Healthy Financial Behaviors for Your Business

By Chia-Li Chien

In late 2014, Inc. magazine contributing editor Jeff Haden¹ wrote an article on how successful careers tend to correlate with the right spouse. He argues this is due to the couple acting as a team, which tends to provide a stable family environment and give each the opportunity to focus on a career.

Oddly enough, there is an age-old Chinese proverb that says, “When a man chooses the right wife, it can affect three generations of his life!” (The three generations are: his parents, his own life, and his children’s lives.) Similar to this age-old Chinese proverb about picking the right partner affecting three generations, your business, too, goes through stages (like your personal life), such as start-up, growth, maturing, etc.

However, just having the right financial behavior in your business or personal life is not enough. Forecasting your retirement goals or business equity value goals, when combined with the right financial behaviors from your team, can help you stay on track. At the Value Growth Institute, we can help you make the right choices to get your business on the right track by using the right tools and forecasting.

More recent research sheds light on why that old Chinese saying continues to prove true. Although the study was not about mate selection, it revealed that having the right mate can ultimately lead to a more desirable outcome in retirement wealth and life. In a 2013 research paper by D. W Eccles, P. Ward, E. Goldsmith, and G. Arsal², the authors found that those exhibiting the right retirement savings behaviors netted almost three times more wealth compared to those who did not possess the desired behaviors. (It is also worthwhile to note what this group does well so that others can replicate and benefit from adopting the same practices.)

First, the research focused on a group of couples who had been married more than 10 years and were between the ages of 51 and 61. They had one or more children and stayed healthy with no major medical expenses. They did not have any prior bankruptcy records and read their social security statements annually.

Eccles’ research group found that this group of couples had a propensity toward self-learning. For example, the husbands tended to learn from reading magazines or newspapers to improve financial knowledge. The wives tended to learn from communication with their husbands about financial decisions and knowledge. Wives also often relied on an employer’s education program to enhance financial knowledge.
 

One major gender difference in financial behavior showed that husbands tend to forecast their retirement goals and save on a regular basis toward those goals. Wives, however, tend to “live within their means,” paying their bills and credit cards on time, with little or no debt.

In today’s environment, let’s make an extension of Dr. Eccles’ study and assume that “husband” means the person taking the dominant financial role and “wife” is the follower. Regardless of who makes up a couple, the person taking the dominant financial role will focus on setting a forecast or a clear retirement goal to work toward. The follower’s role is to make sure they live within their means and stay focused on reaching those forecast goals.

If we further extend this concept to your business, who would you say plays the dominant financial role? You might be the owner of the company, but you might have someone who helps you set that financial forecast target.

Here are some healthy financial behaviors that I’ve observed from my clients:

• Setting SMART (specific, measurable, achievable, realistic, and timely) “forecast” goals along with Key Performance Indicators (KPIs)
• Monitoring KPIs on a regular basis (minimum monthly)
• Communicating weekly with the team and correcting the course if the KPIs are off-track from a pre-defined threshold
• Continuous process improvement to meet or exceed customer needs

Your team members should be the followers in your company. They simply have to make sure they conserve and “live within your means” to stay focused on the goals. If you are in the dominant financial role for your company, do you have the right form of frequent communication with your followers (your team) to make sure everyone is on the same page?

Ultimately, this focus on behaviors and right choices helps you create the business value you deserve.

References: 1 Haden, J. (2014, December 24). Want to Be a Lot More Successful? Marry the Right Person. Retrieved May 25, 2015. 2 Eccles, D. W., Ward, P., Goldsmith, E. and Arsal, G. (2013), The Relationship between Retirement Wealth and Householders' Lifetime Personal Financial and Investing Behaviors. Journal of Consumer Affairs, 47: 432–464. doi: 10.1111/joca.12022.

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