When we talk about launching a business, most entrepreneurs focus on just that – startup. It's during the first year of business, however, that most endeavors fail, and many business owners begin to report "lack of cash flow" as a primary concern.
"Cash flow" is defined as the movement of funds in and out of your business, according to Inc.com. Keep yours positive by adhering to these best practices:
Funding for flexibility.
While you may have had an idea of who your clients would be, you learn exactly who they are and what they want in about six months. You may be refining your retail space, paying to add more parking, changing your office hours, or hiring your first employee. Adaptation takes cash, sometimes as much money as initial startup. Keep some aside, or prepare to secure sources of funding such as a revolving line of credit before you need it.
Keep a year-long calendar.
Your business requires insurance of some type, likely renewed annually; have you planned for it? What about taxes, including franchise or other business-specific fees? If you have a seasonal business, are employees entitled to bonuses or overtime hours during the holidays, and can you pay for them, even if you don't know how profitable your first holiday season will be? Your annual expenses may come up at intervals or all at once. If the latter, can you negotiate with any providers or make changes to better space them out?
Ponder before you purchase.
"Spending" means an expenditure of funds that then cannot be used for any other purpose. Consider all purchases for several days, and do your research before you make a sizeable purchase. Get your Google on, but don't forget to talk to real humans in your industry and ask what equipment they've used, what they like, and what they wish they had.
Stay small, stay smart.
It takes several years to truly get a grasp of what you need, how you will optimally operate, and what you need to buy to support your most effective business. Don't be afraid to hold off on subscriptions, facility upgrades, or hiring until you are further down the road.
Refer back to your plan.
Remember that business plan you wrote? Dust it off! Are your busy days and months when you thought they would be? Are you earning more or less money than you thought? Is your intake more or less predictable than you thought? Draw as many correlations and identify as many trends as you can. Create new hypothesis, or even redo your plan – you have more experience under your belt now, and know much more than you did when you wrote the first draft.
Evaluate cash flow gaps.
Are you intentionally creating cash flow shortages to say, take advantage of chances to buy materials at a discount? Or are your cash flow problems due to a drought of customer interest? Refer back to that year-long view, and try to balance out as much as you can.
Still not seeing your year-end numbers add up the way you want them? Cut back. Don't groan, don't grimace, don't get discouraged. Start scrutinizing your practices, procedures, and personnel and cut something, somewhere, until you come back in line. Forget the fairy tales – the numbers are the reality. If you ignore this reality in your first year, it will sink you in the ones to come.
Maintaining accounts receivable, that is, money owed to you by a client, can wreak havoc on your cash flow. Consider accepting only those clients who can pay up front, even if you lose some.
Don't jump to pay debt.
Paying off loans early feels good but expends cash that you might need. In some cases, it might be wiser to stick to your payment plan instead of paying loans early to preserve capital.
Need inspiration? Managing cash flow is a challenge, and a learning process for many small business owners. This Italian language instructor, this accountant, and this producer of chemicals cracked the cash flow code; with diligence and planning, you can, too.
You’re a newly minted entrepreneur. You’ve given up the daily 9 to 5 grind, annoying coworkers, and a soul-sucking commute. You’ve taken control of your career and life, and you’re living the dream!
Yet as you read this from your home office, bunny slipper-clad feet on the desk, commanding every aspect of your business, you can’t help but wonder:
“Isn’t Ellen on soon?”
Face it: No matter how passionate you are about your business, inspiring yourself to complete tasks every day without a boss to push you is hard. Distractions are everywhere, and their siren call is difficult to ignore.
Luckily, your fellow entrepreneurs understand these challenges and have developed tips to help.
Are you a member of professional organizations in your industry? Your colleagues are probably self-employed, too--engage with them to share ideas or challenges. In-person meetings are great if people live nearby, but if not, MeetingBurner offers free online conferencing for up to fifteen people, and AnyMeeting offers it for up to 200. You can now have as many “coworkers” as you want on a given day!
Self-employment gives you the freedom to work (or not) as you choose, so if you’re low on motivation, offer yourself a reward for staying focused. Use a time tracking tool like Toggl to monitor your progress, and reward yourself when you accomplish your task by going on a coffee run or watching Ellen.
Do you have a weakness for social media? It can be a major time-waster if you’re not careful, but if you lack the willpower to ignore it on your own, tools like AntiSocial (Mac only), Freedom, or StayFocusd will lock you away from Facebook, Twitter, or other pre-selected websites for a set period of time.
Find your work rhythm.
Entrepreneurship means you can work during most productive time of day. Don’t know what your most productive time is or what your work pattern looks like? RescueTime is a web-based tool that will send a detailed report of your productivity to show you how to maximize those working hours – and when you’re better off just watching Ellen.
The number one motivational tool for running your own business is the very thing that got you started: pride in your accomplishments. You’ve taken the leap and gone out on your own; you have passion for what you do and control of your working life. Recognize this every day and celebrate it. (YourMeditationTimer can help schedule this recognition and re-energize you at the same time.)
Entrepreneurship isn’t for everyone, and if you’re brave enough to undertake it, you’ll find the rewards – both professional and personal – are plentiful. Still, low energy periods should be expected. It’s how you deal with challenges that ensures your future success.
Now, get your feet off the desk and stop reading this blog. Ellen is on soon.
So, you’re brown-bagging your lunch, clipping coupons, and saving your pennies. Now what should you do with your savings? It’s time to do a little planning and settle on your savings goals – both short-term and long-term.
Opening a savings account
Don’t simply decide you'll keep your extra cash in your checking account and vow not to touch it. It’s far too tempting to justify a splurge on a cute pair of shoes or a night out when the funds are so readily available. Set up a separate account for your emergency fund. This account should be separate from any other savings account, as well.
Setting savings goals
It’s important to start with a goal in mind, but don’t set your sights too high at first. Trying to save too much and cutting out all fun money can lead to frustration and send you off course. Choose a realistic initial goal, like $500 or $1,000. Employ some of the tips from my previous post to gather up initial savings and help you reach your goal as soon as possible. Once you reach your initial goal, set a new goal. Your second goal could be to save enough to cover one month of living expenses.
Experts generally agree you should have three to six months’ worth of expenses in your emergency account. Make this your ultimate goal, but don’t get bogged down with how far away those numbers seem. Remain steadfast with your commitment to save, and watch your account grow.
Make saving a habit in order to grow your fund, and increase the amount you can save each month as your situation changes. Consider setting aside a portion of each paycheck, and have it directly deposited into your emergency savings account. You may never miss the money you don’t see in your checking account, and this way you won’t be tempted to spend it. A little bit each week can add up quicker than you think.
When to use your savings
Emergency funds are just that: funds to use only in case of a crisis. Be clear on what constitutes an emergency for you. Large car repairs, appliance repair or replacement, and loss of employment all qualify. Nearing the end of a pay cycle and not having quite enough to purchase concert tickets, however, does not. Resist the temptation to dip in when it’s unnecessary, and honor the true purpose of your fund.
And as emergencies do pop up, remember to USE your savings. Many people get caught up in hoarding their savings and forget why they created an emergency fund to begin with. Don’t sink yourself into debt when you have the cash available; you’re creating this safety net to use it when you need it. You should choose to rebuild emergency savings instead of incurring debt and paying high interest. Saving now will allow you to handle life’s future twists and turns without disrupting your living habits.
So, you’ve heard that you should have an emergency fund, and your financial worries are really weighing you down. Fend off those worries by starting your own nest egg. Wondering where to find the cash? If your budget is already stretched to the max, consider these ways to generate money to save.
Don’t spend your change. Pull out your old piggy bank and deposit your change into it daily. It adds up quickly. Speed the savings up even more by keeping all $1-or $5-bills and tucking those away in your fund.
Pack your lunch. Cut your lunch bill in half by bringing it with you. Invest in a chic reusable tote or containers to cut your packing budget even further. Your wallet, and the Earth, will thank you.
Decrease your interest rates. If you carry debt, call your credit card company and ask for a rate reduction. Tell them you may be transferring your balance if they can’t oblige. With a reduced rate, your monthly payment and length of time until your debt is paid will both shrink.
Control your grocery shopping. Remember how Mom used to have meals planned out for each day of the week? Yeah, she was onto something. Making a dinner menu and basing your shopping on it can reduce extra spending. Factor snacks, food for those new lunches you’ll be packing, and breakfast needs into your list. Note how much you’re saving and transfer it into your emergency fund.
Dine in more. You may be as good at pinching pennies as your great aunt Florence at the grocery store, but are you negating that frugality by eating out too often? You don’t have to become a dining hermit and eat in every night, but reducing your restaurant trips to one or two a week could save a bundle.
Compare insurance rates. Shop around with auto and homeowners’ insurance companies. Rates can vary greatly by company, so check out a few. Consider choosing one company for both policies, and you’re likely see even deeper savings.
Splurge less. Is your daily Starbucks really necessary? Just cutting it to every other day could save you around $15 a week or $60 per month. Or how about trips to the car wash? Do it yourself and pocket the savings.
Clip coupons. Coupons aren’t just for grannies. Get savvy and discover all the ways. From Groupons and Sunday paper inserts to online codes and printable coupons, savings are all around you. Search for deals before you shop or head out for some fun. Tuck the amount of the coupon savings into your fund.
Examine your bills. Do you really need 200 cable channels? Is there a more basic package you could opt for? How about that gym membership? If you’re not using services enough to justify their costs, cut them. It doesn’t have to be forever, but it could make a difference in your savings right now.
Save your tax refund. Instead of spending that refund this year, consider using it to add a hefty amount to your savings.
Sell your stuff. Sites like Amazon and eBay make it easy to create an account and get money for your things. Sell smartphones you no longer use, books, electronics, and more and collect immediate cash to save.
Whatever changes you make, remember to note the savings and deposit that amount into your emergency fund for a rainy day. Remain steadfast in reaching your savings goals. You’ll be rewarded with peace of mind knowing you’ve created your own safety net.
Besides being a unique experience, camping is a great way to save money while traveling. I have to admit that I wasn’t always an avid camper. But while trying to find ways to save money on lodging, I discovered how helpful camping really is.
Where to go
Before you start looking for a place to camp, determine what you’re looking for. What type of activities would you like to do? Do you want a secure campground?
The U.S. National Park Park website lets you check out state parks that allow camping by state. This is where you’ll see only public camping grounds since they are owned by the government.
The Great Outdoor Recreation Pages (GORP) is a perfect site if you have specific activities in mind for your camping trip. Whether you want to fish, bike, surf, or backpack, GORP will find a camping site right for you. This search generates both public and private camping grounds.
Go Camping America lets you search by the type of site you’d like, such as a tent or if you’ll need an electricity hook-up. You can also look by the amenities available like pets welcome, internet access, and a laundry facility on site. Each park lists the surrounding tourist attractions to make trip planning a breeze.
Read reviews of campgrounds, and ask friends for their recommendations. Be aware of any issues associated with that particular location such as wildlife, plants, or insects you should be prepared for.
Save while camping
Don’t overspend on supplies.
Camping supplies can be expensive. If you’re going to be camping often, it is a good idea to invest in good quality supplies and gear to keep you safe and comfortable. If you’re just starting, however, use items you already have or borrow from friends or family. Check out eBay and Amazon for used items.
Watch for sales.
If you are purchasing new items, keep an eye out for sales and coupons at stores that sell camping equipment.
Camp somewhere close.
If location doesn’t matter and you’re just looking to camp, go somewhere close. You’ll save on gas, tolls, and any car wear and tear.
Ask for a discount.
If you’re planning on staying more than one night, ask if they can give a discount. Campgrounds also may offer discounts if you’re a resident of that state, veterans, and students so don’t forget to ask and bring along your ID or membership cards.
Sign up for rewards or become loyalty members.
Private campgrounds offer reward memberships if you’re planning on camping frequently. For example, KOA Campground offers a reward card that gives 10% off every time you camp plus points towards additional savings.
Double check your checklist.
Having the proper gear and food will help you avoid spending money while on the trip.
Camp during good weather.
Camping during ideal weather is a lot easier said then done since it’s unpredictable. But while watching the weather forecast and choosing the best time of year, you can save. Avoiding rainy season helps you save by not stocking up on rain gear. If you camp during colder weather, you’ll need a more durable tent and more supplies to keep warm.
Knowing the components that make up a credit score is one thing but actually understanding the specific activities that impact each component is the only way you'll improve your score.
Payment history: 35%
The general purpose of a credit score is to show how likely you are to pay back a loan, which is why a good track record is important. Your score factors in your payment history on current/past accounts and any public record and collection items. A few late payments won't demolish your score, but your credit will drop significantly if it's a regular problem. As for public record and collection items, this refers to bankruptcies, foreclosures, lawsuits, etc. These events are more serious and can create quite a drop in your score.
SCORE BOOSTER: Enroll in automatic withdrawal to ensure timely bill payments.
Amounts owed: 30%
Your credit score looks at your overall debt and credit utilization, which is the ratio of your credit balance to your credit limit. If your limit is $1,000 and your balance is $250, your ratio is 25%. Experts suggest keeping it below 30%. Keep in mind your score considers both the credit utilization rate for each account separately and the rate of all cards combined.
This is where I went wrong. Even though I made my monthly payments in full, my balances were being reported to the credit bureaus at different times of the month, reflecting a high credit utilization rate and dropping my score substantially.
SCORE BOOSTER: Keep your credit balances consistently below 30%.
Length of credit history: 15%
Your credit score considers how long your accounts have been open and how long since your accounts have had activity. This can be tough when age and experience come into play. It takes at least six months to even generate a credit score, so waiting to build credit can be a problem. Additionally, your score calculates the age of your oldest account, newest account, and the average age of all accounts, which is why it actually hurts your score to close old credit cards.
SCORE BOOSTER: Don't close your credit cards (especially your oldest one)
New credit: 10%
Opening multiple accounts in a short span of time represents greater risk. This can be difficult for us, since we already have less credit history because of our age and we're in the market for auto loans, higher credit limits, and mortgages. Either way, it's important to be strategic when shopping for a new loan or credit card because you don't want your report to show that you're constantly looking for credit.
Another major offender here is retail cards. The additional 20% off might sound tempting, but it's not worth it when multiple new accounts actually lower your credit score. Retail cards themselves are okay, but just open them in moderation.
SCORE BOOSTER: Avoid opening multiple accounts around the same time.
Credit mix: 10%
Your credit score considers the different types of accounts you have: credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans. Ideally you want to have a mix of revolving and installment credit to show that you can handle both. Revolving credit is credit that does not have a fixed number of payments, like a credit card, whereas installment credit does, such as an auto loan.
SCORE BOOSTER: Make sure you have different types of credit accounts.
Before signing the lease to that amazing new apartment you discovered, there are many things you need to learn about your potential home that can affect your finances ¬– and your quality of life. Consider these questions to ask your potential new landlord before you sign the lease:
How much is rent, and what does that include? Sometimes certain utilities are included in the rent or other fees.
When is rent due, and how is it collected? Sometimes landlords allow you to pay rent with a credit card or personal check, but others may require cash or a cashier's check. If you’re late, landlords may strap you with fee or even dings on your credit.
What can you do to lower that amount? Depending on the type of landlord, there may be things you can do to lower the rent. For example, shoveling snow and cutting grass may lower your rent. Some landlords may be receptive to negotiation while others, especially managed by a larger company, won't be flexible at all.
What is the average cost of utilities? If these utilities aren’t included, you’ll want to factor in how much they will cost you when figuring out which home is the best for your bank account. Ask the landlord what the average cost of each utility is.
What other fees will there be? Other fees could include garbage pick up, pest control, property maintenance, parking, and pet fees.
Can you terminate your lease? If you wanted to leave your apartment before your lease is up, you need to know your options. You may be able to sublet your apartment or pay a fee.
What is the laundry situation like? If there is not a laundry room in your unit, find out if there is one on-site or nearby. Consider the cost and amount of hassle involved in doing your laundry.
What is security like? Find out who has access to your building and who will have a key to your apartment. While you’re walking around, notice if there are lights outside for safety at night or any security cameras.
When do you change the locks? Make sure that the locks are changed before you move in so past tenants don’t have a key.
What is the deal with maintaining the property? Know what you are responsibilities are and what your landlord will be taking care of.
What is the application process like? Depending on the residence, you may need to show proof of income, undergo a credit check and background check, and pay an application fee.
What is due at the time you are signing your lease? You may be required to pay a security deposit, first month’s rent, last month’s rent, and even administrative fees.
Is there any construction projects planned for the building? Ask ahead of time to prevent a surprise disturbance.
What condition are the appliances in? Do an inspection of the appliances to see how they are running.
Are any amenities offered? Having a gym or swimming pool on the premise can save you money on a fitness center membership.
Have there been any complaints about pests, mold, or other unwanted apartment features? If the answer is yes, find out what has been done to address these issues.
How long does it take to have something fixed? Some landlords may guarantee your item is fixed in 24 or 48 hours. Find out what happens if something goes wrong in the middle of the night, such as a pipe bursting.
We are the generation of efficiency. Technology is woven into our lives, and if it isn't digital, we likely aren't interested. Shopping and banking from the comfort of our couches is second nature, as is swiping our credit and debit cards without a second thought. But taking a step back and looking at how generations before us handled their finances may reap big rewards for our wallets.
In the days of my grandparents, buying on credit wasn't embraced — unlike today, where going into debt for what we want is often the social norm. My papa paid in cash. If he didn't have the cash, he went without or saved until he did.
We frequently hear about methods that can help us climb out of debt, such as the envelope system. Though many think it's an old-fashioned way of thought, paying in cash is a tried and true system for getting out of debt. It turns out, there is a lot of psychology behind paying with green. We really do spend more with credit.
Feel the pain
Picture yourself on a road trip, tired of driving and craving a break. You stop at a convenience store for a stretch and a bite. Opening your wallet, you have a credit card. With a quick swipe of the card, you've purchased a Diet Coke, two candy bars and some Fig Newtons, cause the figs count as fruit, right? Now rewind and imagine only a $100 bill in your wallet. What's your first thought? Often our reaction is, "I don't want to break this big bill for a small purchase."
For many, paying in cash can be slightly painful, thus limiting spending. In a set of studies published in the Journal of Consumer Research, researchers noted that our method of payment can affect our impulse purchases. When we see the cash leaving our hands, we don't part with it as easily as if we were swiping plastic. Additionally, the larger the bills we carry, the less likely we are to make unnecessary purchases. The study suggests that the emotional connection of paying in cash could reduce our impulse purchases, helping our budgets (and perhaps our waistlines, too).
Always leave home without it
So we've determined that it's easier to part with our money using credit, but it turns out, we're also willing to pay more. Consumers who intend to use credit for a big purchase are often more focused on the aesthetics and features of a product, while those holding cash for payment paid far more attention to the price, according to a study by Promothesh Chatterjee and Randall Rose. The physical act of handing over our hard-earned cash directly connects our purchase to our budget in our minds. Using plastic is a more abstract action because the effects on your budget aren't immediate. Additionally, study participants who paid with credit were unable to recall the purchase price of the product in hindsight.
Considering these psychological factors, how can this help us get a handle on our budget? Try your own experiment. Choose a week and review your spending, including convenience store stops, dining, online purchases, and everything else. Make a note of how much you shelled out. Now commit to paying only in cash for the next week – be brave and leave all plastic at home. Take note of how your thoughts on purchasing shift, and tally your spending at the end of the week. You might just find that paying in cash may be the best budget wrangler of all.
In an era of student loans and continued recession, debt can seem like a fact of modern life.
While many struggle to manage it, I made a different choice. Lack of debt has been my ticket to make career, family, and lifestyle decisions without taking loans, including launching my own business.
Establishing a debt-free lifestyle may be easier than you think. I embraced these three ideas at age 17 and have been happy with my decisions every since.
You may not need to go to college, and other people will pay for it if you do.
Before you join the ranks of those staggering under student loans, take a minute to determine whether your desired field requires a college degree to start out. A certificate, apprenticeship or trade school, for instance, may be more highly valued in your field.
If you are certain that college is required, find ways to lighten your financial load. Talk to a recruiter – the military paid for my education. Apply for scholarships. Identify companies that offer tuition breaks as part of their benefits package, and earmark them as your most desirable employment options, even for entry-level positions. There is nothing to be lost by pursuing college once you can afford it, and that may not be immediately. Do you really want to figure out the answer to the "what do I want to do" question while paying a bank more than six figures to sit in classes you may not even enjoy?
If you can’t afford to write a check, you can’t afford it.
This idea has been the key to my ability to remain debt-free. I have proudly driven a used car, negotiated to take money off the sticker price once I was able to buy new vehicles, clipped coupons, and skipped restaurants. Sure, my early-20’s weekends were a bit sparse at times, but I was glad that I lived frugally when the time came to buy a house, start a family, and take a chance on a career move. With a bit in the bank and no debt to chip away at what I earned, I had full freedom to pursue exactly what I wanted.
You can live within your means and still have a good credit history.
While credit card companies work hard to convince us that we can’t build credit history without soaring card limits, the truth is that credit history is built over time. The first credit card I acquired had a limit of $300. I used it for every purchase, paid it off every week, and have continued that habit to this day. While I rarely carry a balance higher than $500 and have never taken a loan, my credit rating is sky-high.
It can be healthy to assume debt in two circumstances. The first exception is buying a house because it can be difficult to get flood, fire, or other insurance if you don't have a small loan and good credit history. The second is some types of business startups. As a service provider, I was eager to avoid startup debt for a simple reason – you become your own boss! You lose that freedom and control if forced to adapt goals, plans, and methods of operating to make that startup loan payment every month. If you offer a service, stay within your means at launch by adapting or scaling down your offering at first or pursuing it part time. If you push a product, a small loan may be necessary to buy machinery or for an initial inventory purchase, but again, you can always grow.
Dismayed because you already have debt? Don’t be! Develop a plan, commit to paying it off as quickly as possible, and adapt a “no more debt” approach once you do. Personally and professionally, the world is a more relaxed place when you don’t owe a thing to anyone.
I have over $40,000 in college debt. But that's going to change in 2014. I'm going to pay $6,000 of it down. No excuses. No pretending. But by the end of 2014, My debt will be smaller. Here's how I plan on making it work.
Playing with my paycheck
I love my paycheck – not for the money, but because it helps give me options. I have an account called "Loan Payments," where 5% of my check goes. Because I don't see it, I never miss it, and it pushes me to save consistently. By the end of the month, I can make two smaller loan payments on top of the one I already budget for, which accelerates how fast I pay down my debt. It's a game I play with myself, and I always win.
Turn my insights into dollars
I don't know everything, but the things I do know are worth something. 2014 will be the year I cash in on my passions. This requires taking a leap. My leap was writing a book that started as an idea over the summer. I set up a landing page and had a cover designed for $10. I wrote the book and hired an editor and designer (who were looking to build their portfolios). The results have been great. I've made more than I would have if I didn't write. More importantly, I learned that I have something worthwhile that people will buy. I plan to keep writing and making digital products in 2014. But that's just my hustle. You have one, too. Try it. You don't need money – you just need persistence and consistency. Those extra dollars you earn can go a long way.
Invest in myself
Everyone talks about being frugal, but I don't think that will help me. What will help is investing in myself and experiences that make me better. All the penny-pinching in the world might save me some money, but it won't make me any more money. On the other hand, spending $50 online course might be worth thousands later on. Some things are worth splurging on.
I am going to beat my debt back by $6,000 this year, because I am going to chose what matters more than what feels comfortable. I am going to play by my own rules and have fun in the process. You should, too.