17 May How to NOT Borrow Money For Your Small Biz
How to NOT Borrow Money For Your Small Biz
‘Tis an interesting question these days, especially with all the government money available because of pandemic. From local and specialized niche emergency relief funding to US Treasury PPP loans and EIDL loans; if you want cash, it is easy to find these days.
At Reconciled Solutions, we are particularly fond of the not borrowing money option… even though money has never been cheaper and easier to get. If you can make it happen by planning and saving appropriately through your own actions, then you never have to rely on another bank loan or be subject to their terms and conditions again!!
Here are a few tips on how to not borrow money in small business today:
- Set up Profit First ( or hyperlink to ?YouTube speech in our YouTube Channel) in your business. It is a simple cash management system that makes complete sense and relies on leveraging our habits of bank balance accounting, rather than allowing that same principle to work against us. For many, the more money in the bank account, the more we spend. This is called Parkinson’s Law: our demand increases to meet supply. We are checking our smartphones to see how much money is in the bank and basing buying decisions off that bank balance. Well, if you have a bank account set up for a specific purpose – for example to pay you as the owner – wouldn’t you have a hard time spending that hard-earned money (which is earmarked to pay yourself) on something like a meal with a potential employee during an interview? That money was intended to pay yourself, so if you spend it on something else, wouldn’t you be a little cranky?
- Set up an automated Savings Account. This is an easy way to intentionally pay yourself – by forcing your hand at savings through an automated process. In the world of Profit First, we call this concept setting yourself up for permanent profitability. Why should you be the last person to be paid in your biz? Avoid this by setting up automated savings that gets fed into a specific bank account at a repeated and measured frequency. Before you know it, that money will build and you will become the bank of ME, with the ability to borrow money for your business from yourself.
- Get a good bookkeeper. A good bookkeeper will send you regular financial reports that will show you your cash position and they can help you forecast your income and expenses for what’s to come. Certain expenses in small business, like paying taxes, should never be a surprise. Sadly, we run into clients every year who are surprised by their tax bill. You will most definitely pay taxes on the profitability of your business and if you have a powerful bookkeeping partner, you will see every day, every week, every month exactly how profitable your business is so that you know how much tax to expect. Just like Christmas falls on the 25th of December in every year, so do taxes need to be paid on your profitability at the same time each year. A great bookkeeping partner will provide you with clarity and visibility to your financials in real-time, which allows you to take advantage of proper planning.
- When in doubt, open an account. That is our saying at Profit First, we know that multiple bank accounts do not mean that the accounting work is multiplied, it just means that we are in sync with our intentions. If you want to pivot to a different type of customer or product, you will need money to get that product off the ground. If you want to hire another worker in your business but you are not sure you can afford it, then you need to know how much that will cost for your cash requirements. We like to call this “The GAP”, not to be confused with the clothing store that sells the cool mom jeans. “The GAP” is the space between what we anticipate our future revenue to be and what we actually need to pay for the new worker. You can save for “The GAP” today by setting up another bank account and dripping money into it, the money that you think your company will need for the pivot or that new worker’s payroll. Name it something fun, that is representative of your new idea or freedom that you are working toward. Now this is banking with intention! Don’t fall into “The Gap! Let Reconciled Solutions help you solve your cash gap dilemma!
- Borrow money from yourself, and pay it back… with interest! There are many types of retirement accounts and investment accounts that allow you to borrow money from your already-built up principle, and then pay it back to yourself. There are even options where the payback includes paying yourself the interest on the loan! What a win-win! Talk about proper planning leading to performance!
There seems to be this perpetual game of tug-of-war between the banker and the small biz owner: The owner needs funding but the bank would prefer to lend to business owners who already have money and assets. The owner can’t get the business out of neutral without the money, tug and pull, tug and pull, the small biz owners walk away frustrated and angry at their local banker after months of trying to secure that money. Think of the freedom of borrowing from your own coffers instead of reaching out to your local banker and begging for them to lend you money. You are not only avoiding the painful scrutiny of the bank digging through your dirty underwear to see if you are credit-worthy, you are also deliberately choosing your own intentions and plan for the future. All of these things really can be possible for small businesses today! If you want more tips on ways to set yourself for NOT borrowing money, send us an email now, to email@example.com with the subject line “SAY NO”.