The Secret Ingredient to Getting Cash for Your Business

Yes, the secret ingredient is bacon😁

“Hey, um...they told me to give you a call.  I have a great idea for a business and they said that you were the man!”

I know I’m in trouble when I hear this.  And I never really find out who “they” are either.

By the way, this dude’s name was Xander, but he was my age.  

I didn’t go to school with any kids named Xander back in the 80’s and 90’s.  All the boys were named Jason, Jeremy, and James...and anything else with a J.  But not Xander, and especially Xander with an X instead of a Z.

“Yes sir, I have talked to at least 3 other people and they all redirected me to you.  You see, I have all the ingredients for a cake, but I just need the recipe if you know what I mean, so when can we meet?  Today?!”, Xander said.

Xander was extra proud of his analogy since his business idea was a cupcake shop that targeted men.  You know, cupcakes with bacon, buffalo chicken, and beer.

“Nobody else is doing this.  I just need the recipe which in this case is the business plan so I can get some money.”

After a quick discussion about how a business plan doesn’t get a loan, we talked about all of his ingredients or rather his ideas.

It didn’t take long to discover Xander was missing the main ingredients ie. capital, collateral, and cash flow.

I explained that this was like missing flour, sugar, and eggs for his cupcakes.

He was deflated and even a little indignant.  

“How could banks be so shortsighted?” Xander asked.  

Didn’t they know this was a goldmine waiting to happen?

I suggested starting this goldmine on the side and building it up to get a proof of concept going, as well as, obtaining some of his own capital.

He didn’t seem very interested in that at all.

“Well, thanks I anyways...I guess.”, Xander said as if I just told him he wasn’t allowed to start at all.

Meanwhile I have helped several startups get funding, but they had more of the ingre...ugh, I’m already sick of that analogy; they had their 5 C’s of credit lined up first.

A big difference was that most of the startups had begun as a business on the side while they held down full-time jobs, which was difficult, but gave them a proof of concept first.

For example, there was the fitness trainer, Jennifer (there’s that hard working J name that I was looking for) that built her business on the side while she held down a full-time job.  

Once she had enough clients to justify going out on her own, she quit her job and added even more clients.  

Jennifer did group coaching classes and one-on-one coaching sessions.  

Her goal was to have her own fitness facility because right now this was all happening in the park, in her garage, and at her client’s homes.

Jennifer found a place that was just right for her business.  It was close to her core group of clients and she could make the numbers work.

She wanted to get a loan to do some buildout (light construction in this case to turn this leased property into more of a fitness facility), buy some specific fitness equipment, and have some working capital leftover.

Her estimated startup would be $100,000.

Below are what banks refer to as the 5 C’s of Credit that determine if you get funded.

Capital - Banks want you to have at least 20% of your own cash when you start.  But why do they make you have money to borrow money?  To show that you have at least some ability to manage your own money and so you will have some skin in the game.  

So that means that Jennifer needed to have at least $20,000 of her own cash.  And as luck and hard work would have it, she had saved $20,000 while doing this for the last two years.

Collateral - This is the fixed asset that you can use to secure the loan.  This is what the bank can get from you in case you stop paying them.  They like houses. They don’t like cars, jet skis, or your baseball card collection.  They like fixed assets that appreciate.

Jennifer and her husband had owned their home for a while and had a little bit of equity, so they used it for collateral.  She also pledged her fitness equipment, but it wasn’t enough on it’s own to hold the note.

Cash Flow - This is your ability to repay the loan based on both the business and your personal financial situation.  The bank wants to make sure there is more cash coming in than debt payments going out; usually they like to see that you have 25% more net income that you do debt payments going out.

In most cases, the bank will not count your business income until your business has been around for two years.

Jennifer had both her business income and her husband’s income to count toward the loan and they didn’t have much debt other than their home, so she was in good shape.

Conditions - How are you spending the money from the loan and what are the current economic conditions and industry trends.  

Jennifer was able to show that she needed $25k for buildout, $35k for equipment, $25k for working capital, and $15k for additional start up costs (deposits, marketing, etc.)

Character (Credit) - Do you have at least two years of experience in this industry, have some type of managing experience, and is your credit good?  Essentially, are you a good bet?

Jennifer had shown a willingness to build on her own, had a lot of experience, and a credit score of 720+.

In spite of a pandemic, Jennifer’s business is growing.  

Not because she was able to get a loan, but because she was already in the position to get the loan by doing the right things right.

I haven’t kept up with Xander, but I would like to try an IPA cupcake one day.

How to Fund Your New Business

The first album I ever bought was Michael Jackson’s Thriller.  

I was only seven years old and managed to save up a grand total of $6.  

I never even looked at the price, because $6 was the most money in the world to me.  

My older sister Barbara was kind enough to stand in line with me at K-Mart, and thank God she did, because the album was actually $7 and some change.  

I was panicked as the clerk awkwardly looked down at me with my six crumpled dollar bills.  

Luckily, Barbara had a couple of bucks on her and she took pity on me.  

And, she claimed 20% ownership of that Thriller album.

Unfortunately, this is also how many folks try to fund their full-time business.  

But they're not six years old with a smarter thirteen-year-old waiting in the wings.

After 14 years of coaching small business owners and start-ups, I have found these to be the most common ways to fund that full-time business you are dreaming of.

BEST WAYS

Personal savings/resources 

This is the most common and smartest way that people fund their full-time business.  

This takes longer and requires the most discipline, however, it is the most secure and successful.

Determine what your start-up costs and working capital needs are now and simply compare it to what you have access to.  

Whatever you are short is the amount you have to save.  

It’s not rocket science, but you wouldn’t believe the number of people that find that exercise difficult.

And yes, I count a home equity line as part of your savings but be careful because that is also one of your most precious assets.

Bank and/or Small Business Administration (SBA) loan 

This one is simple to understand, but not easy to do.

A lending institution wants you to have capital, collateral, and cash flow to loan you money.

For example, if you want to start a landscaping business and your project you need $100,000 for equipment and working capital, the breakdown for qualifying looks like this:

• Capital is around 20%-25% of the total cost.  In this case you would need $25,000 of cash on your own.

• Collateral that can cover the other $75,000.  They may be willing to use some of the equipment you are purchasing, but most likely they want a fixed asset that appreciates, i.e. your home.

• Then you need cash flow to pay for the new loan.  And if this business is less than two years old, the bank won’t count the income from the business.  This is one of the reasons I usually advise people to start their business on the side, before launching full-time.

Then there’s the matter of having good credit, showing how you will spend the money, a business plan, etc.

So if you don’t have the full $25,000, don’t have that much collateral, and you are short the monthly income to pay for a new loan, you may need to Plan B in this case. That might look like buying a zero turn mower on your own and start mowing yards during the evenings and weekends first.

An SBA loan is not that much different from a traditional bank loan.  The same rules apply with capital, collateral, and cash flow, however, the SBA will potentially guarantee the repayment of up to 85% of the loan to the bank if you are unable to repay the loan.

This doesn’t make the loan necessarily that much easier to obtain, but it incentivizes banks to make those loans.

NOT THE BEST WAYS

Family/friends 

This one is not my favorite.

Your family and friends have heard you go on and on about how you are ready to start your own business and some of them are eager to get in on the action.

I’m not saying this can’t work out, but it rarely does.  

Those silent partners that want to see you succeed usually become passive aggressive advisors that want their money back sooner rather than later and with plenty of interest.

Assuming you do borrow money from family or friends, make sure you have a written agreement in place for the terms and interest rate.

When MeMaw said, “honey, you just pay it back whenever you can”, she really meant starting next month with a modest 5% interest rate.  She just assumed you knew that though.

Credit cards 

This one is a straight up no-no.

I don’t want to go all Dave Ramsey on you, but starting a full-time business has enough obstacles.

If you are in such a tight financial spot that you can’t save any cash and the bank says your income doesn’t support a loan, then you might need to take care of those issues first.

Adding a high interest loan (which is what a credit card is) won’t make your financial situation better, but it will definitely make it worse.

VIRTUALLY NON-EXISTENT WAYS

Investors 

I blame Shark Tank for the emails I get asking about local investors.  

And I do love Shark Tank, but investors like that (venture capitalists or angel investors) are usually looking for something in the tech, medical, or even music industries.  

Also, they usually want to invest in someone that has experience in raising capital and this industry.

That leaves out a big majority of traditional businesses.

Investors for the rest of us will usually be someone you know that believes in your business idea.

If you go that route, I’d suggest working with an attorney to create a term sheet, which is a document outlining the business agreement, establishing how the investor will be paid back. 

But keep in mind that you are taking on someone that will have ownership and will eventually want some say so in your business too.  

 

Crowdfunding 

It’s not fair for me to say crowdfunding is non-existent for small business funding, because the evidence proves otherwise on their platforms.

I just haven’t met anyone that has been successful with it.

Below are some options and there are several more:

• Kickstarter

• Indiegogo

• Fundable

 , 

Grants 

While there has been a boom of grants, advances, and forgivable loans over the past year geared toward helping people recover from the pandemic, I’ve yet in my 14 year career at the TSBDC to see a legitimate grant for someone starting a small business.

In reality, getting a small business grant to start or expand your business isn't very likely. 

As for me, that Thriller album is long gone and I still owe Barbara a couple of bucks.  

So, maybe that was like a funding business start-up :). 

This Bad Habit Might Be a Good Thing

One of the worst habits we have in my household (well, I have) is comparing what we have to someone else has.

And there’s always someone with something nicerJ.

•          We got a 55 inch 4k TV, but…my sister-in-law got a 75 inch TV that has such a clear picture I thought that Derrick Henry was in their living room.
•          We went to the beach in the fall, but…another family we know owns their own beach house.  And a lake house.  And a cabin in the mountains.  And blah, blah, blah.

We are constantly comparing ourselves with others to measure how well we are doing. 

This is not a very healthy thing to do on an individual basis.

But…

This could be a good thing in your business!

No, you shouldn’t stress out if a competitor has a new product or just moved to a bigger location.

However, you should be comparing your Income Statement to the industry average.

Why?

“What gets measured gets done!”

For example:

•        If you are a restaurant owner what is your cost of goods sold (COGS), compared to other restaurants? The average is 37%.
•        If you are a landscaper, do you know what your payroll costs are compared to other landscapers? The average is 22.50% and revenue per employee is $72,347.
•        If you are a department store, do you know what your rent is compared to other department stores? The average is 5.36%
•        If you are a real estate broker what should you be spending on marketing compared to other brokers? The average is 3.52%

Small business owners do a good job of comparing their current business to what they did last year, however, they need to know how their Income Statement compares to the industry as a whole.

Common measurements are your costs-of-goods-sold (COGS), net profit margin, current ratio, percentage of expenses versus income, etc. 

Comparing against other businesses in your industry is a more accurate way to determine how well you are doing and what you could improve upon.

Below are some great places to find these types of benchmarks for your industry:

• Your CPA
•   www.bizstats.com
• Your trade association for your industry
• You could always contact your friendly TSBDC for this type of comparison, charles.alexander@volstate.edu 

p.s.

And if you just got a new smoker, I don’t want to hear about it.  Mine is just fineL.

Do This In Your Business Or Suffer The Consequences

This past fall we bought a new house in Gallatin.

This is our fourth house (and last) we have bought since we’ve been married, and all have been fixer-uppers because raising three kids and working full-time just wasn’t stressful enough.

This house was the epitome of a needle in a haystack.  

The market was hot, the house was in the best location, and it had great “bones”.  

And if you don’t know, great “bones” means it’s a good house, but’s also a hot mess right now.

After about a month straight of rehabbing, the house was ready to move in.  

All it needed was carpet, paint, refinish the floors, windows, appliances, countertops, tons of new fixtures, woodwork, gutters, etc.  

You know, basically everything.

We still managed to stay on budget and walk in with enough equity to make it worthwhile.

This is what happens when you don’t reinvest in your home.  

You end up selling it at a below appraisal price in a hot real estate market.

It’s pretty easy to understand when it’s a house.  

You can see the windows falling out and the gutters hanging by a thread.

It’s harder to see with your business.

But you know what…I see it all the time.

• The website is out of date.

• Your bookkeeping is 6 months behind.

• The equipment is in constant need of repair. 

• Employees are kind of doing their own thing.

• You are putting out fires instead of working “on” your business.

• The CRM you bought to keep up with all of your contacts has never been installed.

You get the idea.

It’s just like this house we bought.  

The previous owners got busy with life and never really got around to the house maintenance.  

And in your case, you get busy with the day-to-day grind and really don’t have the time to reinvest in your business.

However, this becomes a big problem if you want to sell the business or just regain your sanity.

The key is to treat the REINVESTMENT in your business the same way you would reinvest in your home.

1. Schedule time for regular updates to your business and don’t let anything interrupt it, the same as you would not let anything interrupt you getting a plumbing leak fixed.
2. Take stock of your business today and look at every area that needs to be updated.
3. Then make a list, prioritize it, assign a budget for time and money, then figure out who’s gonna do it.

Yeah, I know all of this is easier said than done, but that’s owning a business.  

If it was easy, everyone would do it.

And if you decide you are just too busy to do this, you may end up with a nice little business with great “bones” that someone else buys for below market value.

11 Things I Have Learned In 11 Years at the TSBDC

I started my Tennessee Small Business Development Center career on March 27^th, 2007. 

I provide free one-on-one business consulting and get to teach workshops for small business owners too.

Calling this job rewarding is an understatement.

I’ve seen the highs and lows of the economy and I’ve seen businesses come and go.

And I also learn something new, EVERY SINGLE DAY.

With that said, below are 11 things I have learned in 11 years.

1. You always have to start with a goal.  Trying to improve a situation is pointless without a goal because you won’t know what you are striving for and what steps are needed to get there.
2. Business plans are overrated by people that think they need one to even take step one in their business.  Business plans are underrated by people that think they should just fly by the seat of their pants and not document anything.
3. If you don’t have a target market you don’t have a business.  If everybody is your target then will get nobody.
4. Businesses that don’t have a distinct competitive difference are in trouble.  If you can’t tell your potential customer the difference between your business and your top competitor, your potential customer will not have a reason to use you.
5. Joining the Chamber of Commerce can be very beneficial for your business, if you are active in the chamber and make an effort to get to know people.
6. Business owners that read books make more money than business owners that don’t read books.
7. Nobody can find that awesome $10-$20/hour person right now.  I think we quit making them.
8. Don’t hire salespeople if you can’t personally sell and if you won’t train them.  That is setting someone up to fail.
9. Successful business owners really understand their financial statements.  And they outsource their bookkeeping or hire someone to do it.
10. I always ask someone that wants to start a business to attend a Starting a Small Business Workshop.  There I will answer most of their questions and then they will probably have 20 more questions that will pop up.
11. You MUST create a good culture if you have employees.  Untrained employees that you don’t engage regularly will kill your business.  

That’s just 11.  There are probably forty-eleven more (yes, that’s a number I made up) that could be added to the list.

Feel free to add any you would like to add in the comments section.

Does Your Business Have a Love Life?

Let’s face it.

People start businesses for a variety of reasons.

You can follow your passion, make a difference, have independence, and go to work in your pj’s. 

However, the goal of a business is primarily one thing.

MAKE. MORE. MONEY!  

And more importantly, a profit.

In order to do that, you need good relationships.

Since Valentine’s Day is lurking around the corner (waiting to take all my profit), I thought it would be appropriate to look at relationships and profit.

There are three primary ways to make more of a profit, and it is more about relationships than it is accounting.

   1.  Lower expenses with great business relationships.

• Lease – Gotten to know your landlord?  Good.  If you are comfortable where you are, the landlord may be willing to offer you a lower rate to lock you in a lease over the next few years.  Especially if you have developed a good relationship with them.
• Vendor discounts – Most vendors will offer a 1% – 5% discount for paying within a certain period of time.  If you have gotten to know your vendor, they may do better than that.
• Insurance – Most business owners don’t really have a relationship with their insurance agent.  You should review what is necessary in your policy, consider raising your premiums, and don’t be afraid to shop with an independent agent with whom you have established a relationship.

 
   2.  Get more business with relationship marketing.

• Partner with another business in a different industry that has similar customers and send each other referrals.
• Call existing clients and ask for more work or referrals.
• Offer to do any type of speech or seminar on a specific topic (not a sales pitch) for free.
• If you are networking and prospecting, do it several times a month.  Not once in a while as you have time.  Also, make it a point to identify other people you want to work with and give them a reason to want to work with you.  

 
   3.  Sell old assets quickly to raise capital using existing relationships.         

• Do you have an old piece of equipment just laying around, not generating revenue?  Sell it to another business that you have gotten to know. And yes, you should check with your accountant before selling anything to check on the tax implicaitons.

What Did the TSBDC at Vol State do in 2017?

One-on-one advising and training get some pretty good results.

Find out how you can get the same results at www.tsbdc.org.

You think you're better...but you're not

Have you ever noticed that you are constantly comparing yourself with others?

And yes, I blame Facebook for most of this!

Was your vacation cool enough, is your car new enough, are you as fit and trim as you should be, etc.?

Many times you compare yourself to others, who are in worse shape, to justify your situation.

For example:

• An out of shape person may feel better about themselves after watching The Biggest Loser.
• A financially strapped person may feel better about their finances, after listening to the first few callers on the Dave Ramsey Show discuss bankruptcies and foreclosures.
• An overwhelmed parent may feel better about themselves after doing some service work in a shelter.

However, you may still be overweight, broke, and in disarray.

So should you bother comparing yourself at all?

If you are a business owner, the answer is YES!

Why?

 “What gets measured gets done!”

Unfortunately, there are many business owners still justifying their situations.

• A restaurant owner may feel good about their business, because they have great Yelp reviews, but they could still have a net loss for the year.
• A landscaper may feel good about their Accounts Receivable being an average of 60 days, because they know a consultant with an average of 90 days.
• A hotel owner may feel good about their debt-to-equity ratio being low, because it was even lower last year.

However, the restaurant is still losing money, the landscaper still has some collecting to do, and the hotel owner is still upside down on the business.

So how should you compare your business?

The best way to measure your business is against your competition.   This way you get an apples-to-apples comparison, instead of an apples-to-oranges comparison.

Common measurements are your costs-of-goods-sold (COGS), net profit margin, current ratio, payroll expenses, advertising expenses, etc.

In fact, the TSBDC has a “comparison” tool that compares your type of business vs. others in Tennessee and nationwide.

Comparing against other businesses in your industry is a more accurate way to determine how well you are doing and what you could improve upon.

And remember, nobody posts the bad stuff on Facebook, so stop comparing yourself there too!

p.s.
Email me at charles.alexander@volstate.edu to learn more about the "comparision" tool.

The New Overtime Rule

Recently a new overtime rule was passed.  Currently, salaried employees making less than $23,660 are eligible for overtime pay IF they work more than 40 hours in a week.  That amount is being raised to $47,476, effective December 1^st, 2016.

This will be a big adjustment for small business owners and they will have some tough decisions to make regarding salaried employees making less than $47,476.

What can you do?

1. You can simply pay those employees time-and-a-half for all hours worked beyond 40 each week
2. Scale back their hours to just 40 per week and still pay the same salary
3. Give the employee a raise to $47,476 or above so they can continue working more than 40 hours per week without overtime pay

You can also use any combination of the three options.

You will not be the only business owner impacted.  In fact, 4.2 million employees will be affected, which means your business could be impacted as well.

It is not time to panic, however, it is time to make some decisions.  Have you looked at your options?  Do you have the correct systems in place to handle those options?  What will be your best cost benefit?  

I would recommend talking to your payroll company or your accountant to make the best decision for you and your employees.

How to Dramatically Increase Your Sales without New Customers!

   Every year I spend an hour on the phone with the same giant corporation, which shall remain nameless, because every year they jack up my rate and add new services that I have never approved.     And every year, I call and threaten to cancel my services.  And every year they eventually remove the unwanted add-ons and lower my rate.  Did I say, this happens every year?

  The kicker is they lower my rate, to the same rate, they offer new customers!  Not existing customers they already have, but just for new customers.  Classy!

  Most of the businesses that I consult with have recurring customers.  Several of these businesses also focus on getting new customers, instead of focusing more on their existing customers.  I always advise them to focus on the existing customer first.  Why?

Check out this simple example:

Lane’s CPA Solutions

Lane is a CPA that wants desperately to grow his business.  The problem is he just doesn’t know who he should target or what he should do.

• Lane has 50 tax only clients (small businesses) at $500 each = $25,000/year

• Lane also has 10 of these clients, that use his other services (payroll, sales tax, bookkeeping) all         year long at $500/month = $60,000/year.

• Lane makes $85,000/year.   

Not Bad

• Since Lane wants to increase his revenue, he may be tempted to look for new tax clients.

• 5 new tax clients = $5,000 increase in revenue/year or now $90,000 revenue/year.  

Good

• However, he may instead find it easier and more lucrative to convert a few of these tax only               clients into monthly clients and not focus on new clients yet.

• 5 converted monthly clients at $500/month = $30,000 increase or now $115,000/year.

Better

• Also, what if Lane got each of his 10 existing monthly clients to spend just 20% more or                     $600/month by adding another service?  That would be an increase of $12,000/year with                   minimal effort to $127,000 revenue/year.

Best

  Okay, I said it was simple.  I didn’t say it was easy.  But you get the point.

• Do you have any semi-regular customers that could be converted into regular customers?

• Do you have any other fantastic products or services that your regular customers could use?

If so, you may be on your way to increasing your sales, without new customers.

If you want to meet one-on-one with the TSBDC and increase your sales, contact us today.

Video Newsletter - What is the Biggest Bang for Your Buck?

Let us know what you think of this new format.

What is the Biggest Bang for Your Buck?

   Being frugal (that’s French for cheapskate), I am always looking to squeeze the most out of every penny.

   For example, I have discovered the following: 

· Netflix – For $8 each month, we have been able to disconnect cable, choose which shows our kids watch (lots of PBS), and skip commercials.

· Aldi produce – Speaking of the kiddos, they have begun eating fruits and veggies. Lots of them. And you know what’s expensive? Fruits and veggies. Aldi has them for much less than most grocery stores and they have the stuff we eat.

· TVA energy audit – After living in our new house for a few months we noticed the energy bill was a little higher than expected. We decided to use the In-Home Energy Evaluation Program from TVA. They gave us a cash rebate for installing home energy improvements. In our case that was sealing a leaky duct system and we saw our electricity bill drop significantly.

   You know who else likes being frugal? Business owners! Let’s hear what two very successful and local business owners had to say about what their “biggest bang for their buck” has been.

   Quick tip; they’re both people related. 

  Julie Yant, owner of P.E.S.T. Inc. - My advice as to the best bang for your buck is to do as many processes "in house" for as long as you can. For example, we knew enough about most business processes that we did all accounting, software, HR, web, and even quarterly taxes & payroll in house, before we outsourced. Now, if you're not competent in something, then don't screw something up by trying this, but my advice is to take as many hands on small business classes and workshops that you can to save overhead costs. Don't get a nice, fancy office - use that spare bedroom if you can until you can afford to hang out your own shingle - again, if that suits your business. Grow, slow and controlled. Rapid growth often leads to too many problems to overcome and the demise of many small businesses. 

   Jason Duncan, owner of Future Vision Energy - Our best bang for the buck has been hiring good employees. Last year was a pivotal year for us. We were growing and I was getting overwhelmed with tasks that another person could easily handle without much training. Hiring a good assistant--even though we didn't know for sure if we could afford it--was worth every penny. As it turned out we couldn't afford NOT to. She was our first hire and we quickly moved her to full time status with a nice raise. 

   As she freed me up to do more tasks that directly created revenue, I turned my focus to hiring more people. We've since hired two full-time sales consultants, an operations manager, a technology director, and a full-time project manager. With each hire, our overall revenue increases because it frees us up to focus on sales and marketing-related activities. Hiring the right people at the right time has been our biggest "bang for the buck".

Shark Tank winner starts with the SBDC

I totally missed this a while back.  I watch this show religiously and remember this guy well.  Mr. Tod, a client at the Small Business Development Center at Raritan Valley Community College is doing quite well too.

http://www.sbdcrvcc.com/2010/mr-todd-wins-2009-success-award/

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Mr. Tod's testimonial about the SBDC: “The SBDC at RVCC has been a blessing to my business. My recent SBA loan approval was a direct result of my involvement with the SBDC. I can’t say enough about the assistance I received. I would urge any entrepreneur who is serious about taking their business to the next level to explore the mentorship and counseling opportunities available at the SBDC.” Tod Wilson, Mr. Tod’s Pie Factory 2009 ABC Shark Tank Winner 

U.S. Bank donates to Tennessee Small Business Development Center

Thanks U.S. Bank!

U.S. Bank recently donated $2,000 to help support the Tennessee Small Business Development Center at Volunteer State Community College. The TSBDC offers free and confidential one-on-one counseling for existing and start-up businesses. Free and inexpensive workshops designed for the small business owner are also available. Pictured: Karen Mitchell, vice president of resource development and executive director of the College Foundation; Justin Hays, branch manager U.S. Bank in Gallatin main branch; Hilary Marabeti, assistant vice president for Continuing Education and Economic Development; and Charles Alexander, director of the TSBDC. / Submitted

4 Bad Financial Habits You Need to Break in Your Small Business

  Let's face it.  We all have bad habits.  Whether it is biting your nails, interrupting other people, saying "you know" too much, posting your lunch on Facebook, etc.  You get the idea.

            Habits are basically cycles that are burned into our brains.  Something will trigger the habit and it sets off your instinctive action.  Ring a bell and we salivate.  At the end of the action is the reward, good or bad.  The reward keeps your habit in place. 

            The trick seems to be in replacing the bad habit with a good habit. 

My little family has tried some of these at home.  For example:

·         Replacing sugary cereal with oatmeal and honey.

·         Replacing TV with coloring and playing games (my coloring skills need work.)

·         Replacing staring mindlessly into my spacephone with actually listening to the world around me.

    The same holds true in your business, especially regarding the business financials.  Bad financial decisions, or indecisions, tend to wreak the most havoc. 

   

Below are four bad financial habits that may have crept into your business:

1.  Underpricing products and/or services - Unfortunately, many entrepreneurs believe they absolutely need to have the lowest price possible or they will lose their customers.  The truth is that people will pay for value, or at least perceived value, even in a down economy.  Don’t believe me?  How much TV do you watch in a day?  6 hours? No.  4 hours? No.  2 hours?  Maybe, but most of the folks I talk to will claim they really don’t watch TV at all; just the news and occasionally Modern Family.  Then why does almost everyone I know pay for some version of cable or satellite?  The same goes for having high car payments, drinking $4 lattes, and getting the new iPhone.  Raise your prices.  This will remove the bottom 5-10% of customers that take up too much time complaining and it will create new revenue dollars in your business.
2. Not saving for retirement – Most small business owners naturally assume their empire will be their retirement.  In fact, only a small percentage of businesses are ever successfully sold.  If your business would not survive without you, may not be not a sale in the future.  You may want to consider setting up an IRA, SEP IRA, or finding a rich uncle soon.
3. Not meeting with your accountant at least semi-annually – Small business owners are notoriously bad record keepers.  Not all, but most.  And several still use the Shoe Box Accounting Method.   One of the biggest fears that people have of using an accountant IS NOT that it will cost too much. It is that they don’t know what it will cost. Find a qualified accountant who can assist you and your decision making year-round, set a fixed amount that you will pay them, and use their advice.  They will almost always save you more money than they cost.
4. Ignoring your cash flow - One of the big issues facing small businesses is trying to figure out where your money is going. Many times you can show a profit on an income statement, but the cash flow (real money in, real money out) will be almost negative. Don't ever think you're too busy making sales and working in your business to worry about your cash flow.  Make sure you or a bookkeeper are entering all transactions into an accounting system and you are monitoring it.