Ten Commandments of Financial Management When Money Is Tight

Money problems can drive you crazy on a good day…

But when you’re trying to run a small business and the country’s economy takes the kind of hit ours has in the last couple of years, problems with your finances can take you and your business under in the blink of an eye.

Here are a few tips to help you manage the financial side of your business when money is tight:

1. Remember the power of cash. Before you make any capital purchase for your business that will require you to take on debt, ask yourself if the purchase will actually make enough money for you to pay off the debt required to buy it.  If the item you want to buy will not pay for itself in at least the amount of time it will take you to pay off the debt, don’t buy it.

2. Make a budget and stick with it. Trying to run a business without a budget (a written budget) is like trying to drive across the country without a map or a GPS.  A written budget will help you determine and maintain the direction you want your business to take.  Once you’ve written your budget, update it frequently.  You’ll need to keep an eye on your expenses as your business grows.  And don’t forget a personal budget.  You need to keep track of your personal expenses to make sure you’re not draining your business to pay for out-of-control personal spending.

3. Look at your business with a clear eye. Is your business performing as well as it can? Are you getting the best possible return on your investment?  If not, why? Can you liquidate the investments that aren’t performing as they should?  If so, how will that affect your business?  Don’t hang on to investments that aren’t performing any longer than necessary.  When money is tight, surviving is the most important goal.  Ask us about a review of your investments and tips on what to keep and what to let go.

4. Properly structure your debt. Compare your long-term and short-term debt.  Do you have more short-term debt than long-term?  Could you possibly increase your long-term debt and pay off your short-term debt?  It might be possible to increase your monthly cash flow by stretching out your short-term debt over a longer payoff period.  But here’s a word to the wise: think twice before you take out a loan against long-term assets like real estate.  That amounts to taking money out of your life savings.  Don’t take that kind of loan lightly.  Only do so if the need is a life and death issue for your business.

5.Schedule a professional review of your financial situation. One of the first experts you need to align yourself with when starting a business is a good banker. Now is the time to use that expertise.  Schedule a full review of your finances with your banker and be prepared for the meeting.  You need to have current inventories, cash flows, and balance sheets ready for your meeting and provide any and all information you’re asked for. This will make the meeting much more effective and keep you from wasting time looking for information that you should be using for solving your problems.

6. Check out the Small Business Administration (SBA) Loan Program. After talking with your banker, you might be able to restructure your business debt if you can obtain a credit guarantee for the loan from the SBA.  Also check out any assistance offered by your state.  Some states offer financial and technical assistance for small businesses.  Ask us about all options available to you for additional financing or assistance.

7. Increase the deductibles on your insurance policies. Look at your fire and other business insurance policies. You might be able to increase your monthly cash flow by increasing your deductibles on these policies and lowering your premiums.  And make sure you’re only insuring what you actually need to insure.

8. Consider a loan against your life insurance policy. If you have a whole life policy, you might be able to borrow against the cash surrender value of the policy.  You might also want to consider changing from a whole life policy to a term life policy.  You don’t want to be without life insurance but you might be able to save some money with a less expensive policy.

9. Don’t stick your head in the sand. If you’re having financial problems with your business, handle them now.  Be proactive, not reactive.  Develop a strong relationship with people who can advise you on the best way to handle problems when they arise and use that expertise.

10. Be good to yourself. Small business owners have a tendency to submerge themselves in their business and never get away from it.  One of the best ways to keep your business and its issues in perspective is to give yourself a break. Take a couple of days off that have nothing to do with your business.  You’ll see the world and your business in a different light when you go back to work.  Balance is key.

These ten tips can help you look at your business with a clear eye, see where you actually stand and give you a road map for solving any problems you’re facing.

If you’re a small business owner or you’re considering taking the leap to business ownership, call us today to schedule your comprehensive LIFT™ (legal, insurance, financial and tax) Foundation Audit.  As your personal legal advisors we will identify any holes in the foundation of your business and what you need to do to fix them. Normally, this session is $1250, but if you mention this article and we still have room on our calendar this month, we will waive that fee.