Ep 6: 3 Things Every Entrepreneur Needs to Understand about Money

3 Things Every Entrepreneur Needs to Understand about Money

In the episode of the Better Than Success Podcast, Nicole Purvy talks about the Three Things Every Entrepreneur Needs to Understand about Money. She uses her experience with working with hundreds of small businesses and startups to hone in on the three most invaluable lessons that most new businesses need to grasp to help their business flourish.

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1) Money is a tool Nothing more. Nothing less.

Money is not real. It has no real value. Its a tool. Its not a thing to love because its not lovable. Its not a thing to praise, its not even a thing to rap about in songs. Once you understand that its a tool just like a wrench or a hammer then you will make better money decisions for your business.

Uses for Money as a Tool

  • Use it to make time and freedom
  • Use it to buy cash flows (and wealth)

2) Know the Difference between ‘Speculating’ and ‘Investing’

In Benjamin Gram’s book “intelligent investor”, the author differentiates the difference between speculating and and investing as
“An investment operation is one which, upon thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative.”
Investopedia differentiates as:
“Typically, high-risk trades that are almost akin to gambling fall under the umbrella of speculation, whereas lower-risk investments based on fundamentals and analysis fall into the category of investing. Investors seek to generate a satisfactory return on their capital by taking on an average or below-average amount of risk. On the other hand, speculators are seeking to make abnormally high returns from bets that can go one way or the other. It should be noted that speculation is not exactly like gambling because speculators do try to make an educated decision on the direction of the trade, but the risk inherent in the trade tends to be significantly above average.”

What i want you to gather from this is that unless you have done research and analysis about your business and industry then you are speculating. I am very much so not in the business of speculating when it comes to my livelihood or my business and I don’t suggest that you do that either.

I want to point out that in the intelligent investor the author points out that anyone has the right to speculate but never commingle your speculation operations with your investment operations and never rely on your speculation money.

Even furthermore, because a lot of new business owners don’t know the difference between investing and speculating they accept investing returns for speculation activity. By the Investopedia definition ‘speculation’ can demand higher returns because it’s more risky. Some small businesses think they’re investing when they’re really speculating because they haven’t done the proper research.

Someone said to me that after listening to this podcast, I came off as well read. I don’t know how much I agree or disagree, it’s all relative but I have read a quote a few books by top business leaders and an underlying theme is that they don’t gamble. Andrew Carnegie said this in his autobiography about gambling:

“I have never bought or sold a share of stock speculatively in my life, except one small lot of Pennsylvania Railroad shares that I bought early in life for investment and for which I did not pay at the time because bankers offered to carry it for me at a low rate. Such a course should commend itself to every man in the manufacturing business and to all professional men. For the manufacturing man especially the rule would seem all important. His mind must be kept calm and free if he is to decide wisely the problems which are continually coming before him What is not, he sees, and what he sees, is not. He cannot judge of relative values or get the true perspective of things. The molehill seems to him a mountain and the mountain a molehill, and he jumps at conclusions, which he should arrive at by reason. His mind is upon the stock quotations and not upon the points that require calm thought. Speculation is a parasite feeding upon values, creating none.”

Now of course we are not talking about individual stocks but this concept can be easily transmuted to running a business because in reality it’s the same thing — you should steer clear of starting a business that you speculated about rather than taking your time and researching and analyzing. You can get distracted by upswings and downswings and you never “judge the relative values or get the true perspective of things”.

This also goes for any sub-investments you make while running your business. Should you buy that new piece of equipment?
Should you spend money on a billboard?
Should you invest in that new software promising to make your business run more efficiently?
Should you hire that new employee?
None of this should be speculated on.

3) Make Giving Back a Monthly Expense.

There is something about giving back and helping a fellow human being that improves our own quality of life. Almost every successful person I know gives back on a major scale. Lets pick 3 of the most successful people of all time. So that there’s no debate here…

  • Oprah – Oprah is a major philanthropist. She donates to 3 major organizations: The Angel Network, The Oprah Winfrey Foundation, and The Oprah Winfrey Operating Foundation. She also donates to Mississippi Animal Rescue League, Project Cuddle and Free the Children. I don’t have time to run off everything this woman does but Yo probably already know
  • Warren Buffet – In 2006 he made American history by making the largest ever charitable donation by an individual – $37 Billion to the Bill and Melinda Gates Foundation.
  • Bill Gates – In 2006 the Microsoft founder announced that in 2008 he would dramatically reduce his involvement in the running of the company in order to concentrate his efforts more fully on the Bill and Melinda Gates Foundation.

The Foundation focuses on 4 aspects: They have the Global Development Division, the Global Health Division, the United States Division, and the Global Policy & Advocacy Division.

So one may argue that the reason that these people give so much is because they have so much. But I will vehemently argue with anyone that the reason that these people have so much is because they give so much.

If there is one thing that you take away from this episode or all the episodes ever of this podcast, it would be this principle. I guarantee you that if you give back to the world your business will be blessed. There is no such thing as waving a magical wand to get riches but this is darn close.

I’ll tell you what we do as an organization. In addition to various contributions when something strikes us, we pledge to give a select number of teachers $100 gift cards to staples every month. This gives us a sense of responsibility. Every 1st of the month, that’s an expense that we have.

I’m not telling you this to brag, at all because its nothing to brag about. I’m telling you this to help you model your social responsibility efforts. If you treat it like a bill or expense then it will be such a part of who your company is and I promise you that you will see the results (that is as long as your business is honest and run well).