Finances

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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An Observation Regarding Money Worries

There are a few things that I noticed over the years that seem to contradict each other regarding money worries. There seems to be a link between being charitable, concerns over saving too much, and stress about money.

Charitable giving: some people make a lot of money and give little to nothing to charity, especially as a percentage of their income, and the opposite is sometimes true regarding those with modest incomes. Theoretically, the greater your income then the greater should be your charitable giving. Why does this make sense? I believe that it has to do with a scarcity mentality and a fear of letting go. If you are overly concerned with not having enough money, whether real or imagined, then why would you part with your money?

Overly concerned about saving: Let’s face it, it is daunting to think that we have to make sure to save enough for retirement, college, a house or a larger house, 6 months of expenses for an emergency fund, weddings, sweet 16 parties (they can be over the top nowadays), vehicles, business ventures, and everything else. It even makes me exhausted just writing that! However, some take it too far and save so much or are concerned so much about saving that they get really stressed out. Although I am an advocate for saving up for most of the above (I’m not a big fan of massive weddings and outlandish sweet 16 parties), you have to balance that with current needs or you will be miserable. Who wants to eat the cheap steak to save an extra $10 for their retirement?

Do any of these apply to you? Maybe just a little?

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How to Resolve Conflicts with Less Stress

Conflicts are inevitable and happen in all aspects of your life, including disputes with your customers, disputes as a customer, with family, neighbors, and in any situation. However, there are ways of minimizing conflicts and to also resolve them fairly and quickly. Here’s how:

Resolve at the lowest level: A perfect example is when a customer at the grocery store is not satisfied for some reason and they immediately ask to speak to the store manager. Quite often, the easiest way to have resolved the issue would be to let the cashier know the issue first, then customer service if still not resolved, then finally with the store manager.

Don’t make threats or take drastic action: As soon as you say that you are going to contact your attorney, then you just escalated your issue to a whole level higher, and the relationship will most likely be damaged forever. Ironically, I think that this threat has been overused anyway and nobody really cares all that much. Another example is to demand a raise from your employer and if not given one, then threaten that you will leave. Why not either ask for a raise, if you deserve it, or ask your boss what you can do differently to receive a raise?

Avoiding conflicts: Avoiding conflicts does not mean trying to make everyone happy because that is not possible, and you will make yourself unhappy and exhausted in the process. Do not avoid conflicts just to avoid conflicts or just to be nice as sometimes the truth hurts, although you should make sure that you say it in a charitable way. A good practice is to always strive to determine how to conflict proof your decisions.  For example, if you know that you are going to make a change to your business practices, then let people know ahead of time, when possible. This can involve alerting customers to price increases, billing methods, payment methods, and timing of providing a service. The key is to communicate with people in a smart, proactive, truthful, and thoughtful way.

Put it in perspective: Is the conflict really that important or even worth pursuing? Weigh the pros, cons, and the actual cost of entering a battle.

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How and Why to Strengthen Your Personal Finances to Increase Profits

Most people view their business to be a completely separate entity from their personal finances, and rightly so. This is generally true from a legal, tax, and accounting standpoint, whereas your business operations and finances should be separated from you personally. However, most small business owners are completely dependent upon their business to support them, as they feed off each other. So how and why should you strengthen your personal finances to increase your profits?

Why:

The business won’t starve: By withdrawing every single penny of profit from your business, it will make it much harder to invest in technology, equipment and capital improvements, and people. One of the main reasons that businesses fail is due to a lack of capital.

Increased profitability: If you have a large personal expense that is coming due, such as your mortgage, then you are more likely to take on less profitable customers, jobs, or may even sell your products at a discount due to desperation.

Better business decisions: It’s no secret that people make better business decisions when they are not feeling stressed or anxious. A common example of a bad decision is to cut expenses that support the main operations of a business to save a few pennies, but it ends up costing you dollars of revenues.

How:

Decrease your personal spending: There are numerous ways to decrease your spending, including groceries, dining, entertainment, taxes, auto, clothing, and virtually every category of spending. Some of my other posts will give you ideas regarding cutting expenses, but a few tips including: using cash more, cash budgeting (aka the envelope system because almost no one actually prepares a real budget), reviewing all of your “necessary” expenses, and delaying expenditures/gratification.

Increase cash reserves: Most people are poor at this (no pun intended), including those who save well for retirement. Savings should be allocated for short-term needs, such as emergencies, mid-term needs, such as for a house, and long-term, such as retirement. The easiest way to start saving is to allocate a very small percentage of every deposit that you make in your personal account towards a separate savings account. You can even start with 1%, just to get used to doing this and you’ll quickly realize that it is not that difficult. Over time you can increase your savings rate as you increase your business profits.

Reduce debts: Similar to increasing your cash reserves, you can start with applying a small percentage of every personal deposit towards your debt balances. The big question is which debts should be paid down first. Since finances are very behaviorally driven, then one technique is to start with the smallest debts first while ignoring the interest rate. The reason for this method is because it creates a sense of accomplishment once a debt is paid off, and will motivate you to continue moving forward.

 

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What is the Best Type of Business to Own?

What’s the best type of business to own? One that makes money of course, but let’s dig a little deeper . . .

Simple: The more complex a business is then the harder it is to operate. For example, if your business requires the talents of very technical people, then this complicates the delivery of your products and services. Unfortunately, it also requires more time and expertise of the owner. Such businesses include engineering, law, healthcare, IT consulting, accounting, and other technical fields.

Low capital requirements: If you need to invest heavily in equipment, real estate, or large amounts of inventory, then this can create a drain on your cash. Supposedly, lack of capital is one of the main reasons for business failures.

Repeat business: A perfect example of a business that receives repeat, recurring sales is a subscription based software company. An example of the opposite type of business is a general contractor. There is a wonderful book called, “The Automatic Customer” by John Warrillow that outlines the value of a having a business with predictable, steady, recurring sales. He gives numerous examples on how this can be applied to many businesses, and not just software companies. I’m a big advocate of businesses trying to maximize their recurring sales.

Easily duplicated: Any business that can easily replicate the tasks that the owner performs is a plus. Did you ever notice that many of the chain restaurants do not serve overly complex dishes? If they did, then it would complicate the way the run their business.

If you are thinking of starting a new business, an additional business, or even a side business, then you should strongly consider a business with these traits.

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Don’t Be Embarrassed if You Have Financial or Tax Problems

There is a stigma attached to having financial and tax problems, but it doesn’t have to be that way or it may make the problems worse. Sometimes these problems develop as you become more successful, which easily happens with both celebrities and business owners. Other times they develop due to a quick downturn in business, withdrawing money from retirement accounts early, losing your job, health issues, or any other negative event. Even some very successful people have had financial struggles and then bounced back, including:

Donald Trump: Although he never filed bankruptcy personally, his casinos and hotels have. He is now president of the United States.

Mark Victor Hansen: One of the co-creators of the “Chick Soup for the Soul” book series.

Walt Disney: He had financial struggles early on.

Jim Rohn: Entreprenuer, author and motivational speaker who went broke after a business expansion went bad. He is credited with the business success of many and some of his talks can be listened to on YouTube.

Also, the number of celebrities that have financial and tax issues is too long to list . . .

What should you do if you find yourself in trouble or better yet, how can you avoid problems? Here are a few ways:

Hire competent professionals and heed their advice: As your success increases, you need to work closely with advisors that can guide you in the right direction to minimize risks, strengthen your finances, and reduce your tax burdens. If you view and treat professionals as purely costs, then you will not only hire the wrong ones, but you will not seek their advice, which is usually worth more than their cost.

Too much leverage, not enough cash: There are those that are 100% against any types of debts, and I can definitely see how this can be a smart strategy to keep you out of trouble. However, there are many times that you will never realize an opportunity if you do not take upon some debts and risks in a wise manner. Having a reasonable cash cushion will also help to thwart many smaller financial setbacks.

Know the tax consequences: Virtually every financial transaction has a tax consequence and it is prudent to seek professional advice to minimize negative consequences. Having a good year in business, followed by a not so good year can easily cause a tax issue if taxes were not properly planned and paid for. Another tax catastrophe is withdrawing from your retirement accounts and not accounting for income taxes and early withdrawal penalties.

Don’t be so hard on yourself or delay seeking the advice of a professional or your problems will just get worse.

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Don’t Sell Your House

Usually your first house is a “starter” home that you purchased because it fit into your budget at the time. A few years later you then sell your house, move up to a bigger home, and may even repeat this process several more times. But what if you didn’t sell your home and rented it out instead? Let’s look at the pros and cons of doing so:

Pros:

Easier Way to Have an Investment Property: If you were to purchase an investment property then you generally need a much larger down payment of say 20% – 30% compared to a mortgage for a home, which you may not have available. Additionally, the interest rate and payment terms are generally less favorable than a residential mortgage. Since you already purchased your existing home as your residence, you already have financing in place, which is avoids this issue.

Transaction Costs: Look at any settlement statement and you will see that the transaction costs greatly reduce the proceeds after selling your home. By renting out your home you will have avoided these costs.

Appreciation and Rental Income: If prices in your neighborhood are rising and there continues to be strong demand for housing then most likely your house will appreciate and so will the rent that you can charge. A rental property can also provide diversification to the stock market.

Cons:

No Down Payment for New Home: Homeowners usually use the equity from selling their home to purchase another home, but if you do not sell your home then you will have to either save up for a down payment or access your equity through a loan.

Negative Cash Flow: If your cash flow will be negative for the foreseeable future, then it doesn’t make sense to rent out your home. You have to also be able to have the cash to cover expenses when your house is vacant.

Leverage and Debt: Debt is a double-edged sword (that can be another article). You want to make sure that you aren’t so leveraged that it puts a large strain on your finances, especially if/when bad things happen.

You Are Now a Landlord: Who wants to be a landlord and clean toilets? This is a very common argument, but the answer should always be never because who likes problems? You should make sure that you have reliable handymen, plumbers, etc., and screen your tenants as much as possible. However, you should like the fact that you have created a financial asset for your well-being.

Most homeowners never even consider renting out their home, but it can be a viable financial strategy depending upon your situation. Just make sure to run the numbers first.

9 Ways to Reduce Your Money Worries

When we lack money it creates a lot of stress and anxiety, and can be a source of tension in relationships. But how can we make our money work for us? Here are several ways we can take more control of our money to reduce our stresses:

  1. Change your thoughts: Reframe the way you think about money from being worried about it to being non-emotional about it. Nothing changes if you are worried about it, but worries may cause you to make worse financial decisions. This doesn’t mean that you should not care about money or be reckless.
  2. Be a good steward: If you think of your money not as your own, then you will manage it differently. It is a resource, no matter how great or how small, that we are given to be responsible with. Don’t be foolish with how you spend your money or the way you invest it.
  3. Save it first: Save your money first before you pay anyone else. Even if you start with saving 1 % of your income, it will create a habit that will last you a lifetime, and over time you can increase the percentage to more meaningful amounts. Although 1% may only amount to $20, $50 or so a week so there is almost no excuse to save this small amount, even if you are struggling. I like percentages because you save more when your income is higher and less when it is lower.
  4. Delay large purchases: Houses and cars are our largest expenses, but usually there is not a lot of thought put into these purchases. More time should be spent discerning larger purchases then small ones.
  5. Minimize useless debts: It seems as though anything can be financed today, from cell phones to plastic surgery. If your cell phone bill is $500 a month because you financed 5 iphones then you probably couldn’t afford the phones in the first place.
  6. Make more money: If your income is not high enough and your spending is not an issue, then figure out ways to make more money. If you need to switch jobs or hire a consultant for your business then do it.
  7. Give it away: I’m not sure if there are studies on this, but anecdotally, people who are more charitable seem to be happier than those who are not.
  8. Be timely: Pay your bills in a timely manner by being more systematic. Late fees and threatening notices are never enjoyable.
  9. Do something different: As with any problem, you need to change what you are doing because obviously it is not working. Yes, we are all stubborn.

By the way, it doesn’t matter if you make $50,000, $500,000 or $5,000,000, as you will have the same issues, with different variations. And, more money doesn’t mean fewer problems.

Do You Have Too Many Financial Accounts?

How many financial accounts should you have both personally and for your business? These days it is so easy to open up accounts, but if there is no strategy for having a lot of accounts, then it can create unnecessary chaos and even increase your accounting and tax preparation costs. Let’s look at the pros and cons:

Multiple investment accounts: You may have a traditional brokerage account with one firm, your IRA’s somewhere else, and your old 401k’s still at your employer. The problem with this approach is that it may be hard to coordinate your asset allocation and investment strategies if you are not looking at them as a whole. This is especially true if you have a financial advisor because he or she most likely does not have visibility to your other accounts and cannot advise you properly.

Multiple bank and credit card accounts for your business: There are strategies that can be implemented whereas you transfer money between bank accounts as sort of a shelter as a way of budgeting for your expenses. This strategy is outlined in a book called “Profit First,” which is a very good read, and if you are able to implement this strategy then that is excellent. Aside from the business owners that use this strategy, anecdotally, there seems to be a very high correlation between poor financial performance and multiple bank and credit card accounts.

Multiple bank and credit card accounts personally: The most common issue is when husbands and wives have separate bank accounts. Aside from this being a smart move if there are legal issues, addictions, or tax issues, it makes sense to have one joint checking account for a married couple. Money issues are at the forefront of arguments so why not coordinate your finances as one unit so that you make better decisions jointly and without conflict?

You should always strive to simplify your finances, but as Albert Einstein said, “Everything should be made as simple as possible, but not simpler.”

Don’t Worry if the Timing is Not Right to Conquer the World

Ever feel frustrated that your business or your career isn’t going as well as it should? I’m sure that most people feel like this from time to time, but sometimes there are valid reasons for this. Not excuses, as the “success” coaches may call them, but as human beings we have many moving parts to our lives. Some reasons for not being able to conquer the world right now and what to do include the following:

Health Issues (Physical & Mental): They may come at any time and can be minor, permanent, or severe. Health issues can put you out of work for months or even years. The main objective should be to focus on getting your health back so that you can take care of yourself and your family. Next, you should look into how future health problems may be prevented, if possible. You may also find that you have to attend to family members that get sick, such as spouses, children, and aging parents. First things first.

Raising Children: Raising children is not an easy task and many parents feel the tug between working and taking care of their children, especially mothers. This is especially true when both parents work, which is the majority of parents nowadays. I’ve written about the trap when both parents work full-time as the financial benefit is not usually as great as it seems when factoring in taxes, additional expenses, etc. Some options to help juggle responsibilities are to change your work schedule, have a flexible schedule, or work part-time, especially during school hours.

Addictions: Addictions can be in the form of alcohol, drugs, pornography, and gambling to name the major ones. No one likes to talk about this because of the stigma of addictions, but these will have a devastating impact of your business or career, even if you are indirectly impacted by addictions, such as with a child or spouse. Healing and overcoming addictions needs to take place.

Family Issues: Divorce or separation is a common family issue and may go hand in hand with the other examples above. Marriage struggles, especially divorce, will not only impact you and your children emotionally and spiritually, they tend to destroy family finances. Who care if they are successful if their family is torn apart? Marriage therapy, family therapy, or spiritual guidance from a priest or minister can help to save your marriage. Also, all kidding aside, they are much less expensive then a divorce attorney.

We are not machines, but people that have problems, emotions, and are all fighting our own battles. Some battles are greater than others, but we must build a solid foundation before conquering the world.