2023-3_Top Financial Mistakes We See Tech Entrepreneurs Make

By Zach Whitchurch
President | Wealth Advisor
Certified Private Wealth Advisor®

Entrepreneurs are used to taking risks, being creative, and thinking outside the box. Yet when it comes to financial decisions, that same type of thinking can lead to costly mistakes that jeopardize their business and personal financial future.

At Solidarity Wealth, we have seen and heard of entrepreneurs making a variety of mistakes that could have been avoided if only they had the right guidance along the way. To spare you that hassle, we’d like to share seven of those top financial mistakes so you won’t experience them in your future. 

1. Not Having an Exit Strategy

Entrepreneurs build a successful business by having a great business plan—but they can sometimes neglect building a plan for themselves. It makes sense that an entrepreneur is focused on creating and growing their business working to create additional value for both their customer base along with themselves. Even if this is years away, it can still be beneficial to think through when and how you’d like to exit the company. Without a proactive exit plan in place, you may miss out on potential opportunities, face unexpected tax consequences when you eventually decide to sell, or even find yourself trapped in the business longer than you intended.

2. Going From Illiquid to Illiquid

Entrepreneurs often have most, if not all, of their net worth tied up in their business. The money that is in their business is illiquid, and very well may stay illiquid for quite some time. This makes sense when you think about working to grow something you have passion around, which you put your time, energy, and money into. You are betting on the success of that venture. We often see entrepreneurs, as soon as word gets out about their successful business sale, flooded with all sorts of business “opportunities” for them to place their hard-earned capital. Because of this temptation entrepreneurs at times don’t keep enough in liquid or reasonably liquid investments and again become cash poor but wealthy on paper. 

Especially in today’s environment, keeping a better distribution among a variety of asset classes allows for entrepreneurs to diversify their cash flow and also work to maintain the appropriate amount of liquidity. While pouring your time and funds into your business may be the right strategy as you grow and scale, at a certain point it’s worth considering how you can diversify your assets and create more liquidity for yourself and your family. How can you use your business to create more financial flexibility as well as diversification upon a liquidity event? While we can’t answer that exact question here we highly recommend you revisit this topic as you plan a potential exit strategy. Recognizing that each individual and family circumstance is different, this tends to be an area where we focus with people prior to their liquidity event so we can put the right plan in place.

3. Veering Away From Their Circle of Competency

Entrepreneurs are often experts in their field but may lack knowledge in other areas, such as finance or legal matters. These areas in the building phase of a business can sometimes get put to the side. Due to the nature of entrepreneurs, they tend to ask advice from their friend group or other business owners who may appear to be in a similar circumstance or situation. Occasionally these other business owners offer great advice, but every now and then the advice they receive is based on the FRIEND’S own situation and may not fit what they themselves are trying to accomplish. We have found that putting a qualified team of trusted advisors around the entrepreneur helps to get them the right advice at the right time. We recommend staying within your circle of competency so you’re maximizing your skill set and unique talents, and still bringing in expert advice from professionals with skills you don’t have; this way you get the best of both worlds.

4. Overpaying or Underpaying to Obtain New Assets

Many business owners are so focused on growth that they often look to new assets that can help them accelerate their already rapid pace. Those business assets could be new employees, new technology or equipment, or something else that can equip the company. While you don’t want to be cheap and get an inferior product you’ll have to replace or that could cause endless headaches, you also want to be smart with how much you’re paying and ensure you get appropriate value in the exchange. Especially in today’s environment it is crucial to make sure you are being thoughtful about purchases that are being done, both from a business and personal perspective.  

5. Being Cheap With Advice and Services 

In the same vein, a number of entrepreneurs we’ve seen have tried to seek advice from professionals who offer the lowest prices. But when it comes to your business and your family’s financial future, working with the cheapest professionals likely means you aren’t working with the best professionals. Again, the focus in my mind isn’t to always pay the most, but to not be cheap—especially when the stakes are so high.

6. Not Seeking Out Trusted Counsel, Even if It’s a Private Space

Even though many entrepreneurs work in the private space, when it comes to a business transaction, it’s essential to seek out trusted counsel who can help you make the best decisions for your business and maximize your company’s value. There’s no need to try to do this all by yourself and risk missing out on opportunities or adding unnecessary stress to your life. Again putting the right professionals around you is a vital part of having a successful exit.  

7. Forgetting There Is More to Life Than Business

High-achieving entrepreneurs can get so wrapped up in their business that they sometimes forget that a world outside of it actually exists; we know the feeling ourselves! Recently I was reading a piece about what it means to be successful. There is a balance between working hard within your business and maintaining a sense of self. Oftentimes our identity gets tied up in the name of our business, or it becomes something we look at and think, “This is me! This is what I have built.” During this time while building your business, it is important to also have other passions and things to do outside of business. Whatever those other passions in life are, it is important to maintain those other parts and habits of your life —so you don’t feel like you have lost a part of yourself if you sell your business. Our hope is that you can have a thriving and successful business you’re proud of, but that it’s just one area of your life that brings you joy and fulfillment. 

We Can Help Minimize Your Mistakes 

Whatever stage you are in with your business, it is a great time to start a conversation around these topics. At Solidarity Wealth, we work with successful founders, entrepreneurs, and executives to help them grow their businesses, pay less in taxes, avoid costly financial mistakes, and plan for life during and after a business sale. If you’d like to see if we can help, reach out to us at info@solidaritywealth.com or call 385-374-1665 to schedule a discovery call.

About Zach

Zach Whitchurch is the President and a wealth advisor at Solidarity Wealth, a privately held, independent wealth management firm that serves as a multi-family office to some of the Mountain West’s most successful families, entrepreneurs, and executives. Zach works with clients to develop both “Wealthy Financial Habits” and “Healthy Financial Habits” and thrives on helping them understand their finances by simplifying the complex. He uses his broad knowledge on a wide variety of topics to implement creative strategies for clients as he helps them feel both seen and heard, and supports them along the path to their dreams.

Prior to co-founding Solidarity Wealth, Zach was a financial advisor and a senior vice president of investments at Wells Fargo. He has a bachelor’s degree in accounting and a master’s degree in finance from the University of Utah and holds the CERTIFIED FINANCIAL PLANNER™ and Certified Private Wealth Advisor® designations. With a passion for psychology, he hopes to return to school for a PhD in behavioral finance. He is also a Managing Partner of Solidarity Capital, an income focused hedge fund. Outside of work, Zach enjoys spending time with his wife and four children and being active in both indoor and outdoor sports. He has also coached youth soccer for many years, and loves to read and learn about how the world works on a deeper level. 

Solidarity Wealth is a registered investment adviser. This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Solidarity Wealth and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Solidarity Wealth unless a client service agreement is in place.