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A fresh start. It’s what many people are aspiring to after 18 months of collective uncertainty and work-related burnout. If you’re in this camp, you’re not alone; according to a survey of American workers conducted by Monster.com in June, a staggering 95% of respondents considered leaving their job this summer, and “quits data” from a recent U.S. Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey suggests many workers are going through with these plans. In August, 4.3 million people, or 2.9% of the workforce, quit their job — the highest reported figures since data tracking began in 2000.
Professor and organizational psychologist Anthony Klotz coined the term “The Great Resignation” to describe this unprecedented employment departure, and he and other economists initially pointed to stimulus checks and rent relief as prime causes.
But as a financial planner who helps clients use money to have the life they want, I’d suggest that these “quitters” were also provided by the pandemic a chance to sit back and plan the life they want… to find new ways to work and new opportunities to make money, ones that create value. Our fiduciary team at BFS Advisory Group spends its days advising entrepreneurs — many of whom are women and high-net-worth individuals — and has certainly had more conversations than usual about starting or changing a business. While each client’s individualized financial plan aligns with unique values, we recommend those considering joining the Great Resignation to begin with the following building blocks.
1. Create a financial plan for you, and a separate one for your company
We have all heard of entrepreneurs who “bootstrapped” a business. While protagonists in such stories inevitably have impressive tales, largely untold are the myriad accounts of new owners who pour their life savings into a company, only to have it fail. So, we recommend separating individual/family from business finances. It’s good to give your enterprise “your all”, but dangerous to have business and personal finances “all in one”. Instead, create a distinct plan for the company, and another for you and your family, especially if you have others depending on you.
In the process, honestly assess what you need to grow the business and what you need to live your daily life. And pay yourself an income, to be sure, even if it’s simply repaying the same money you loaned your business, but when cash flows back and forth between business and personal accounts based only upon which one needs it most, unnecessary risk is created, particularly as the balance sheet and cash flow grow.
2. Conduct an existential inventory
Part of our job as financial advisors is to give tough love to clients, including anyone considering starting a business. That means asking tough questions.
A few to get you started: Are you running toward something or away from something? Do you know what success looks like in your industry? Do you have the resources to be able to achieve it? How will you objectively measure success? Answering these honestly will go a long way towards planning how you will succeed and how you will hold yourself accountable, especially if things don’t go as planned.
3. Give yourself a head start
We all love the stories about tech giants launched in an unheated garage. Startup lore is enticing, but savvy entrepreneurs know to stash suitable resources, including cash. A healthy reserve provides flexibility, so you can make the best decisions in any moment. Bootstrapping business owners may not be able to hire the key person they need to grow, or invest in the new product line that will explode a business, or take advantage of an opportunity that comes along. With the right amount of cash, you can still say “No” if a decision isn’t right for growth, but you can also say “Yes.” A strong banking relationship can provide access to this capital reserve through a loan or line of credit if you don’t have it on hand.
4. Know your risk tolerance, and risk capacity
Sure, entrepreneurs are known for being unafraid to take a plunge, but it’s important to understand and assess the difference between your risk tolerance and risk capacity. The former refers to how much risk you can mentally handle before pulling the ripcord, while the latter is how much you can financially handle before you crash and burn. Risk capacity is different by person and by goal. If your business takes $10,000 per month to operate, but you only have $10,000 in the bank, you have limited risk capacity, even if your tolerance for it is high. Restaurant owners, for example, are known for having a high tolerance, but what if their cash reserves (i.e., risk capacity) couldn’t support being closed once COVID hit? If your risk tolerance isn’t bolstered by capacity, you may not be able to reap the rewards of taking a risk in the first place.
5. Plan for day two of an emergency
Life happens when you least expect it. As a business owner, you can’t predict when an emergency will hit, but you should plan a response for when it does. So, take time to figure out what can derail your company and what you will do about it. We develop “break the glass” plans with our business clients — an examination of “what if” scenarios, from the death of an owner to a buyout offer, then design tools that help manage them.
If you’re ready to move from employee to owner, congrats, but before joining the Great Resignation, consider the life you want and shore up a financial plan that will help you get there.