Posts filed under ‘Personal Finance’

Profit Lessons I’ve Learned…

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This week, I’m sharing lessons that I’ve learned during my five years as a small business owner.  On Tuesday, we discussed Productivity Lessons.  Yesterday, we talked about People Lessons.  Today, we are going to break down Profit Lessons I’ve learned.  These are the lessons I’ve learned about business finances.

1 – Find a System that Works for YOU!

A lot of people’s accounting problems stem from disorganization of paperwork.  You need to find a system for keeping receipts, invoices, and statements nice and neat.  We’ll be having a series on organization, so I won’t delve into that too much.  But, think about how you are going to keep everything in one place.  Will you use file folders labeled alphabetically? By month?  How often will you sit down to do your accounting?  Will it be weekly? Monthly?  Can you commit yourself to a day and time systematically?  What software will you use?  What is working with your current system?  What is not?  The more disciplined you are with your organization and your tracking, the easier your accounting will be.

2 – Know your Numbers

I’m going to say it again: hire an accountant for the dirty work (taxes and complicated accounting issues).  But, KNOW your numbers!  If you aren’t on top of your dollars and cents, then you aren’t on top of your business.  Take time to learn the basics of how money flows in and out of your business.  You are a business owner first and a (    fill in the blank     ) second (in my case invitation designer.)  It’s understandable that you may not feel comfortable with numbers (many people aren’t) but you can educate yourself.  That is the beauty of the world we live in!  Take a class; read a book.  Learn what the numbers are telling you.

3 – Take Care of Yourself

I’m going to share with you one of the mistakes I’ve made as a small business owner.  In my third year in business, I made the leap to move my business out of my home and into a beautiful studio in the Capitol Hill neighborhood of Seattle.  I LOVE my space.  In my eagerness it the beautiful office that it is, I reinvested most of my income back into the business.  After all, that’s what all small business do, don’t they?  They pour their money right back into the business so that they can grow organically, right?  Well, not necessarily.  First, they take care of themselves.  You must pay yourself, and save for a rainy day.  Then they invest in their business.  If you can’t do this, then rethink your strategy (hint: look at your numbers)

4 – Cash is King

Now, more than ever, we realize what this means.  In this economy, the businesses that have the cash are the ones that will make it through.  If your cash is tied up in making debt (credit line, business cards, loans) payments every month, then you are going to have a tough time investing in yourself and the business.  What I’ve taken from the 2009 recession is that whenever I have an opportunity to squirrel away some cash I do.  A few weeks ago, I had 4 nice contracts come in completely unexpected (they were all last minute fall weddings – yahoo!)  Since I hadn’t planned for that, that money is serving as a cushion for any unexpected slow-down in the months to come.  This recession is not over.  So, when you get those little windfalls, squirrel it away.

5 – A Tax Deduction = Business Expense = Less Income = Not Always a Good Thing

Be very careful with thinking that business expenses are a good thing.  Yes, you get a deduction from the IRS.  But, this is still a hit towards the profitability of your business.  And, if your business is not profitable you won’t be in business long.  I see too many small business owners charging dinners and networking events with the thought that “this is a tax write-off”.  The next thing I hear is that they are having problems paying their rent.  And, the government isn’t going to give you a refund big enough to make up for that.

And, with that… may you prosper!

July 23, 2009 at 6:00 am 3 comments

The Side Business – If You Have a Job, But Want To Do Your Biz

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We have all been there!  (Well, most of us have.) We have all had a day job and wanted to start our business. We have all tried to figure out how we would make that happen.  We have all tried to balance the job and the start of the business (whether it was “on the side” or “on the brain”).

My favorite personal finance blog is The Simple Dollar.  Trent Hamm simply writes an easy, practical, and well-thought guide to financial living.  I love his personal perspective.  He is not a financial planner.  He is not an “expert”.  He is you and me, trying to rub two dimes together.  His blog is one that I follow religiously.  I always learn something new.

Today’s advice for the side business is reposted from Trent’s site.  (A big thank you for all of your wisdom, Trent!)

How to Quit your Dayjob in One Year, by Trent Hamm

No matter what your financial situation, you can quit your job in a year. Anyone can do it as long as they have a plan and stick with it. Here’s what you do:

Step One: Figure out why exactly you don’t like your current job. Is there simply too much work? Too many aspects of work that are outside of your control? Too many responsibilities that you’re uncomfortable with? People you’re uncomfortable with? Your passion is now elsewhere? Make a very, very detailed list of the problems with your current employer. If these problems are one or two in number, you might be better off addressing these problems directly within the scope of your workplace. For example, if your life is hell at work because of a new administrative assistant, discuss this with an appropriate person in your workplace. There might be a healthy solution that doesn’t involve you walking out.

Step Two: Define, with as much detail as possible, what you plan to do in one year when you quit. Obviously, you’ll have to do something. Likely, if you’re quitting your job for stress-related reasons, it’s going to be something that doesn’t make nearly as much money, especially at first. The same is true if you’re quitting to start an individual creative career, such as being a writer; you’re not going to have much money. So you need to consider doing something that maybe doesn’t pay well, but allows you to continue to live while you follow your muse without being burnt out.

Here’s an example: I know one person who worked as a computer programmer for $50,000 a year who wanted to quit so he could do “nothing.” Since “nothing” was pretty broad, I asked him what he meant. He said he wanted to read and enjoy nature and simply unwind. I suggested that he find a job doing something un-stressful where he could probably read while at work, like working at a convenience store. What’s he doing now? He’s behind the counter of a 7-11 and he couldn’t be happier with his life.

Step Three: Figure out exactly how much you spend in an average month. Include everything you ever spend. Don’t forget anything, even if it’s not regular, like auto insurance, taxes, health insurance, and so forth. Look at your pay stubs, every receipt you have, every statement you have, and everything you can remember. Sit down and figure out what you spend on average in a month. It will be surprisingly high; don’t worry, it is for almost everyone.

Step Four: Lower that number as much as reasonably possible. If you want to quit, you’re going to need to get rid of some of the waste. [The Simple Dollar] is loaded with suggestions on how to do this, but the real key is look for ways to zero out (or nearly zero out) everything that is nonessential. Find free entertainment. Eat cheap food. Don’t buy stuff you don’t need.

If you’re really considering this plan, you may want to spend the first month participating in my 31 Days to Fix your Finances program, a series of articles that revolve around re-engineering your financial picture in terms of your true life goals.

Step Five: Take that difference and start putting it in a high interest savings account. Don’t even give yourself a chance to spend it, have it auto-deducted from your primary checking account. Many people can put as much as half of their pay into savings if they buckle down and commit to it. You might also want to pay off any high-interest debt if possible; make those credit card balances vanish.

Step Six: Start transitioning your life efforts towards your post-job life. Let’s say, for example, that you’re quitting to become a writer. Your free time right now should be devoted (as much as reasonably possible) to getting that writing career started. If your plan involves going back to school, you should fully immerse yourself in the process of applying and selecting a school. Meanwhile, gear back at your main job and merely do what’s required. If you’re going to be walking out the door in several months, there’s no reason to kill yourself, plus exerting yourself too much at work will reduce your energy for working at your post-transition goals.

Step Seven: Let the year go by. You can use this time to get used to living more frugally, building up some savings to help you when you quit, and also focus on your goals after quitting your job. For a lot of people, this period convinces them not to quit their job. The simple fact that they’ve readjusted their life priorities and know that they’re setting themselves up to be okay if the job disappears makes much of the stress of the situation leave.

Step Eight: A year later… quit your job. If you’re still miserable at work after a year, but you’ve got money in savings, your worst debt is gone, and you’ve been preparing for a post-job life, now is the time to quit. This really could be the first day of the rest of your life, especially if the stress level of your job was literally killing you.

Remember, no job is worth your life. If you are no longer enjoying life because of your job, get out. Get out now while you still have some life and some spirit left inside of you.

OK, here’s my take on it…

My take on Trent’s post can be summarized as such:

  1. Be ready to sacrifice your money:  You need to financially prepare for this leap (unless you plan on getting some nice investors to launch your biz, which is also a great idea… I’ll post on that some day).  You’ll need to make a budget and stick to it.  You need to save for a rainy day!
  2. Be ready to sacrifice your time: You need to practice, practice, practice your craft until you are ready to go out on your own.  You need to work on your biz in your free time until you are ready to launch.  Before I launched my business I saw my dayjob as something I did, but I told myself (and everyone else) that my job was stationery design.  In my mind, I was already that business owner even if it was after my 9-5.

And, if you are feeling a little scared… you may need to go back and read about The Shy One.

July 8, 2009 at 6:00 am 3 comments

Protect Yourself: Working with a Financial Professional

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You are a professional and expect engaged couples to hire professionals.  Why wouldn’t you do the same for your personal finances?  This goes along with the idea that you would never operate on yourself because you are not trained to practice medicine.  Why would you try to manage your personal finances if you haven’t had this training?

Stacy Willoughby, Financial Advisor for Waddell & Reed says that “a financial advisor allows you to tap into a professional’s expertise and frees up your time to find more new clients, do more marketing, and spend more time with your family.”

Stacy adds, “A good financial professional will want to be there for you as a coach and accountability partner as you work towards your goals and dreams.  They can also work as a quarterback for the other financial professionals on your team:  your accountant, your bookkeeper, your insurance providers, and your attorney, to make sure that all of these pieces are working towards your goals.  “

How to find a good financial advisor

In the wedding industry, we expect the customer to do their research, to ask for recommendations, to hire professionals.  This is the same of seeking a financial advisor.  Here are some tips that Stacy offers in hiring a financial advisor:

  • Ask family and friends for recommendations.
  • Inquire about the nature of the work they had done, how long they have been in the field.
  • Ask the same questions you would ask any consultant:
    What is your background and training?
    How long have you been in the business?
    What is your particular area of expertise?
    Are you member of a professional association?
  • Clarify expectations of what you are looking for in an advisor and what they expect from you.
  • Ask about the fees associated with the types of serviced provided.  Make sure that you understand how you will be charged.  (You should also know that you have choices as to how you are charged, either a sales charge or fee-based.)
  • Compare the services that will be provided.  Remember, cheaper isn’t always better.  Look for value and experience.

The financial advisor will be key in helping you put all the pieces together.  They’ll jump-start you on the path to building an emergency plan, a retirement plan, and an insurance plan.  And, as wedding professionals, we all know the value of hiring professionals!

June 25, 2009 at 6:00 am Leave a comment

Protect Yourself: Insurance for the Small Business

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There are a number of crazy things that can happen to you and your business.  We could play the “what if” game for hours but the bottom line is that you need to be properly insured to make certain that no one sues your pants off and to protect yourself from a catastrophic event.  This is as important for home-based businesses as it is for owners of businesses that have an office or retail space.

Business Insurance

There are a number of insurance options to safeguard your business from liability associated with the injury of a client on-site.  This is the same risk whether you have a business in-home or out of your home.  Stacy Willoughby, Financial Advisor for Waddell & Reed states that “If your business is home-based, you may also be at more risk than you realize.  For example if a prospective client slips and falls on your porch, your homeowners insurance may not cover the incident because it was business related.  This could put your personal assets at risk.”  You also have various risks from natural disaster that could impact the recovery of your assets and inventory should “the big one” strike.

Stacy recommends that you discuss the following insurance options and your business needs with your insurance agent:

  • professional liability or product liability insurance
  • corporate insurance if your business is incorporated
  • automobile insurance if you use your auto for business purposes

Disability Insurance

Disability insurance safeguards you from the catastrophe of personal injury that would prevent you from running your business.  Stacy brings up the following important (and scary) questions:

  • What happens if you are a photographer and you break a leg and are now physically unable to perform your job?
  • What if you are expecting a baby and there are complications?
  • What would happen if your paychecks suddenly stopped because you were too sick or injured to work?
  • What if you couldn’t work for months, or years?

Stacy emphasizes this type of insurance as extremely important: “Disability Insurance protects your most valuable asset, your ability to earn an income.  All of your monthly bills, including food, utilities, house and car payments still need to be paid. When you also consider things like tuition and retirement funding, it’s easy to see how savings could quickly disappear.”

Talk with your insurance agent about your business and personal insurance needs.  Chances are you are under-insured and putting your business and well-being at risk.  Tomorrow, we’ll discuss how to put this in the hands of a professional.

June 24, 2009 at 6:00 am Leave a comment

Protecting Yourself: The Retirement Plan

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This week, we are discussing how to better safeguard your personal finances.  Yesterday, we discussed the importance of creating an emergency savings plan.  Today, we’ll uncover retirement options for the small business owner.

Stacy Willoughby, Financial Advisor for Waddell & Reed says “It’s easy when you are working for a large company to contribute to a retirement plan that they have set up.  It doesn’t have to be that different when you are in business for yourself.  Actually, you have more choices available to you as the business owner.  You can choose the investment company, level of service, and type of retirement plan that works best for you.”

Determining your retirement needs

The type of qualified retirement plan depends on your adjusted gross income, retirement goals, and your business structure.  Do you have the right retirement plan for you and your business?

Stacy recommends asking yourself these questions to determine the right retirement plan for your business:

  • How is your company structured?
  • How many employees do you have?
  • Do you have a current retirement plan?
  • If you do, what would be considered an improvement?
  • What is the main reason that you want a retirement plan?

Specific types of retirement plans

These days, the small business owner has so many great retirement plan options!  Stacy discussed with me the following retirement plans for self-employed individuals and small businesses:

  • Payroll deduction IRA plan: A payroll deduction IRA plan is a type of arrangement that you can establish to allow you [and any employees you might have] to make payroll deduction contributions to IRAs (traditional or Roth).
  • SEP plan: A simplified employee pension (SEP) plan is a tax-deferred retirement savings plan that allows contributions to be made to special IRAs, called SEP-IRAs, according to a specific formula. Generally, any employer with one or more employees can establish a SEP plan (although it is best suited for the self-employed, or a sole proprietor or partner with net business income).
  • SIMPLE IRA plan: A SIMPLE IRA plan is a retirement plan for small businesses (generally those with 100 or fewer employees) and self-employed individuals.  It is established in the form of employee-owned IRAs. The SIMPLE IRA plan is funded with voluntary employee contributions and mandatory employer contributions.
  • 401(k) plan: The 401(k) plan has become increasingly popular for sole proprietors and solely owned corporations. With individual 401(k) plans, the business owner is typically the only participant in the plan and they can make the employer and employee contributions. The appeal of individual 401(k) plans dramatically increased as a result of the Economic Growth and Tax Relief Reconciliation Act of 2001, which (a) increased the maximum deductible profit-sharing contribution from 15 percent to 25 percent, and (b) allowed employee 401(k) deferrals to be deducted separately, in addition to the maximum profit-sharing contribution. These changes allow a much larger deductible contribution than was permitted under prior law.

Dream a little dream…

The purpose of your retirement plan is for you to RETIRE!  You do not want to be working your business for the next 92 years of your life.  If you plan on retiring, you need to start ensuring your retirement.  There is no time like the present.

Tomorrow, we’ll get into business insurance – why it’s important and how to get it.

June 23, 2009 at 6:00 am Leave a comment

Protecting Yourself: The Emergency Savings Plan

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Small business owners are so very passionate about their work. They put all of their energy into their operations. However, I get a little scared when I see these hard-working people not safeguarding their personal needs and assets. Even though you don’t have the benefits offered to you by an employer, you should have a savings plan, a retirement plan, an insurance plan, and financial professional to help you with these.

This week, we are going to focus on the safeguarding of your “now”, your future, your well-being, and your sanity… in other words… your personal financial plan:

  • Now: Emergency Savings
  • Future: Retirement Plans
  • Well-being: Business Insurance
  • Sanity: Hiring a Professional

Now, keep in mind that this is for your PERSONAL finances. This is not your business financial plan. For that, you can reference the 13 step business plan.

First things first…

I spoke with Stacy Willoughby, Financial Advisor for Waddell & Reed, and got her thoughts on how a business owner can better prepare themselves financially. Her tip is to “pay yourself first.” We often make the mistake of paying everyone else before we pay ourselves. I know I’ve even made the mistake of investing in equipment before taking a salary cut for myself. But, if I’m not paying into my personal financial needs, then my business isn’t working. After the initial start-up of your business (and hopefully during your start-up phase), you need to pay yourself a salary and pay into saving and retirement plans.

Stacy feels that it’s important to take care of your personal financial needs. Here is some great advice that she shared with me:

  • Pay yourself first.
    “I know that you have heard this before, but consider how empowering it would feel to contribute to your retirement plan and emergency reserves before you pay your rent! It encourages regular savings habits.”
  • Make it regular and automatic just like all of your other bills.
    “It can feel impossible especially as a small business owner! After the cost of rent, equipment, marketing, and all those other business expenses, it can feel like there is nothing left to save. It’s a matter of self-care and taking better care of you. Paying yourself first establishes you and your business as the priority.”
  • Adjust for irregular income streams.
    “Many small business owners I know are reluctant to make any bill automatic because their income is irregular. Self-employed people that are paid sporadically may find it is easier to set aside a percentage of all income. For example, if you just got paid $3000 for a wedding shoot, take 10% and pay yourself first. Half of it could go towards your emergency reserves and half could go towards your retirement plan.”

The Emergency Savings Account

Before squirreling money away for the future, start saving money for the “now”. This will be your emergency plan should anything happen to you or your business. Advisors will differ on the amount recommended for savings plans. Some people advise to save money equivalent to 3 months of spending; others advise on 12 months of spending. (This is the amount that would cover you for 3 or 12 months of personal and business expenses.)

Start with something that is EASY for you to ACHIEVE. 12 months of cash flow may seem insurmountable to you, start with $500, build up to $1000, eventually to $5000 and so on. This should serve as a cushion to meet the unpredictability of the economy and of life in general.

Once you have a cushion that you feel proud of, you are ready to start thinking about retirement.  Ahhhh, retirement!  We’ll cover that in tomorrow’s post.

June 22, 2009 at 6:37 am 2 comments


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