‘Money Coach’ Says Many Entrepreneurs Let Emotions Get In The Way Of Making Money
It’s no secret that our society has a massive spending problem. We are emotional creatures when it comes to how we spend money. And it’s become commonplace to use our lines of credit, so we spend more money than we earn. In 2020, consumer debt in Canada topped $2-trillion, and we spend $1.77 on debt for every $1 of disposable income – a mindboggling stat that suggests we as consumers are taking on debt at an unmanageable pace.
But it may come as a surprise to many that the emotional pitfalls we fall into as consumers are the same pitfalls business owners face. April Stroink, a Halifax financial adviser, specializes in helping separate emotion from money for entrepreneurs.
Stroink has clients across Canada and the United States. She says many new business owners have a passion for their products, but don’t understand the math.
“You have to know the mechanics around numbers, but if you don’t pair it with the mindset, you don’t reach your goals,” said Stroink. “So, I take a different approach than probably an accountant or bookkeeper would take. I look at the numbers, but I also try to understand a business owner’s emotional attachment to their business as well.”
Stroink said many business owners don’t understand how to calculate net income versus gross income, or how to manage profit margins. She recently had a client who was losing money on every item she sold.
“For every product that she sold, she was giving a $1.17 to her clients to take the product off her hands. But it was her signature product that she had started with and became emotionally attached to it and she wasn’t taking a look at her gross margins,” explained Stroink.
“Money doesn’t always equal math because if it did, we would all do the right things with it. We have to acknowledge that money is emotion. That’s why retailers have coined the term ‘retail therapy.’”
Another big mistake business owners make is refusing to pay themselves in the early years of their startup. Many entrepreneurs go several years without cutting themselves a market-level pay cheque in order to lower expenses and keep the operation afloat. Stroink believes this common practice is very unhealthy.
“A lot of business owners hang their hat on paying everybody else first, before themselves,” said Stroink. “They feel that breaking even means that they’re doing well. But you can only break even for so long and not take an income.”
“I understand, with a new startup, there will be sacrifices. But, after four or five years, if you’re still not paying yourself, you have to crunch the numbers to see if this business is even viable.”
This emotional attachment to one’s business has led to many businesspeople to take huge financial risks, even when the business is struggling to turn a profit.
“I’ve seen business owners take out second mortgages on their houses to keep the business afloat,” explained Stroink. “And it all comes from a place of emotional attachment to a business.”
“A lot of business owners are passionate about their products and services, but they don’t like the business side of things. They don’t like or understand their numbers… and end up in a world of hurt.”
On top of helping entrepreneurs learn financial literacy, Stroink is passionate about helping teenagers learn basic financial skills before entering adulthood. She has spoken to junior high and high school kids in the past, and firmly believes the Nova Scotia government should make such courses a part of the school curriculum.
“We become adults and we’re not taught any of these skills and Canadiens are $1.8 trillion-in debt and over $600 billion of that is in consumable products,” said Stroink.
“In two generations we’ve become a nation of spenders, where we were a nation of savers.”
Today’s youth are bombarded with temptation to spend like never before. Every social media platform has advertisements and paid “influencers” peddling products that are easy to buy online. It’s also never been easier for young adults to get relatively cheap lines of credit. Social media also creates a new form of peer pressure since everyone is showing off their “best life” through pictures and videos.
“We’ve had ‘keeping up with the Jones’ before, but now we have keeping up with the Jones’ on steroids,” said Stroink.
“I have two teenage daughters, and I see this drive of consumerism from Instagram, Facebook, Tik Tok, and all other social media.”
But Stroink recognizes that the younger generations are forced to take on more debt than in the past. The increase in tuition costs over the years has forced millennials to enter the workforce already in massive debt. And their first jobs post-graduation are rarely high-paying jobs.
“You’re entering your adult life with a multi-five-digit debt and not having the same job opportunities available as well. Millennials are starting their careers in this place of debt that previous generations haven’t seen before.”