Yes, you might be an entrepreneur if you’ve taken any money you had in savings and put it into your business. Part II in a 75-part series.
Wise people have given the financially sound advice that all households retain one year’s worth of income in a savings account, just in case. I heartily support that advice, although I have not followed it. An entrepreneur, when faced with being short $10,000 the day before payroll, will ask himself “Do I believe in this company? Is it going to work out? If so, why not take my money out of savings, loan it to the company, and then when things work out I’ll get paid back. If I don’t believe it’s going to work out, why am I running this business in the first place?”
Such has been the way I have thought about things over the years. I’m not saying entrepreneurs should put all their savings into their business, I’m only saying this is what I did, and what I believe many other entrepreneurs end up doing.
The benefits are short term unless you have a large savings account. I didn’t. For me my savings was enough to help make one payroll one week, pay the rent the next, and then it was gone. That was two or three years ago. Have I been paid back? No. Will I get paid back? I hope so. Just as with credit cards it gets hard to pay things back. When money comes in I have a choice–pay myself back, or pay the rent. Pay myself back, or pay health insurance premiums for my employees. Pay myself back, or make payroll on time. Pay myself back, or keep the business afloat. I’ve always opted to pay rent, payroll, or the other expenses that I saw as necessary to keep the business alive.
Perhaps I’ve been wrong. Perhaps I should be more careful about my personal financial situation. After all, if the business goes under then I’ll never get my savings back. Perhaps I’m neglecting my financial responsibilities towards my family by exhausting our savings and putting us in a risky position. Then again, maybe I’m ensuring our financial security in the future by keeping the business alive which will ultimately lead to greater financial stability.
I’m not much of a baseball fan, but some guy named Yogi Berra once said “It’s hard to make predictions, especially about the future.” or something along those lines. The “wisdom” of my choice to put our savings into the business will be decided by what happens to the business. If the business succeeds, I’ll tell my story to people and they’ll say “Hey, he did the right thing to put his savings into the business, because otherwise it wouldn’t have succeeded and he wouldn’t be where he is today.” If the business fails people will say “He shouldn’t have put his savings into the business, because it failed and then he had nothing to fall back on.”
It reminds me of a story Rick Farr, a mentor I met through the Center for Entrepreneurship at Brigham Young University, told me. I don’t remember the specific numbers so I’m making them up because whether or not I get them exactly right isn’t the point. Anyway, a friend invited him to invest in a duplex with him. He thought it could be fixed up and sold for a nice profit. Rick declined. Rick thought “There’s no way that thing is going to make a profit. I’m a smart guy for turning it down.” His friend went ahead and invested. A short while later his friend told him the duplex had appraised for something in the neighborhood of 50% more than what he had bought it for. Now Rick felt like an idiot. He had just lost out on a great deal. A few days later his friend told him that one of the tenants in the duplex had caused an accident that had burned the entire structure to the ground. It was a total loss. And Rick felt like a genius. “How smart I am,” he thought, “If I had invested in that duplex I would have lost it all.” A few days later he found out that the duplex was covered by insurance, which ended up paying almost the full appraisal amount on the building, which meant his friend still walked away with a nice profit. And so in the end he felt like an idiot again.
Sometimes “wise” people are merely the product of circumstances beyond their control, and idiots likewise. In the end will I be wise for having put my savings into my business, or will I be an idiot? Luckily I do have a large measure of control in the situation, but only time will tell. Unless you think I’m an idiot for even taking the risk, in which case you’ve already got your answer.