultant, author, and speaker.
Be positive about your finances
Spend as much time as you can feeling like you have all the money you need or desire to take your business to the next level. Be positive about your finances. As Roy said, find a good accountant and bookkeeper — someone who can speak your language. Finance has a different vocabulary, but a good accountant will be able to communicate with you so that you understand. — Katrina Palandri, co-founder and CFO of AEG Investments.
Outsource with confidence
Obtain definitive timelines and firm costs when you are outsourcing work. Determine who is responsible for overages and what the remedies are for missing the target you establish. I have found that it is so much better to have an understanding now, than a misunderstanding later. — Jon Braddock, founder and CEO of My Life & Wishes.
This article was originally posted here on Entrepreneur.com.
Kathryn Main On Entrepreneurial Finances
For Kathryn Main, turning a passion into a pay cheque came out of a huge learning. As a mom of three with no more than a Grade 9 education, Kathryn Main came from nothing, lost everything and then rebuilt her life again at age 30 through financial education.
Kathryn spent years drowning in debt and as a result, she was blacklisted for eight years with no access to finance or credit. On a mission to clear her name, Kathryn dedicated herself to getting to grip with her finances and learning the do’s and don’ts.
Kathryn says that during her battle of being black listed, she paid off all her debt diligently over a four-year period (half the time that it took to make it). “I made a commitment to each creditor and paid as per my agreement. When I had extra disposable income it all went straight into paying off my debt” she says.
On her journey, she was amazed to see how many people were too going through the same thing. “In South Africa, there are more people with debt than with jobs. Our out of control spending habits and the ‘buy now, pay later’ habits have spiralled out of control,”
Realising that parents are the biggest influencers on kids and that these bad habits had been passed on through the generations, Kathryn made it her mission to not only educate herself, but to start engaging on the importance of teaching financial literacy to kids and speaking openly about finances in the household.
With a firm belief in the difference that raising money savvy kids could make, what started off as a passion project has evolved into a business and today MSK partners with various big corporates to develop custom financial literacy content – all developed by Kathryn’s full-service advertising agency, Main Multimedia.
Kathryn talks to some of the financial biggest lessons that she has learned as an entrepreneur:
- Make sure to have a separate bank account for your VAT. SARS wants their money on time and if you don’t pay they take money out of your business bank account
- Never empty the bank accounts. Debit orders and payments are always going off. Bouncing debits and payments gives you a poor financial credit score so getting finance when you need it becomes impossible
- Don’t use your business account as your personal bank account. Pay yourself a salary and budget properly. Using business cash to supplement your over spending leaves less money for legit business expenses
- Always use a book keeper to ask for money. Asking for money from clients’ ruins relationships
- Make sure you are very clear about your credit terms with your customers.
After a long financial journey, Kathryn says that she does believe that banks are actively trying to be better for entrepreneurs. “I foresee a lot more support and understanding for our ventures in the next few years.”
Kathryn shares five financial tips for entrepreneurs in SA:
- Keep an updated budget that you review and amend on a monthly basis. This way you always know the situation you are in and how much money you need to make to break even or make a profit
- Always pay the tax man
- Cash flow management is extremely important. Billing out quickly and money in on time is essential
- Contracts with clients around payment terms are necessary.
How You Can Make Your Unit Trusts Work For You
How investing in unit trusts can help you build your nest egg while remaining focused on your business.
What should be an investor’s strategy when it comes to unit trusts?
A financial plan starts with clearly defining your objectives. It’s easier to get what you need when you know what you want. Unit trust funds are regulated investment vehicles that can meet the full range of investor needs. Once you know how long you want to invest, it becomes possible to narrow down to the appropriate set of options.
The key thing to get right is to take the level of risk appropriate to your needs. Taking on too much risk means that you may have less capital than expected when you need it. However, too little risk and you will eventually end up with much less capital than was possible. Generally, investors are well served with an investment in multi-asset funds (also called balanced funds) with a suitable risk budget.
These funds are diversified across all the asset classes and require less ongoing decision-making from the investor’s point of view and can be more responsive to a changing environment. This allows you to focus on building your business and getting on with your life while your nest egg accumulates over time.
South African investors are privileged to enjoy access to a vast number of unit trust funds, easily accessible via various investment platforms. The law of unintended consequences, however, can cause investors without a proper investment strategy to use inappropriate funds to address their needs. To ensure that a investor selects a suitable unit trust fund, the investment strategy should focus on the term of the investment, appetite for risk, as well as the possible future investment withdrawal requirements.
This could provide the investor with insight into the type of funds to include in the portfolio to ensure a desired future outcome. Investors must gain insight into the mandate of the funds considered, to ensure that the fund strategy is aligned with the investment strategy.
Dr Vladimir Nedeljkovic:
Investors today are exposed to a bewildering choice of unit trusts and other investment vehicles (ETFs, hedge funds, linked policies etc.), utilising different investment approaches (single manager, multi-manager, active, passive, smart beta…), and investing in various asset classes (equities, bonds, property, multi-asset/balanced). For non-professional investors, this choice may potentially prove paralysing.
One way to deal with this ‘paradox of choice’ (an observation that more choice often leads to sub-optimal decisions) is to focus not on the funds themselves, but on the actual needs motivating the investments. Every investor should, inter alia, reflect on the following questions: What am I investing for (a holiday, a car, my children’s education, retirement)? When will I need the money (is my investment horizon one year, five years, twenty years and so on)? How sensitive am I to investment losses (what is my risk profile? Am I prepared to risk ups and downs in my current investment returns for the potential higher returns in the future)? Only after answering these questions can the process of selecting the appropriate investment vehicles and strategies start.
Related: Equity or Property Unit Trusts?
How does this differ from other investment vehicles?
Each investment vehicle is associated with a unique set of rules. Before investing in any investment vehicle, it is important to understand the rules of the product. What stands out about a unit trust investment is the fact that the product is open-ended and that investors have access to their capital. In contrast to retirement investment products, no asset allocation restrictions apply, which makes the investment vehicle appropriate to address a vast number of investor needs.
Investor strategy is not defined by the vehicle used to implement the plan but by your needs. The primary benefits of investing in unit trusts over other options relate to transparency, investor-focused regulation and liquidity. All the fund managers offering unit trusts have to disclose detailed information about funds in a standardised and comparable format (think objectives, risks, approach, fees and past performance).
This information is always just a Google search away for all funds. Unit trust managers have a statutory duty to act with skill, care and diligence in the interests of their investors. If you want to change providers, you can do so at will, with your money back in your bank account in a couple of days, in nearly all cases without incurring direct exit or switching costs.
Collective investment schemes (CIS) are investment products allowing multiple investors to pool their money into single portfolios. Long-only, standard unit trusts were the first CISs to be offered to investors in South Africa (today there are other collective investment schemes available, such as Exchange Traded Funds (ETFs), hedge funds, and so on). With collective investment schemes, each investor has a proportional stake in the CIS portfolio, based on his or her contributions. They are, therefore, suitable for investors who do not have the time, money or expertise to make direct investments into the market.
What research should an investor do before choosing the right unit trust investment for their investment goals and risk appetite?
When selecting their investments, investors often try to time the market and focus only on the funds with the best recent performance. This can lead to overall suboptimal investment performance. Research shows that due to reversion to mean, the best performing funds over one period are more likely to underperform over the next one. In contrast, investors should start with defining their desired investment outcomes (discretionary or compulsory, time horizon, return targets, risk appetite) and, in conjunction with a financial advisor, select the fund managers and funds that have the highest chance of satisfying those outcomes.
The textbook answer will be to define an investment strategy and then to evaluate the different implementation options by researching the 5Ps (philosophy, process, people, performance and price). This can be a tedious and time-consuming task, so many investors choose to delegate this decision to an advisor. Others short-hand the process by relying on well-known managers with a proven investment track record or alternatively to have no manager at all and putting their faith in the efficiency of markets by investing in a passive fund.
The key issue is finding a partner that you can trust to look after your interests in what is in essence a multi-decade undertaking with an uncertain outcome. As an aside, the debate between active and passive managers is fairly noisy and very public. It is important that you have a good filter to interpret the information you find online. Active managers try to beat the market, while passive managers attempt to replicate the market return. Both sides will point to the power of compounding to support their case. A difference of just more than 1% in the rate of return achieved can add up to 50% to the value of your capital at retirement. Passive managers will emphasise price as the key evaluation metric, while active managers will emphasise value (defined as the after-fee return received by the investor). At Coronation, we have a high conviction level that value will continue to trump price over the long term.
Related: The Truth About Unit Trusts
As a starting point, it is important to gain insight into the investment philosophy of the management team of the funds considered. Investors must understand the objectives of the funds. This would definitely require them to do some research on the fund manager considered. There are a number of risk measures that can be analysed. Be careful to not focus only on the ‘winners’ as historic performance is not always a true reflection of possible future outcomes. Spend some time to understand your own investor behaviour, specifically focusing on your tolerance for volatility, and your need for a certain outcome. Once you have done this, you will be one step closer to knowing which type of fund would suit your needs.
What should investors with a low appetite for risk consider?
In general, such investors should consider money market funds or balanced funds with a lower percentage of equity holdings.
The most important question you should ask yourself is whether your risk appetite (your willingness to take risk) is aligned with your ability to take risk. If your investment portfolio is more conservative than is necessary, you are likely to incur a significant opportunity cost in the form of foregone returns. Investors who need both income and growth from their investment portfolio (i.e. most retirees) and investors wanting to fund near-term or medium-term commitments are the investors who typically face the most significant risk constraints.
Retirees need balanced portfolios with some form of downside protection against extreme market events, which would typically be described as medium or low equity balanced funds in the unit trust context. Investors with near-term objectives should consider managed income funds.
I am always tempted to have a conversation with risk-averse investors about the fact that shying away from assets perceived to be risky can actually cause them to increase the risk of not reaching their long-term goals. This is especially true after taking into account the effect of taxation and inflation. However, I have respect for the fact that not all investors feel it necessary to take on risk in an effort to generate additional alpha in their portfolio.
This type of investor will benefit from funds with a low-risk classification, consisting mainly of interest-bearing instruments. Care must be taken, even within the funds classified as low-risk, as there are instances where short-term shocks are still experienced within some of these funds, especially in the case of rapidly increasing interest rates.
What should investors with a high appetite for risk consider?
Be mindful of the investment term. I cannot emphasise this enough. Short-term investments should not include assets associated with volatility. If you have a high appetite for risk, give your investment portfolio sufficient time to digest the fluctuations in the value that can occur from time to time. In addition to this, I would also encourage investors to be mindful of the fact that the stock market is not a place in which we play with money. It requires knowledge, patience, and an ability to distinguish between the noise that occurs in the market from time to time and facts that actually play a role in the valuations of shares. Having a high appetite for risk is sometimes your biggest asset, but it can quickly turn into a liability if not managed correctly.
Take enough risk, ensure you diversify across local and international assets and stay the course despite temporary disappointment with investment outcomes. The past few years have been unusual, as equity markets delivered lower returns than expected. Losing faith in shares would be the wrong lesson to draw from this. Periods of weaker return typically coincide with fundamentals that are supportive of better future returns. Those that remain committed tend to do better over time as it is notoriously difficult to time markets. Also make sure that you maximise the tax breaks available to investors. Use your R33 000 annual tax-free investor allowance to invest in long-term growth funds, which will be described as high equity or flexible multi-asset funds.
Vladimir: Investors with a high-risk appetite tend to focus on equity funds, high equity balanced funds, as well as flexible funds and funds providing offshore exposure, depending on their circumstances. Such investors might start looking further afield, into RIHFs (retail investor hedge funds) and similar vehicles.
How much of an investor’s portfolio should typically be in unit trusts and why?
This depends on circumstances. Unit trusts are suitable as the sole investment structure for that portion of your balance sheet invested in listed assets. While entrepreneurs will always be tempted to go all-in to support their business ventures, it makes sense to diversify risk into a more diversified portfolio of investments. Creditor protection is also an important consideration. Holding your unit trusts via a retirement annuity fund may be a suitable response to this risk management need.
This is difficult to answer without having a full picture of the circumstances of the investor, but that percentage is likely to be high, if one combines direct discretionary investment into the unit trusts with the indirect exposure via retirement vehicles.
This information is not advice, as defined in the Financial Advisory and Intermediary Services Act 37 of 2002. Collective investment schemes (unit trusts) are generally medium to long-term investments. The value of participatory interests (units) or the investment may go down as well as up. Past performance is not necessarily a guide to future performance. Collective investment schemes are traded at ruling prices and can engage in borrowing and scrip lending. The collective investment scheme may borrow up to 10% of the market value of the portfolio to bridge insufficient liquidity. The Managers do not provide any guarantee, either with respect to the capital or the return of a portfolio. Different classes of participatory interests may apply to portfolios and are subject to different fees and charges. Any forecasts and/or commentary in this document are not guaranteed to occur.
7 Things Every Entrepreneur Should Know About Managing Cash In The Business
Every entrepreneur needs to know how to prepare for cash, manage it effectively and mitigate fraud.
Cash is complicated. It can’t be tracked properly, it opens up avenues for fraud, it gets stolen, and it is difficult to manage. It’s also an unfortunate reality that, in South Africa, cash payments and transactions are both inevitable and essential. So how can the entrepreneur overcome the challenges of handling cash? Here are seven ways…
There are many ways to manage payments in the market today. You can Snapscan, you can Zapper, you can EFT and you can use an app to send money from a wallet to a mobile number. The problem is that none of these options recognise the fact that cash is still the leading method of payment in most markets. So, to really accommodate cash, the entrepreneur needs to look to digital solutions.
You can still physically collect cash, but digitise the transactional information so that you can easily identify the transaction and reconcile the cash collector.
2. Protect the consumer
Ensuring that every cash transaction is tracked digitally means that you are protecting the consumer if the cash or transaction are lost. There is always the question – how can you service your customers post-payment without proof on your side? Ensure that your cash transactions are audited and accounted for to ensure you can recon accurately.
3. Don’t be a target
High collection points – those points where a lot of cash is collected and held – tend to become targets. Try to avoid putting your business in line of sight by using tools that can either limit the use of high collection points or that can alert the relevant security authorities if a theft occurs. Again, it comes down to digital tools to monitor, track and alert the right people at the right time.
4. Teach your customers
It’s one thing to invest into a bevy of tools and services to protect your transactions and consumers, another to let consumers make any number of silly mistakes. Teach your customers about fraud, potential risks, things to look out for and trust. They shouldn’t hand over their cash without the collector using the right tools or app and should be wary of any transaction that doesn’t have these protections built in.
5. Test and adapt
Invariably, those who want to commit fraud are equally committed to doing so. They will find loopholes and gaps that allow them to take advantage of you and your customers. Your best bet is to constantly test and adapt your systems, to build metrics in-house that measure inconsistencies and report back on any issues.
People are very creative and will find a way of helping themselves to cash that isn’t theirs.
Cash is expensive to manage so find ways of negotiating better deals with banks so you get the best fees. Cash-in-transit is expensive, but often necessary when it comes to large cash deposits.
7. Invest in a payment solution
Digital payment solutions aren’t always possible, but try to employ one that is easy to use and that can be gradually introduced to your customers. Adoption may be slow – it can take years to achieve low cash/high digital payments – but it will benefit you and your business in the long term.
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