First Step in Making Money: Send the Paperwork to Your Worker Bees

What’s the #1 concern of small business owners?  

How to manage up’s and down’s in business income each month.  

What’s the #1 concern of individuals? 

How to save more money & have more money available to spend on improving their lifestyle.

Either way, it’s all about managing cash flow.  

Whether you put it under the category of budgeting, cash flow management, pro forma’s, financial planning, or balancing your checkbook, it all comes down to creating a system to achieve your goals by managing and strategizing the cash coming in and going out each month.  On The Wealth Spa I’ve talked about the 4 Step System to Manage Cash Flow.  You can use this system for your household finances, your home business, or a multi-million dollar corporation — the same universal principals apply.  

The first step in managing your cash flow is to get the details out of your way.  One of the details is all the paperwork and records we are required to maintain for tax purposes.  I’m talking about all the documentation to support tax income and tax deductions.  On the personal side, it’s salary information, investment records (both purchases and sales), and deduction records (i.e., property tax, mortgage interest, charitable deductions).  On the business side, it’s income records (invoices and deposit slips) and expense receipts and cancelled checks.  

Whether or not you use this original data to prepare your tax returns (we’ll discuss that next week), you do need to keep all of it in case you get audited.  But you must not get bogged down in these details, because it dose not help you manage you cash flow. 

How to Keep Records:  Personal records may be kept in files by year, along with the tax return for that year.  Business records may be kept in 4 monthly expanding files — one for income, one for deposit slips, one for cancelled checks, and one for receipts.  You may combine travel, automobile expenses, entertainment, and dining records with the receipts (just write notes directly on the back of the receipt), or keep logs in a separate file or journal - whatever is easier for you.

You can keep these documents as electronic files.  But, I find that scanning the documents takes more time then throwing them into files.  And who cares about having a pdf of a Starbucks’ receipt from 1998 on your computer?  

How to Maintain Records:  If at all possible, delegate to your Worker Bees!  Have your Virtual Assistant, Personal Assistant, Professional Organizer, spouse, responsible teenager, stay-at-home-mom neighbor, or babysitter take over this job.  (And yes, not only rich people have VA’s and PA’s - you can get someone for just 2 hours a week.)  All they need to do is sort the paper by year or month, label the files, and stick the documents into the files.  There is no reason for you to do it, except to manage that it gets done regularly (at least monthly).  

The Wealth Spa Minute

Do you have a pile of receipts?  Cancelled checks?  Notes and logs?  Stop dealing with this paper and get it off your desk into a simple expandable file.  Even better - delegate this task to your Virtual Assistant or Personal Assistant.  

 

Do You Need Life Insurance?

Maybe not.  But if you do need life insurance, you probably need more.

I don’t use a rule of thumb, like you need x dollars times your income, or a rule of situation, like if you have a spouse or kids you need life insurance, but if you are single, you don’t.  

Here’s my rule:  If you died yesterday, would all your goals be paid for with the money you left behind?  Or would your goals be moot?

Here’s how it works.  

If you died yesterday and you are single with no dependents, many of your goals — retirement, buying a house — are moot.  But, you may have some goals that need funding, like college savings for your niece, donations to your favorite charity, or an orderly transition for your small business.  If those goals are paid for with the money left over in your estate (after your debts and final expenses are paid), then you don’t need life insurance.

If you have a spouse/partner and/or kids, then you have some goals that outlive you.  You probably want your family to continue their current lifestyle, the kids to go to college, and your spouse/partner to be able to retire.  So the question is, would they be able to do those things with the money you leave behind?  If not, then you need life insurance to make up for the difference.

If you are the stay-at-home spouse, you may think you don’t need life insurance because you don’t have income to replace.  Wrong!  You are providing help and services for your family that would need to be done, and your spouse may need to hire a nanny, a personal assistant, and/or a housekeeper to help keep things moving.  Also, the spouse-left-behind may need to take time off work to grieve and spend time with kids — and without a huge Emergency Fund, you may need life insurance to pay for these additional expenses.   

But there is one time in life where you may no longer need life insurance — the day you are living off your passive investments.  If your living expenses are paid for by income from your life savings, retirement accounts, and passive rental income, then you may not need life insurance … since if you died yesterday, the income would still be there for your spouse & dependents.

The Wealth Spa Minute:  Review your goals.  Would they still exist if you were gone?  Would they be paid for if you were gone?  Review your current life insurance policies to see if you need less insurance, or more. 

Photo courtesy of SuziJane on Flickr.  

 

Investing Secrets: You Can’t Beat the Market (but who cares?)

I stopped watching CNBC years ago.

Because the media and most “experts” portray the stock market as something to be won or lost.  

According to them, you can beat the market.  You can beat the other investors.  All you need is to time it right.  If you can predict the economy, interest rates, presidential elections, foreign policy, energy prices, CEO firings, product launches, public thinking … if only you can see the future, then you will be able to buy at the right time, and sell at the right time.  And, only if you watch their show.  Read their book.  Buy their system.  Go to their big seminar.  

But they don’t tell you two Truths of Investing.  

Truth #1 - No fund manager has consistently beaten the market by timing when to buy or sell stocks, over the long term (20+ years).  Anyone can be right (or lucky) for a year or two, and some of the great stock timers have been right for a few years.  But no one has ever beat the market by trying to “time it” over the long term, especially if you include the costs and fees of all the transactions.  

Truth #2 - You don’t need to beat the market.  Investing is not a race to see who can die with the most cash.  Investing is not about getting the highest return this year.  Investing is a method of diversifying the risks of living too long and of high inflation, and a method of creating diverse sources of passive cash flow.  Whether you have more money than the next guy is irrelevant to whether you are able to retire on time … you only need as much money as you need.  

So stop watching those shows, stop reading those books, stop going to those seminars … if they make you want to place trades in your portfolio.  Just figure out the right asset allocation for you, rebalance annually, and relax. 

By the way … this works both when things are doing well, and when the stock market gets crazy.  Don’t sell, don’t panic, don’t watch the daily up-and-down.  Just rebalance, and relax.  

The Wealth Spa Minute

Are you stressed out by TV, radio, and books that tell you how horrid everything is in the economy and stock market?  Stop watching, stop listening, and stop reading.  Just stick to your plan and relax.

Photo courtesy of formerly-JF presently S-Team on Flickr.

 

Ep #64 Tax Tips for Online Business Owners

Elizabeth speaks with Kristine McKinley, CFP®, CPA and Founding Principle of Beacon Financial Advisors, LLC who shares her tax tips for online business owners. Kristine shares her 5 tips to get ready for taxes, when to treat your business like a business rather than a hobby and why, as well as how your profit intentions affect your taxes. 

Elizabeth then answers a listener question about when you need to have a Tax ID Number (EIN) and her Entrepreneur’s Success Tip of the Week: The Art of Connecting, Fifth in the Series The Art of Social Networking.

Click here to learn more about Kristine and get valuable tax tips for your online business . If you’d like more information on getting your own EIN visit the IRS site. 

Click here to download the show!

Ep #63 Best Way to Finance Your Business Even in Down Time

Elizabeth invites Babs Ryan, Big-Business Escapee and Author of the new business book “America’s Corporate Brain Drain” to share how financing a business has changed recently, loan misconceptions and 3 reasons for business failure.

Elizabeth then shares her recommendations and puts her spin on using credit cards to finance your business and how dangerous that can be; she also shares her Entrepreneur’s Success Tip of the Week: The Art of Sharing, Fourth in the Series The Art of Social Networking.

For more information on Babs’ book and to learn more about her work, visit Brain Drain.

Click Here to Download This Week’s Show.

Transcript: Welcome everyone.  This is Elizabeth Potts Weinstein your host for the Wealth Spa Radio Show and this is episode 63 for any of you who are keeping track or who are listening to recording and don’t want to get out of order.  What we’re talking about today, we got a couple different things going on.  Read more

Collecting Your Money: What to Do When A Client Does Not Pay

Guest post by Sandra P. Martini, the Automatic Business Coach.

You’re psyched! You just landed a new client who is going to keep you busy with projects. Life is good.

You love the people, you’re really enjoying the work, things are going great. Everything proceeds along smoothly for several months until that fateful month where you submit a large invoice and payment isn’t immediate.

“No problem” you think. “Things are somewhat tight. It will just be paid a little late.” 

What are your options when a client doesn’t – or can’t – pay you?

There are several things you can do when a client doesn’t pay you. Before you start down the path however, you need to think about what type of future, if any, you want with this client.

1. Gentle reminder.

Your invoice could have been forgotten, misplaced or buried in a pile on your client’s desk. If they have gone past your due date, email – or call depending on what is most comfortable for you – a gentle reminder asking them the status of payment.

If you use QuickBooks or QuickBooks Online, you can also email a statement directly from the system.

2. Be personal.

If you’ve reminded the client and no payment has come, it is time for either another email or a phone call. Your client may tell you that he is very busy and apologizes that he “forgot” again.

Explain that cash flow is very important to your small business and that you can not afford to carry the unpaid invoice any longer.

Always remember to make it easy for your client to pay you. Tell him that you are happy to be paid via wire, PayPal, credit card – offer him all the options and be sure that you have more than just “send a check” available. Make it as easy as possible!

3. Be the “squeaky wheel”.

If your client is having his own cash flow issues, he may need to make hard choices about who gets paid when. Send an email reminder or statement every other day or every week – take your comfort level and go one step further.

By being the “squeaky wheel”, you insure that you are at the forefront of his mind when he is paying bills.

4. Cut him off.

As hard as it is, sometimes you need to tell the client – even though you’ve become friends – that you can not do any additional work until your invoices are paid in full.

As a small business owner, you are responsible for the running of your business and, as a result, there are times when you need to make tough decisions that are best for your business. You can’t afford to work without compensation and your client should understand that.

5. Get tough.

You’ve tried being gentle. You’ve tried being personal. And you’ve squeaked so many times that you’re tired of hearing your own voice. Now it’s time to put that prepaid legal plan to use!

Have your attorney send a formal letter stating that if you are not paid, in full, within X number of days, that you will either take the client to small claims court (the normal limit is between $2,000 and $7,500 – it varies by state in the U.S.) or to arbitration. Whether you sue or go to arbitration depends on the contract you have with your client as some state that disputes will be arbitrated. 

6. Bigger than small claims.

If the client owes you substantially more than the small claims process will allow you to sue for, you may wish to sue in a formal state trial court. Debt collection cases are usually simple and few collection cases actually make it to trial as most defendants either settle before trial or fail to show up for court (in which case you would receive a default judgment).

Chances are if you threaten legal action, your client will pay up. If he doesn’t, you may have to follow through on your threat. Just remember to make this decision taking into account how much you are owed, your time for the legal action and whether or not you ever wish to work with this client in the future.

Note that if the client never pays you, you *may* be able to deduct the amount as a “bad debt”. See your tax advisor for more information regarding the bad debt rule.

You want to take collection actions that you are comfortable with while thinking about how they will affect your future relationship with the client. Keep in mind however that you are a small business owner and should be promptly paid for services rendered and accepted. After all, you didn’t go into business for yourself to work for free!

© Sandra P. Martini, The Automatic Business Coach 2007. 

Get Sandra Martini’s FREE “5 Simple Steps to Putting Your Marketing on Autopilot” e-course/audio mini-workshop and her FREE small business success how-to tips at www.SandraMartini.com

Ep #62 Survive the Meltdown: Identify, Maximize & MONETIZE Your Inner Expert

Elizabeth speaks with Mark Rafter, author of The Wealth Manifesto, about how to Survive the Meltdown: Identify, Maximize & MONETIZE Your Inner Expert. Mark shares his definition of wealth and how to truly become wealthy; he then explains his mental wealth model and the importance of knowing what you want and what you can offer.

Elizabeth answers a listener question about what to do if someone takes your article and places it on another site that you don’t want to be associated with and then shares her Entrepreneur’s Success Tip of the Week: The Art of Being Naked, Third in the Series The Art of Social Networking.

For more information about Mark Rafter, The Wealth Manifesto: Transforming Your Life From Survive to Thrive or to receive The Wealth Coach Report and free workbook, visit Mark’s website.

Click Here to Download the Show!

Transcript: Welcome everyone.  This is Elizabeth Potts Weinstein your host for the Wealth Spa Radio Show and I want you to welcome you to today’s show.  It’s episode 62.  It sounds like really high number.  Read more

Balancing the Checkbook: My not-so-dirty little secret

We grew up in a world where responsible personal money management included balancing your checkbook.  You were supposed to write down all your checks in your ledger, and balance it each month again your bank statement.

Perhaps you are one of the few people still left who do this each month.  Perhaps you are an accountant, or an engineer.  Or, you use Quicken to download & balance your transactions.

But probably not.  You most likely have not balanced your checkbook in years, if ever.  And yet, you feel guilty about it, as if you are not a good manager of the family finances.

Stop feeling guilty.

I don’t balance my checkbook.

I don’t even have a checkbook.  

Balancing a checkbook comes from the days when we wrote checks.   Read more

Make Credit Work for Small Businesses

Guest post by Tisha (Kulak) Tolar

Small businesses and entrepreneurs starting a business have to devote a lot of time and effort to get their business on track and successful. Many start out so small that there is no financial room for a staff to keep things flowing and oftentimes it is up to the business owner to wear many hats. Obviously, income is a serious priority for start-up businesses and when there is not enough money to add a support team, entrepreneurs need to concentrate on ways to take off some of the pressures of running a business.

Reduced Overhead

One simple way to ease the burden of accounting and financials is by employing a credit card designed specifically for a small business.  For every business transaction by credit card, the business owner has at their fingertips a very detailed report of their spending. Credit card statements for small business credit cards are very detailed making is a lot more simplistic for owners to keep track of what they are spending. The detailed statements that are received monthly can be categorized easily in order for the business to have a clear understand of what is spent in marketing, office supplies, business fees, and more. Saving receipts can help reconcile statements and be attached to each month’s bill in order to keep orderly records, in the event there is a discrepancy or the need to return merchandise. Making notes on each receipt as they are received can help owners recall the expense easily at the end of each month. Read more

Your Financial Plan: Why do you care, anyway?

So, what’s the point?   Why are you here, trying to learn about your money?  

The answer is your Financial Vision.  Your Vision is your objective, or ultimate reason, of why you want to master your finances. 

Imagine — you have a Financial Action Plan sitting in front of you on your desk, table, or lap.  This Plan spells out the exact steps you need to achieve your goals.  You now know exactly what you want to do, and feel confident that you will be able to complete these tasks.   Read more

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