Let me outline the exact areas you need to focus on when performing cash flow management in your business.
But before we do that, just remember that cash flow management is one of the three primary business finance pillars all businesses focus on to some degree to be successful. The first pillar is securing capital, the second is cash flow management, and the third is cashing out on exit.
Back to cash flow.
I’m sure you’ve heard it a million times that cash flow is the key to any business. Nothing new there. But, what goes into managing a businesses cash flow and how do you make sure you’re focusing in on what’s important?
First, lets define this further. I define cash flow management as anything that has to do with money in your business including who its owed to, who its owed from, money spent on assets, money given to charities, paid in taxes, and on and on.
Cash flow management must have an all encompassing discipline to it or its likely going to be a waste of time. This is the first key element that you need to consider.
Too often, business owners track certain inflows and outflows and ignore others viewing them as not material or insignificant, or perhaps not wanting to admit that they are significant. When things are going well, a certain amount of overlooked items doesn’t really matter, but when things are not going well in the business, even a small amount of unaccounted for expenditures can become painful when it comes time to pay the rest of the bills.
The second key element is developing a cash flow management tool, even if its on a spreadsheet, to keep track of all inflows and outflows. This is effectively a dashboard into the business, equating everything into time and dollars so that you can proactively manage the business operations. Even when people go through the effort of building out a cashflow template, many still make these two very serious mistakes.
First, they allow too much time between reporting intervals. If you have a spreadsheet with inflows and outflows, you will typically have columns for the period of time. If you’re cash flow is tight, the reporting period needs to be shorter, like a week. There can be too much variability over the course of a month for this interval to be accurate to you in tight cash flow situations.
Second, they don’t forecast far enough ahead. At a minimum, especially if you are working with longer sales cycles or in a period of growth or decline, you should be forecasting at least 3 months ahead or even longer. This helps to see trouble on the horizon and gives you time to proactively deal with a projected issue while staying out of panic mode.
The third key element is to assign one owner of the cash flow management process and make it a requirement that the cash flow gets updated at least once a week. By having one person at the controls, the information will be more accurate and you also have someone, even if its yourself, to hold 100% accountable. Problems usually start when there are too many cooks sporadically updating information and making assumptions as to what someone else has done.
The fourth key element of cash flow management is to be ultra conservative in your projections of the future months. Expect income to come in slower and more expenses to appear than planned. This creates an internal buffer for when things go wrong, which they always do.
The fifth key element is to assign time and money to everything that happens in your business so you always have a solid picture of where you’re at today and what the near future looks like. Cash flow management is also part measurement in that any project you have or take on, should have precise cost and revenue projections and time lines, which all gets filtered into the master cash flow and your decision making process. Before a project can be approved, are there funds available in the time required? What is the expected payback period? When the results of a project or contract come back, did they meet or exceed the expectation, and if they did not, how are we going to deal with the cash short fall?
If comes back to the old adage, if you can’t measure it, don’t do it and everything needs to be funneled back into your cash flow management system to effectively be measured.
Ever since you were old enough to watch TV, you’ve been exposed to massive branding campaigns by Lenders for personal loans and financing, and business loans and financing.
The primary brainwashing we all receive is that your banker is your friend and that if you need a loan, come in and see him and he’ll help you out.
Its a fantastic marketing strategy driven by billions of dollars in advertising whereby we all have the major banks in our cities, regions, and countries branded into our brains.
The offshoot is that the major banks draw everyone into their marketing funnel and they keep the ones they want, which for business financing would roughly be 10% or less of those that apply.
Why so low?
Because major banks are low risk lenders that are looking for the low risk customers only.
They just don’t tell us that.
Now there are hundreds of thousands of lenders in the world outside of major banks and they do much the same thing, albeit on a smaller scale.
But the message is pretty much the same … Come and see us and we’ll help you out. Or, if we see lots of people, we’ll be able to pick out the ones we’re looking for.
Basically, the general population is treated pretty much like cattle when it comes to business or personal financing… we’re driven in one direction and then redirected in another.
There are a number of reasons.
First, in general, our society has a very low finance I.Q. due primarily to the fact that there is virtually no basic finance related education, so lenders would rather say they can help everyone than risk sending out a confusing message of what they really want in what I would call meaningful detail.
Second, a lender portfolio can be quite complex to manage and ever changing as the overall market place changes which causes their target to change. So no lender wants to say this is what they’re looking for today, and then potentially need to change it tomorrow. Its better to keep things vague. So instead, they just keep rolling out the same “come on in, we can help anyone” message.
Third, Lenders are opportunists just like the rest of the world. During the latest sub prime market fiasco, Major Banks cut back and in many cases stopped lending money, crippling the money supply. They used the crisis to put pressure on the government to give them payouts and concessions to strengthen their balance sheets, otherwise the lack of available capital would further worsen the recession.
Asset based lenders did the same thing. Because “A” Banks or Big Bank were pulling out of the market, more expensive asset based lenders were getting better qualify deals. The smart ones were making a fortune taking on lower risk deals without lowering their fees. But this also left a funding gap in the “B” and “C” Markets as its becomes a domino effect from the top down.
So keeping it vague, has always been the way to go. And as a result, it can drive you around the bend trying to figure out exactly who can help you at any given point in time… who is currently relevant to your specific financing requirements.
So, what can you do to find the right source at the right time?
1. Be realistic in the sense that no matter how much a lender may flip flop on their client selection, major banks, for example, are always going to be low risk lenders that are more focused on balance sheets will low leverage than anything else. If you don’t fit that basic description, don’t apply. Each category of lender has a basic profile that they won’t stray too far from, no matter what they tell you.
2. Consider utilizing the services of a financing consultant/specialist (not just a broker … big difference). This is someone who has their ear to the ground and is staying on top of the twists and turns in the market.
3. Instead of blindly applying to lenders according to the way we’ve been brainwashed, start qualifying them yourself. Remember that you’re the customer and you’re time is worth something too. So instead of patiently going along with some of their long and drawn out application and interview processes, start by asking them questions related to what you’re trying to do and focus your time one the ones that give you the straightest, most direct, and most committed answers.
Its still going to be a bit of a crap shoot, but still better than just showing up and expecting anyone to be able to help you, despite what they tell you in their latest commercial.
Entrepreneurs tend to be a passionate lot, which is why many of them end up becoming successful, but this can also work against them with respect to debt financing.
The other side of the coin that comes with this passion is the blind belief that they are just one more mile away from achieving their goals, so do whatever it takes to get there.
Too much of what I see online regarding business financing is about how to manipulate the system or application process to get financing of some sort, whether it be credit cards, lines of credit, term loans, etc. Lenders feed this somewhat through the way access to debt is so causally portrayed in their marketing.
And in many cases, at least in the initial going, people can be quite successful securing significant amounts of debt based on a decent credit score and close attention to the application process.
I guess if you’re able to strategically get your hands on this type of debt financing and constructively apply it and profit from it, then good on you.
But when you take on large sums of mostly unsecured debt financing in the form of credit cards and lines of credit and personal loans, you are also putting a gun to your head to make things happen quickly. If results don’t materialize, your finances can hit the skids hard in a number of ways.
First, the debt is going to carry an interest rate, and in many cases, a high one. Almost immediate cash flow will be required to service the costs of debt.
Second, high ongoing utilization of debt will significantly reduce your credit score, making it next to impossible to borrow anything further.
Third, while some of the debt may be in the form of business credit, its likely to still have you personally liable for the balance owing. Incorporation does not protect you from this debt in many cases.
Fourth, if you are more than 30 days late on a credit card payment, you will get a severe reduction in your credit score and more than one of these can have a damaging impact that can last years.
Fifth, this type of debt financing is usually all demand written meaning that the lender can ask for their money back at any time for any reason. So even if you feel you’re on top of things, everything can do sideways in a hurry without any warning.
Sixth, if you fail to pay back the debt, your credit is shot. If you have to go as far as a consumer proposal or bankruptcy to get out of the mess, then we’re talking up to 10 years to rebuild your credit, which is impacting more and more aspects of our daily lives.
Did you know that many companies now want to check your credit before making a hiring decision. Why? Because many of them think that a good credit profile is an indication of character. Same can be true of other things you may apply for over the course of your life.
The value of good credit is growing and needs to be protected.
My point is that sometimes debt financing may be too easy to come by, or someone clever figures out how to “game” the system enough that they get access to more business financing capital than they can actually handle.
And because everyone is always in such a rush, they don’t always stop and think about the potential downside of what they’re doing.
Because business financing for small businesses, especially start ups, is hard to come by, many entrepreneurs turn to personally secured credit cards and lines of credit to fund their business ventures. Many of the same individuals also wish they had never taken this path.
For the pure type A entrepreneur, going bankrupt is a temporary set back and they will continue to roll the dice until they get the success they desire, regardless of how much of other peoples money they lose along the way.
However, for most business owners that fall into a debt financing hell they can’t get out of, the resulting fallout can be not only financially devastating for a long period of time, but emotionally devastating as well.
So, be careful what you wish for. Only take money you are confident you can pay back and make sure that whatever capital you secure has repayment terms in keeping with the road you’re going down. Yes, there is always a risk, but if you’re aware of the risk and take it into account before acquiring debt financing, then you’re practicing very responsible and sound financial management.
If things don’t work out, always make sure you can fight another day.
In the end, you’ll sleep a lot better, at least most of you will.
When seeking any type of business financing for any sized business, small or large, there are four and only four uses or applications of capital. I’m going to go over each of them and why this is important to know and understand.
First of all, why is this at all important? Identifying the exact use of capital creates greater relevance in the capital procurement process.
OK, I’ll speak English. Locating suitable capital funds, either debt financing (business loans), equity financing(investor capital), or a combination of the two, will depend to some degree on how the funds will be applied in your business.
Lenders and investors can be very specific in deals they will seriously consider funding and one of their key criteria will be how the funds will be applied.
Certain applications of funds will completely remove certain lenders and investors from the mix. By understanding this at the outset, you can create greater relevance in your search to secure capital by screening out the sources of money that will automatically not be interested in your deal.
This doesn’t mean the deal is good or bad, its just not going to be relevant to certain sources of business financing. So you can save yourself a lot of time and aggravation focusing on relevant sources. There are of course other criteria that helps determine relevance, but for today let’s stick with use of funds.
So what are the 4 uses of debt financing and/or equity financing?
– Start Up. The start up of a new business venture.
– Acquisition. The acquisition of an existing going concern business.
– Expansion. The Expansion of the assets of an existing business for the purposes of growth.
– Debt Consolidation/Reorganization. The repackaging of existing and potentially new debt into a modified or new debt instrument or instruments. This predominately relates to businesses in some distress or downturn that need to either inject more capital into the business to cover losses or move short term debt to a longer term debt instrument to improve the balance sheet and security position of lenders.
Within each of these uses, there are even more specific sub uses such as:
– working capital to finance day to day operations
– short term capital to purchase and add value to inventory
– short term capital to finance accounts receivable
– longer term capital to acquire other tangible assets like equipment, buildings, and land.
– capital to acquire intangible assets
If you are seeking business financing for a start up venture, there are many sources of capital that don’t fund start ups. Identify them, and don’t waste your time asking them for money.
If you’re looking to acquire an existing business, don’t seek funds from someone providing trade credit related to working capital type assets only.
As I alluded to earlier, there are other twists to this as well as certain lenders and/ or investors will consider expansion funding, but have other criteria to determine if the deal is relevant to them (amount of funding, industry, debt to equity ratio of the balance sheet, debt service coverage, assets to be acquired, security ratio, etc.)
Each lender will have their own criteria set for each application of funds they will seriously consider. I say seriously consider because most lenders state at the outset they will look at virtually any deal to maximize their marketing efforts, but in reality, they all have a pretty narrow focus.
That’s why its important to understand how to accurately describe the business financing you seek and then qualify the universe of funding sources so that you’re only spending time with a relevant list.
But more in depth lender qualifying is a topic for another day. Stay tuned.
Several times each week, I talk to small business owners who are seeking capital for their new or existing business and several times I have a very similar conversation with each of them that I thought I’d share today.
At the beginning of the conversation, I always ask the same two questions: How much money are you looking for? what’s the purpose of the funds?
I would say that at least 75% of the time, I have to re-ask these two questions two or three times before they’re answered. Most people think that telling me a long drawn out story of what they want to do and how they came to do it will be more important than answering these two questions.
What tends to come out after a few minutes is that the individual is hunting for what I call stupid money. You know, the kind that is prepared to write you a check on a very thin and likely non existent business plan where the lender is taking all or close to all of the financial risk.
Example. Someone has a great idea for a tennis equipment store. They have picked out a location and now need $300,000 for start up costs, working capital, and inventory. They have poor credit, personal debt, zero net worth, and no capital to contribute to the venture.
Is it possible that this individual could secure small business financing of some sort? Yes.
Is it probable? No.
That’s the great thing about the money business, virtually anything is possible, and I’ve seen enough to know first hand. After getting off the phone with me, this would be entrepreneur could go to the coffee shop, strike up a conversation with someone about his or her golf shop idea, and leave with a check in hand for the capital sought. Is is possible? Absolutely. Is it likely to occur? The odds would likely be lower than playing the lotto.
That’s why I’m always careful to not generalize about small business financing, as there is an infinite sea of money out there and strange things happen all the time.
But lets also get real. Just because its possible, doesn’t mean your new business financing strategy is to start going to coffee shops.
For the most part (can never generalize), money has a basic intelligence. If intelligence is not applied, the source of money will disappear very quickly based on making bad decisions.
People supply money to business ventures for a return. If you can show them a path to the return they seek within the level of risk they’re prepared to take, then eventually, you will find a source of capital for your small business financing requirements.
And here’s my tip of the day on this subject: You must have something to leverage and something to lose in order to have a realistic probability of getting business financing, whether it be for a new venture or existing business.
Something to leverage for low risk credit is your credit score, personal net worth, external cash flow, third party guarantee. Something to leverage for higher levels of credit risk would also include things like asset security, established cash flow, signed purchase orders from reputable companies, patents, intellectual property, contracts, etc. Remember also that something to leverage has to have a value to the source of money or there is no leverage.
Something to lose is at the very least the capital that you directly invest into the venture. 100% financing of anything is quite rare unless you’re taking about residential real estate and look what problems that has caused in the markets over time. Personal guarantees and corporate guarantees would also fall in this category if there was enough net worth to make them meaningful.
As the amount of leverage and borrower risk increases, so does the probability of securing capital.
When you search the internet for the answer, you tend to get the same lame regurgitation of things like new businesses should look to friends, family, and fools for capital; existing businesses should look to banks; and that you need to consider debt financing versus equity financing that gets into the whole venture capital versus angel investor rhetoric.
Wow. Really revolutionary and informative information. Some even go so far as to say these are secrets if you can believe it.
Now I’m not implying that these various terms I just threw out don’t need to be explained or are not important. No sir/madam. I’m merely saying that all these terms with some amount of abbreviated explanation are thrown at you like a bucket of water in some weak attempt to answer the question.
Perhaps its because the generic answer set I’ve outlined is pretty basic and safe and even friendly.
Instead of starting at the beginning, lets start at the end. A bad ending. Depending on whose stats you read, over 50% of businesses will fail, fold, go kaput in less than 5 years of existence. Whether its 43.7% or 71.2% that fail in 5 years doesn’t really matter. The point here is that its a lot and its alarmingly high.
So, why is it so high and what that got to do with securing capital? Answer, it has everything to do with securing capital.
The internet for one is awash with people looking for money to finance their business ventures, either start up or existing, and most of the solutions that they come across are geared towards lending them money based on nothing to do with their business.
Business financing in large part, is not based on business. Its based on personal credit, personal net worth, liquidatable (new word) assets, third party guarantees, government grants and guarantees, etc. This applies not just for start ups, but for existing businesses as well.
The point (yes I do have a point) here is that if you try hard enough, you can probably find someone to give you some money for what you’re trying to accomplish that you say requires capital.
But your ability to be successful is dependent on 1) having a tested business model; 2) having a tested marketing approach and position; 3) having enough necessary experience, or access to the necessary experience for the venture, and finally 4) accurately estimating the capital required to become cash flow positive (business can generate enough cash to pay bills and generate a return on the capital you secured) including a substantial contingency plan for all the things that may go wrong along the way.
If you don’t complete the above 4 points, my first question to you would be, how do you know how much capital you really need? My second question would be, if you don’t secure capital sufficient to complete whatever you’re starting (your estimate was out and now you’re short), what are you going to do?
So how to secure capital for your business starts with how much capital do you need and is that much capital going to be able to generate a return based on your plan of attack.
In most business failures, if they did the exercise first (honestly and objectively at the very beginning), they wouldn’t need to secure capital because they’d find so many holes in their own logic and planning that they’d stop and revise things until they made more sense.
I’m not saying planning is perfect, because its not. And no amount of basic planning and analysis will stop business failure. But I’m telling you, its not going to be anywhere near 50% either.
The final point today is that when you make the effort and figure out what business approach should work (and I do say should as planning is imperfect) and clearly outline the capital you need to secure, you will not only have an easier time securing business capital (well thought out plans have a higher probability of getting funded), but you’re also more likely to meet or exceed your profit expectations (well thought out plans have a higher probability of making money).
We’ll get into a lot more on how to secure business capital as there can be a lot to it, depending on what you’re trying to do.
But the starting point is not “where do I apply?”, or “what tricky things can I do to get an application approved?”
If you that’s where you want to start, you’re looking to become another statistic.
Before getting into a deeper discussion about each of three core business finance objectives, lets briefly return to the initial discussion that business finance is hard to understand.
Yes, it is hard to understand finance as much of it tends to be based on some pretty heavy and involved math, conditions, and principles.
Yes, finance is an essential part of society and commerce.
No, it is not important to become a finance expert.
But to become an effective business manager and own or run a successful business, then you have to be able to put finance and finance providers to work for in a manner in which you know what’s really going on.
That’s where the following three core business finance objectives come in:
– Secure Capital
– Manage Cash Flow
– Cash Out
And if you haven’t already guessed, these objectives are the entire focus of this blog and all future posts.
All finance related functions and activities can be listed under one or more of these three objectives or categories.
This is effectively a point of interface between the managers and owners of a business and the various finance personnel or professionals they have to work with.
The focus here is develop a “common set of finance objectives” that both finance and non-finance trained individuals can understand and work towards together.
Lets look at each on of the core business finance objectives in more detail.
Secure Capital. Virtually any business, at some time, will require some amount of capital to operate. There can be rare exceptions, but indeed they would be rare. An organization that has clear goals will have to further expand goals into strategies and tasks that are assigned dates in a time line and costs to complete. The collective value required from all costs is capital it needs to secure.
This objective is an offshoot of budgeting and accountants, connects to banking and bankers, investors, and so on.
Manage Cash Flow. Every activity, action, or decision of a business has two things assigned to it: time and cost. When is going to happen, when did it happen, when will it be completed. What will it cost, what has it cost so far, what is it expected to cost, and so on.
Cash flow is the life blood of any business. Without a positive cash flow over time, there basically is no business. So everything that happens, past present, and future is summarized into cash flow management, providing a dashboard of results to whoever is driving the business bus.
Finance functions like taxation, foreign exchange, accounts payable, accounts receivable, purchasing and inventory, capital expenditures and so on, all impact cash flow. Summarizing all these activities into cash flow management reporting and providing organizational goals and objectives for overall financial performance provide the basis for all these activities to be managed and measured… without being a business finance expert.
The key is to provide end goal direction in terms that everyone can understand. The finance people seldom understand the intricacies of marketing, sales, and operations no better than non finance people understand finance.
The same is even more true with outside advisers like accountants and bankers and tax specialists who actually tend to know very very little about the inner workings of their clients’ organizations.
But these outside advisers can still provide tremendous value to a business if they are properly directed via the three core business finance objectives. Without this direction, many business managers and owners simply leave the decision making up to the advisers which in many cases is dangerous to deadly.
The last core business finance objective, “Cash Out”, may sound simple and straight forward, but its importance can’t be overstated.
We’ve all heard how you need to work with the end in mind. Its all about working towards a longer term goal or objective, right? Well I use the term “Cash Out” to signify the ultimate end of the business.
People are in business, primarily, to develop a cash flow, build assets, and build enterprise value for some day in the future when the business will be sold or transitioned to others for an optimal price.
The “cash out” objective is like the rudder on the ship, where when the end game changes for whatever reason, the entire enterprise needs to be shifted to accommodate the change in final destination. Because the long run of business is ever changing, and truly organic in nature, short term linear courses are plotted to operate in the short term (otherwise you couldn’t operate at all) and as time goes by and more information is known, or impactful things come to light, or trends develop, or whatever that can influence what you do and how you do it in the market place.
Then a course correction is made.
The course correction is about making the adjustments required to continue on a path to optimal enterprise value that will someday be completely financially realized in some sort of exit. It is inevitable.
As companies grow and fragment into different operating centers, each may take on a life of its own and work towards different ends. But the most successful companies that consider the synergies among the pieces, will further wind up all these outcomes into one master exit plan to further guide the ship or perhaps fleet.
The point here is to always have a clear picture of where you’re headed and how you plan to get there. Over time, you will refine the picture and continually bring unclear things into focus. This provides the basis for all experts and functions, finance and others, to line up their efforts towards helping the enterprise achieve its goals.
The coordination of organizational activities across functional lines is nothing new. I’ve just gone a bit further and simplified the collective process into the three business finance objectives:
Manage Cash Flow
While much of the coordination and optimal use of business finance practices evolved out of big company structures and thinking, the principles apply to small and medium sized businesses as well.
Regardless of size, you need to have a strong handle on these three core objectives and by doing so, you can make sure business finance is working for you and likely providing you with a competitive advantage over those who either view this as too much work or are giving themselves a headache trying to understand everything about business finance (and we now know that would be a very poor use of time)
More to come in the next installments
In part I, we started into the discussion of why business finance tends to be difficult to understand for most people, even though its relevant to everyone to some degree. Now, let me get into how this relates to you as a business owner or business manager.
I left off talking about the apparent communication gap between finance tacticians and the rest of the world.
I also mentioned how when you’re in business for yourself or managing business for others, you can be very much at the mercy of your advisers when it comes to matters of finance.
Does this mean you shouldn’t utilize advisers? No, I’m definitely not saying that. Experts in various financing disciplines can be absolutely critical to your business success.
So, lets summarize what we know so far.
– Business finance can be hard to understand, comprehend, and apply.
– Its an essential part of any business venture
– Leaving too much decision making up to your advisers can be dangerous.
– There is a long standing communication gap between finance experts and everyone else.
– 99.9% of the world have a very limited understanding of finance, how it works, and how they can more effectively utilize it to increase their wealth.
From a business ownership/management point of view, there should be a strong motivation to correct this trend, and I think there is, but few people understand how and continue to muddle through what already doesn’t work very well.
So what’s the solution?
Like anything else in business, the owners and managers of any business need to control and direct the forces of the business to be successful. When it comes to finance, its hardly practical to advise or expect non financial managers to develop a deep understanding of business finance in order to get greater value.
Most Entrepreneurs will have a primary focus on marketing, which they should as marketing is the #1 most important activity in a business. But finance is #2 , and is the counter balance for marketing. Look at any large scale business and see how they’re organized – marketing on one side, finance on the other.
So the answer is not to become expert at something you may not be good at or have an aptitude for (basically going against your wiring).
The answer lies in your approach and commitment to maintaining the necessary chi like balance between #1 and #2.
Can I have a drum roll please.
The secret to optimizing the finance component of your business is to connect all finance activities into the three core business finance objectives that apply to any and all businesses regardless of size, structure, or country of origin and then make sure they are congruent and supportive of the overall business objectives of the organization.
Wow, that’s a mouth full. And hardly more enlightening at this point.
But stay with me as all will be explained in the next segment.
I will reveal these three core business finance objectives in part III and further explain how they relate to the broader organizational objectives (and show you that its not even that hard to do once its been explained in a little more detail).
Have you ever got a sharp pain behind your eye or gone instantly into a comma from trying to make sense of almost any information written on business finance or any finance application for that matter?
And I’m a finance guy, or at least someone formally trained in finance, and I get the same headache.
So what’s the deal with this? Is is really so hard to understand and does it have to be so unfun to read and digest?
In fairness to my fellow egg heads, there is a fair amount of complexity to the actual math associated with finance and finance theory. Add to that the business finance disciplines like taxation, accounting, treasury & foreign exchange and you end up with some really mind blowing stuff that 99.9% of people have no interest in whatsoever.
So why bother with it all?
Well, because its essential. Essential to us both personally and commercially.
I mean we live and work and play in a society that is based on a capitalism model which requires money for exchange of goods and services which requires finance systems to operate.
And in the business world, every single business must have some proficiently in finance, or there won’t be much of a business, certainly not a very profitable one.
So, on the one hand, everyone needs to understand and apply finance to some degree. But on the other hand, the technicians that understand the topic frankly suck at explaining what we need to know in relevant, applicable terms.
Thus, we have a knowledge gap which starts right in the public school system. You can graduate from high school without being shown how to write a check, balance a bank statement, or receive any basic instruction on the responsible use of credit.
If you go to secondary school, you may or may not get exposed to a whole lot more, depending on what you take. Even if you go into a business school, or even a business masters program, the amount of directly applicable information you may receive can be quite small. You’ll learn a lot about finance theory and accounting practices, and taxation strategies, and you’ll be provided with lots of big company examples with lots of complex corporate examples that 99% of the people would never be exposed to in their life time.
Then, when you venture out on your own, you will follow one of three paths related to finance: 1) you will get an unrelated job and learn through trial and error how to get a mortgage, a car loan, a credit card, and a line of credit; 2) you will pick a finance related discipline and learn a great deal about that particular aspect of business finance, but still be dumb to most of the rest of the subject matter; 3) you go into business and live at the mercy of your advisers (accounts, tax specialists, bankers, brokers, lawyers) who will hopefully know what their doing for what you pay them and know how to apply their knowledge to your real world baby.
Basically, we live in a world where there is an enormous gap between the technical finance knowledge holders and the rest of us making up 99.9% of the population.
While there is no shortage of information available, most of it is just not all that useful to the average person of average intelligence who does not have any special interest in finance
If it sounds like the system is broken, it is.
So what’s the solution?
Stay tuned for more in part II