Thursday, April 23, 2015

Managing money

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     Managing a small business means managing money. If all your expenses and payments add up to less than income, you can point to a healthy bottom line.

     Even so, there is never enough money to do all the things you want to do. It comes down to a juggling process--matching income with expenses. This is like a juggler juggling only two balls. 

     Good business people juggle three balls. That third ball is the money that's left over after all the bills are paid. That third ball is growth capital. It's the excess dollars you can use to expand your business.

     Example: Nancy runs a flower shop. Income exceeds expenses, but there is little left over after all the bills were paid. She decided to make a big push for Mother's Day since it represented the biggest day of the year for flower orders. She blasted out emails to current and former customers. She took dozens of pictures and posted them on Facebook, Pinterest, and LinkedIn. She reminded people of Mother's Day on Twitter. With little expense, Nancy put her flower shop in front of hundreds of people in the area. Orders began arriving and Nancy had to hire several part time helpers to handle the work. With the excess bottom line dollars generated by Mother's Day sales, Nancy planned to add a big new line of silk flowers and arrangements. This would expand her business to include corporate offices, banks, and other organizations looking for revolving flower arrangements to beautify their establishments.

     Example: Alex runs a home improvements business. Projects typically run $5,000 to $25,000. He requires 1/3 at contract signing, 1/3 when an agreed-upon milestone is reached, and 1/3 at the completion of the project. The projects are therefore almost self-financing. Alex is careful to separate the accounting for each project, and he is very much aware that the bottom line excess, or profit, is in that last payment--not upfront. This money management scheme has allowed Alex to grow confidently--those last payments have funded his addition of new equipment and workers. 

     Example: Judy is a certified Pilates specialist. She used her personal credit cards to get into business--paying for training and equipment. It took many clients, both private and group sessions, to pay off the bills Judy had run up on her credit cards. Using credit cards means borrowing money, and that means paying interest charges. It's a higher rate of interest than you might get with a bank loan, but sometimes, it's the only way out. Do this only with your eyes wide open, and when there is no other way. Judy has a long term plan to eventually establish her own wellness center. It will take many months to pay back all the credit card borrowings, but with self discipline, Judy will eventually be able to realize her dream. 

     The general public, politicians, and all your friends and neighbors believe that owners of small businesses are millionaires. Of course, they have no idea what it means to run a business, having never done it themselves. They know little of business or economics.  

     In business, you learn to manage money or you won't survive. You understand cash flow. It's the acid burn in your gut when there's not enough money to pay the bills. It's also the good feeling you get when there's money left over after all the bills are paid every month. That's the money you can use to grow and expand. 

     Managing money in small business takes ingenuity, creativity, and a willingness to take risk. Taking a risk is not like rolling the dice. Taking a risk is seeing a likely path forward--no matter the obstacles.