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Are You Too Financially Cautious?

Is it possible to be too financially cautious?  Cautious does not mean that you are just conservative or frugal with your money, but that you are too afraid to spend your money wisely. You may not even be aware that you are too cautious and here are some examples:

Hesitate to make the right investments: Aside from traditional investments, you may be too cautious to invest in your own education and knowledge, spend the money for new equipment and technology, marketing, or spending money on employees.

Too cautious about wasting money: If you are so concerned that you will waste your resources then you will end up spending too much time trying to save a nickel, but it ends up costing you a dollar. For example, you don’t want to spend the money to keep track of your finances in QuickBooks or even Quicken for personal use, but yet you incur hundreds of dollars of insufficient funds charges each month. I have seen clients spend approximately $10,000 for insufficient funds fees.

Not taking a loan when you should: I am not an advocate of borrowing money excessively or foolishly, nor do I think that borrowing should be avoided at all times, which some pundits advocate each position strongly for. However, sometimes you need to have a line of credit to smooth out some bumps or to take advantage of low-risk opportunities that arise. Alternatively, if you pay off all of your debts too quickly then you may not have any cash available.

Time versus money: Using your time productively strongly dictates your financial success. However, if you spend your time on $10 per hour activities that drive you crazy instead of paying someone to perform them, while you can be making $200 per hour, then that is a poor use of your time and financial resources.

Money before relationships: If you are too financially cautious then you will probably never want to get married, and if you do, then you will worry about not having enough money for your children and will probably not have any.

Another way of saying financially cautious is to be penny wise and pound foolish. Don’t try to save your pennies, but make dollars!

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Are You Thankful for What You Accomplished?

Happy Thanksgiving! We should always be thankful for everything in our lives, including people, things, and accomplishments. Sometimes we take our accomplishments for granted, and it is good to examine the past to see just how far you have come. Here are some examples:

New home: Whether you just purchased your first home or moved into a more accommodating new home, this is quite an accomplishment.

Paid down debts: Did you significantly reduce your debts or pay them off? For some, if your debt levels have stabilized, this too is an accomplishment.

Started a business: Taking the leap to start a new business is exhilarating and quite an accomplishment.

Expanded your business: Did you open another location, hire additional employees, or increase your sales a sizable amount compared to the prior year? These activities all take time and energy and are a huge accomplishment.

Charitable giving: Has your charitable giving increased compared to the year before? If so, then excellent, but if it hasn’t, maybe it has increased as a percentage of your income if your income went down.

Increased your savings: Even saving just 1% more of your income than you did the prior year will have an enormous impact on your finances if you continue to do this each year.

Worked less: Are you working just a few less hours than you used to? A few less hours each week can make a big difference in your life.

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5 Habits for a Healthy Business and 3 Unhealthy Habits to Avoid

Our habits are repeated actions that we take, and have a tremendous impact on our results. Healthy habits become ingrained within us and we continue to do them with little thought or resistance over time. What are some practical, easy habits to ensure a healthy business and also the habits to avoid?

Healthy Habits:

Schedule activities: If you want important things to get done, especially non-urgent, important items, then you need to schedule them. Whether you need to schedule an activity on a daily, weekly, or monthly basis, once it is on your calendar, then the likelihood of it being completed increases significantly. Examples include setting aside time for marketing, networking, reviewing finances, and reviewing processes.

Delegate often: Do you want to get more done? The key is to delegate, but not only to delegate, but to delegate the right things and delegate to the right people. Think before performing a task that needs to be done, especially a somewhat urgent task. This can be as simple as scheduling appointments, cleaning up a mess, or communicating simple issues.

Pause before spending: Virtually every single expense can be justified and rationalized for your business or for you personally. Before committing to spending money, first pause, think about it, and answer  the following questions: can the expense be delayed without their being a negative impact, are their other options, and what would happen if I do not incur this expense?

Consult advisors regularly: Everyone should have an advisor to consult with before making major decisions. High impact decisions can include: employee management issues, loans and finances, purchasing another business, opening another location, legal matters, etc.

Measure results: This can include reviewing your financial results, effectiveness of marketing campaigns, and employee productivity. Do not make assumptions, but keep track of important metrics and review your finances. Just because you are busy does not mean that you are profitable. Look at the numbers!

Unhealthy Habits:

Impulsive decision making: Almost all important business decisions can be pondered, and do not have to be made immediately. Take your time!

Following emotions and feelings: Don’t do things just be you feel like it or because you don’t feel like it. This can include being reactive to a customer that is upset or an employee that made a mistake. Although you may feel better at the moment, it doesn’t help long-term. The same goes for how you feel. I know that I feel like playing Cooking Fever on my phone for a few hours, but if do so, then only the virtual customers in the game will be fed, while my family will be starving.

Consulting with inept people: I know this may sound harsh, but seek the advice of people who are competent to give you advice and/or thoroughly know you and your situation.

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What If Your Spouse Is Reckless with Money?

Did you take a financial compatibility test before you got married to your spouse? I am sure the answer is no and even if you did, people and circumstances can change over time. If one spouse is more cautious with spending and one is reckless, then this will not only cause tension, but the financially reckless spouse will most likely hurt or greatly strain your finances. It can also be a huge source of marital tensions. What should you do if you find yourself in this situation?

Here are some approaches, from rational, gentle approaches, to tougher, harder approaches, along with observations:

Communicate and work together: Hopefully, the remedy to your situation is as easy as communicating with each other to make sure that you are on the same page financially. If your finances are steadily strengthening, debts are decreasing or paid off, savings rates are sufficient, and charitable giving is charitable, then it doesn’t really matter if your spending seems reckless. However, when your income is growing and you are still struggling to pay for ordinary expenses, then it is time to have a talk. Both spouses should be aware of financial matters, savings goals, and limitations on spending. One can hope that this will solve the problem, but if not, then try again or move on to another approach.

Take charge and prioritize cash outflows: First, the more financially responsible spouse should be in charge of financial matters, including saving and paying bills. Next, the order of financial priorities needs to change, including saving first, preferably automatically, then paying bills and debts. This will cover your basic financial needs.

Cut off access: If the previous approaches still do not work, then you have to cut-off or greatly restrict access to funds and credit. I know, this sounds harsh and controlling, but it is not. If someone had a gambling addiction then you would do the same or you will find yourself homeless, which is not an exaggeration. Spending addictions are similar and you need to protect yourself and your family. If you are at this point then your spouse has issues with spending money.

Outside support: Financial decisions, views, and habits are very much driven by our emotions, our past experiences, and our attitudes about money. If you truly have a spending addiction, then seek the support and help of a professional that is experienced with these matters. I am not a psychologist or therapist, but anecdotally, it appears that reckless spending stems from several causes: seeking happiness by purchasing things (which is short-lived, possibly for mere minutes), the attitude that you deserve “things” (this is kind of related to the first cause), you do not care or think about finances (adults need to behave like adults), and lastly, you are just trying to sabotage your situation (it could be to get back at your spouse or because you do not feel you deserve financial security – again, seek therapy).

This can also happen with a business partner if you put them in place of the word spouse. It just won’t work.

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Why Does a Fast Growing Company Bleed Cash?

The irony of growing a company quickly is that it tends to bleed cash, and a lot of it. Why is this so and what can you do to prevent a cash crunch to keep the momentum going?

A fast Growing company is likely to spend more money to feed the growth of the business then a mature, slow-growing business in such areas as marketing, employees, technology, equipment, improvements, rent, and so on. The key to not going broke is to manage the process to keep the cash inflows consistent and much greater than the cash outflows. For example:

Accounts receivable: Sales growth without receiving money coming in will be awfully painful. Make sure you have billing and collection procedures in place to keep the cash coming in timely.

Marketing: There are different thoughts on how much should be spent on marketing as a percentage of sales. However, instead of thinking about percentages, think about effectiveness of your marketing so that your cash is not wasted.

Improvements & equipment: Building out a new location can be very costly, but there are several ways to minimize the risk of setting up an additional location. First, make sure that your first location is profitable and producing excess cash flow, second, build up a cash cushion, and third, obtain favorable financing or use a combination of cash and financing.

Employees: As sales increase there is a temptation to quickly hire more employees, which is necessary. However, if you hire too quickly, then the productivity of each employee will be too low for you to make a profit. A good strategy is to create metrics, that if met, will let you know that it is time to hire another employee or employees.

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The One True Business Formula for Success

There are dozens of formulas and ratios that a business can use to determine success and profitability. However, there really is one that is most important and should be used repeatedly . . .

Sales – Expenses = Profit

Keep on repeating this formula over and over again and you will do just fine.

 

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What Keeps Business Owners Up at Night?

Aside from worrying about everything, there are really just a few timeless concerns of most business owners. If you don’t have at least one of these concerns then that is probably a concern. Here they are with a few solutions:

Employees: No matter how well you run your business, it will always be a challenge to manage employees. Common problems are: finding good employees, keeping good employees, and making sure that they are productive. There are several ways to address these concerns that are simple, but no way full-proof. The first step is to take your time hiring and to hire the right people from the beginning. Next, treat your employees well and fair. Lastly, spend the time to train your employees properly so they are productive. It sounds so simple, but maybe that is why it is so difficult.

Taxes: Who wants to overpay their taxes? Not only paying taxes, but staying compliant with all of the numerous tax filings can be a huge burden. Having a good accountant can help to alleviate this concern.

Growing: If you are not growing then your expenses will soon eat up a good portion of your profits. Growing sales is a major concern, however, the focus should be to grow your sales profitably. Aside from smart marketing, each new dollar of sales should be profitable to you, otherwise something is wrong.

Cash flow: Either not knowing where your cash is going or not having enough are both problems. Your accountant should help to explain where your cash is going and why there is a shortage. Common solutions are to improve your accounting systems and procedures, increase sales, implement better collection processes, increase your profit margins, and obtain a line of credit.

Too many hours: I don’t think that you are allowed to stop thinking about your business so technically you work 24 hours a day. How can you work less hours? There are dozens of ways, but a few easy to implement solutions are: better scheduling, delegation, and a commitment to work smarter, not harder.

There are a few other closely-related concerns, such as health insurance for employees, feeling burnt out, and the economy. Unfortunately, we cannot control the economy.

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What is a Growing Business Doing Differently than a Struggling One?

There are major differences between the actions of a business owner with a growing business versus that of a struggling business. There seems to be a recurring theme for growing and struggling that closely mimics those who are fit and healthy versus those who struggle with their weight.  The accumulation of certain actions will greatly impact the outcome as follows:

Successful Businesses:

Hire smart and delegate: Business owners who are willing to take on additional employees will find that they are better able to increase sales due to additional capacity. They also do not over do it by hiring too many employees at once compared to needs, which ends up causing cash flow issues.

Invest in infrastructure: This not only includes the physical infrastructure, such as buildings, but also technology and equipment. Have you noticed that franchised restaurants update their locations quite often and do not hesitate to invest in technology and equipment?

Are reluctant to use debt: Debt can easily overwhelm your business even if you are growing rapidly. Although debt can be useful if used for the right reasons, it must be used sparingly and wisely to avoid pitfalls. As a business matures, then the goal should be to rely less on debt to support business operations. Why do you think the interest rates and payment terms are much different with traditional financing versus non-traditional loans, such as merchant loans or hard-money loans?

Seek advice: There are different ways of learning and some are more efficient and effective than others. One way to shortcut your success is to seek the advice of those who know more than you and then implement their suggestions. It sounds easy, but our pride tends to get in the way.

Struggling Businesses:

Are obsessed with cutting expenses: This may come as a surprise, but many struggling business owners are obsessed with cutting expenses. My only guess is that they do not see the link between smart spending to support profitable business operations. They are also penny wise and pound foolish and spend enormous amounts of time trying to save a few bucks, which ends up costing more.

Think that debt is THE answer: Debt may be a part of the solution, but it is not the answer to all of your business problems. Examples of problems that debt will not solve are: a lack of sales, overly burdensome expense structure, too many employees for the size of the business, and bad customer service.

Have an excuse and don’t listen to reason or reality: The economy is by far the most common excuse, along with “nobody buys this anymore” or “no one has time to do that anymore.” They may be right to an extent, but what about when the economy has turned around? If your customers have changed their buying trends, then why don’t you adjust your strategy as well? If you don’t change then you will prove yourself to be correct, but at a major cost to your business.

The probability of becoming a growing business will increase if you take the actions of growing business, while the odds of struggling will increase if you take the actions of a struggling business.

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5 Traps to Avoid When Growing Your Business Rapidly

Growing your business, especially growing rapidly, can be a really great accomplishment, but there are dangers when growing too quickly. Here are several traps to avoid to ensure successful growth:

Cash flow: Quite often, a small business will have cash flow issues when growing too rapidly. This is due to a delay of getting paid, while expenses need to be paid for upfront or before getting paid. There are 3 solutions that can help depending upon your situation. The first is to see if you can obtain terms with your suppliers to delay expenditures, second is to obtain a line of credit to support your receivables, and third, which tends to be the hardest, is to build up a cash cushion first.

Finances: As you grow your business, the financial aspect becomes even more crucial to your success. This entails a focus on investing in more robust accounting software, accounting staff and/or accounting services, streamlined processes and procedures, and internal controls, to name a few.

Employees and management structure: Unless you enjoy working 24/7, you need capable managers to manage your employees (you have been hiring more employees, right?). It is easier to have a few people reporting directly to you then several dozen. Also, make sure to acknowledge and reward the loyal employees that helped you to obtain your success.

Personal time and wellness: It is very easy to put in excessive hours to handle the massive growth of your business. There will be times when you need to work extra, but if this becomes the norm then it is easy for your personal relationships to suffer, along with a decline of healthy habits.

Infrastructure and organization: This applies not only to the physical nature of your business, but especially your operations. Have you outgrown the physical space that you occupy? Are you using equipment, technology, or IT that is not keeping up? Are your vendors and advisors able to handle the growth of your business? What about marketing and marketing staff? These are all areas to consider; otherwise, they will act as barriers to your growth.

Growth needs to be profitable, stable, and smart; otherwise, your results can easily go in the opposite direction that you intended. Think long-term, strategically, and surround yourself with the appropriate advisors to help you along your journey.

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The Secret Formula for Financial Happiness

Is there really a secret formula for financial happiness? If so, it would look like this:

Income = $100

Spending = $90

Result = Financial happiness

Alternatively:

Income = $100

Spending = $110

Result = Not too happy financially (at least not for long)

Simple, but true.

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