Over the past twenty years, Kareim Abbouda has built businesses varying from marketing, communications and public relations to IT software industries in Asia and the Middle East. Having gone through the rise and fall in the start-up world, Kareim now has the role of Financial Consultant with Investors Group in Toronto.
“I always felt that [entrepreneurship] is my calling. Starting off from nothing is exciting. Seeing the objective grow bit by bit is gratifying” Kareim shares. “[However], as I progressed with my career, I figured that there are many things missing out. The most part of it is finance”.
To Kareim there is much more to experience than the fledgling passion in entrepreneurship.
The purpose of financial planning
Based on personal experience and his work with numerous entrepreneurs, Kareim finds that the importance of proper financial planning is easily ignored. He has seen many entrepreneurs cash their personal savings, properties, or Retirement Saving Plans (RSPs) directly in their businesses, paying no heed to the violation of the related legal, taxation, and accounting requirements. Kareim stresses that this “almost always goes to the waste side.” Mixing the personal and corporate finances easily results in the situation in which you end up paying more tax and bear the business risks with your personal finance.
You also need to know the budget, the forecast, the revenue projection, and the cash flow in your business. This knowledge helps you decide how much you can spend and what you have been spending money on to avoid operating with a loss, a common trial for entrepreneurs.
Another aspect to pay attention to is cash turnover. When your business starts growing rapidly, you need much more cash to sustain the business operation and to expand. This is a challenging moment in time and if it is not managed properly your business can tumble or even close down.
Corporate financial planning helps entrepreneurs to review how financial segments affect overall business and to construct a plan for operation and risk mitigation. “It is to set the foundation for your business and help you look into the future in terms of the funding source and dealing with revenue and loss.” Kareim says.
Financial planning 101
Kareim provides a few tips for you to start with. “It is okay to invest with your [personal] money, yet this should be utilized in a much more formal way… you have to understand what a loan is, what it means to be in debt, how to service the debt, and how to repay the loan.”
For example, instead of taking your personal money directly into your business, you can set up an IOU (I Owe You) and give yourself a loan. In this case, you (as an individual) lend your company an amount of money with a repayment schedule. This way, the loan is taxed differently from pure company income and reduces the tax that your company has to pay. There are more aspects to look into to manage your corporate financing better.
The role of a financial mentor
If you are not familiar with the numbers, Kareim strongly suggests that you have a frank discussion with a financial planner or someone familiar with finance operations about your business from the beginning. Kareim explains that an accountant is countable for how the money is allocated and identified in the books as well as how things comply with the legal requirements and tax systems, whereas a financial advisor helps you see the meaning of these numbers. Advisors discuss your business with you from a dynamic point of view, offer you his/her perspective on the market, identify and mitigate the risk that may be involved down the road. They will also ask many ‘what ifs’ to help you clarify and set your business goals, minimize the cost to the maximum, see the possibility for success and set an exit strategy.”
A mentor gives you better critique
In Kareim’s viewpoint, an entrepreneur needs someone who can oversee the problems that he or she cannot see due to deep personal emotional involvement to the business. “A mentor, whether a financial planner or not, should be someone who you have an emotional attachment with and one that you want to talk to. It is a way to get better critique.” Likewise, an entrepreneur must be a good listener to receive feedback and grow from reflections.
“I understand what drives [entrepreneurs] to wake up in the morning and what takes them to sleep at night. I have that connection personally,” Kareim beams, “Remember, people are not buying into your dream; they are buying into their own dreams. If you match the two you’re good in business. Overall, money is an experience. It is like a giant boat. If people do not know how to cope with the sea, even the Titanic sinks.”
In short, listen and learn from people’s feedback and critics and plan your finances properly for future endeavours.
If you are interested in financial management tips, check here.