4 Factors That Can Sink Your Small Business

small business The following post is by MPFJ staff writer, Sally. Sally is the blogger behind TinyApartmentDesign.com, a blog about design, living well, and simple, tiny spaces. Enjoy! 

Done right, small business ownership has been a path to economic mobility and career success for many aspiring Americans.

This weekend’s WSJ article provided one example of how franchise restaurant ownership has provided a path for hardworking people to increase their income while owning their own business. Small businesses of all kinds have been a major source of wealth for Americans, but they have their own risks that someone who is making the transition from employee to business for the first time may not always consider.

Before beginning any business, a management plan will help keep the following factors in check.

 

Inventory

If you keep inventory of a product, one of the first things you will need to learn very quickly is exactly how much inventory you need, what the right items are and when to stock them. For example, a swimsuit retailer needs to know the average numbers sold in each size from XS to XL or 00 to 16, the most popular colors, and the brands that will sell. If you haven’t done your market research, you may end up at the end of a six-month selling season with hundreds of bikinis that are now considered “last season” and in colors that are no longer popular in the coming season. In the case of the restaurant owner, it’s been said that the mark of a good chef and owner is when the daily special is sold out. 50 pounds of uneaten Bluefin tuna at the end of the night just means lost revenue for the owner (or maybe tons of spicy tuna specials the next day).

 

Labor

It’s hard to be realistic about your labor needs with no prior experience, but owners will need to determine how much help they can utilize fully. If workers have nothing to do, and you don’t have the time to train the time, then their labor is eating into your margins. Conversely, if you don’t have enough hands on deck, your product and reputation can suffer much more quickly than it can be repaired. Preventative measures help- hire extra help when you expect extra sales.

 

Taxes

I’ve owned a few very small businesses and never hired a CPA until last year. I now see that having my CPA around from the beginning would have forced me to keep more organized records, account for expenses and revenue more consistently, and saved me in taxes owed. His fee is trivial in comparison to the peace of mind I have that there is second set of eyes on my records, and he is motivated to save me more in order to keep me as a returning customer. With payroll and regular expenditures, small business owners will do best when they keep organized, clear records from the outset.

 

Resources

There are so many resources available to small business owners to help them grow and manage their companies. Need more referrals? Try your local Chamber of Commerce. Not sure what product to order for next season? Attend your industry conferences and webinars on industry trends. Need to update your online strategy? Hit the blogs for tons of marketing ideas and referrals to trusted developers and social media marketing firms.

Your small business has the potential to become your path to financial independence, but you’ll have to stay involved and active in every part of your business as it grows.

How about you all? Have you ever started a small business before? If so, what were some of the primarily factors that either enabled or prevented it from growing?

Share your experiences by commenting below! 

***Photo courtesy of http://www.freeimages.com/photo/1336617

5 Ways to Break the Cycle of Living Paycheck-to-Paycheck

saving money frugal living financial planning debt reduction debt payoff The following is a post by MPFJ staff writer, Kevin Mercadante, who is a professional personal finance blogger, and the owner of his own personal finance blog, OutOfYourRut.com. He has backgrounds in both accounting and the mortgage industry.

A lot of people dream of the day that they’ll have enough money saved and invested that they’ll be able to live the way they want, to have the things that they want, and be able to come and go as they please. But you won’t ever be able to reach that point if you aren’t able to accumulate the savings and investments that will make it happen. And you won’t be able to do that until you learn to break the cycle of living paycheck-to-paycheck.

If you are in that situation, here are some ways to break the cycle so that you will be able to accumulate the kind of money that you’ll need to live the life that you want.

 

1. Cut your expenses across-the-board – or just a couple of big ones

Weaning yourself off the paycheck-to-paycheck merry-go-round won’t be accomplished without cutting your living expenses. You’ll need to do that in order to create room in your budget so that you will be able to build the level of savings that you need that will put an end to the negative cycle once and for all.

There are two basic ways that you can do this:

Cut all expenses across-the-board – You can do this by making a percentage cut across your entire budget. For example, if you are currently spending $3,000 per month, and you decide to cut your budget by 10%, you’ll free up $300 per month that you can put into savings.

Make big cuts in a couple of big expenses – If you don’t like the idea of cutting all of your expenses at the same time, you can target two or three big ones and make deep cuts there. For example, let’s say that you are paying $1,300 per month for your house payment. By moving into smaller quarters at $1,000 per month, you’ll free up $300 per month for savings. Similarly, you can dump a car that has a $400 per month payment on it, in favor of an older car that you can afford to buy for cash, and thus eliminate the monthly payment. That will provide $400 per month for savings, or $4,800 per year!

 

2. From now on – no new debt

A lot of people believe that in order to break paycheck-to-paycheck cycle, you first need to get out of debt. While that certainly would go a long way toward creating surplus in your budget, you don’t necessarily have to pay off all of your debts before your situation begins to improve.

Simply by avoiding new debt, your financial situation will begin to improve over time if only gradually. Just by making your required minimum monthly payments on each of your debts, the loans will begin to be paid down, and eventually you’ll pay them off.

But the key is always to avoid adding debt to your existing pile of debt. If you can at least do that much, your cash flow will gradually improve, helping you to break the paycheck-to-paycheck cycle. And you won’t have done anything radical to make it happen.

 

3. Commit to a long-term plan to increase your income

You probably won’t be able to do anything as dramatic as increasing your income by 50% in the next three months – and the truth is that you don’t have to. All you need to do is commit to a plan to increase your pay over the long-term.

There are various ways to do that, but the least taxing way may be to plan on doing several:

  • Get a part-time job – an extra $200 per month will enable you to save $2,400 in one year.
  • Start a side business – assess your best skills, then work on hatching a plan to monetize them by selling your services to the general public.
  • Plan on getting a better paying job in the next year – with the understanding that you may have to pick up a new skill or two in order to make it happen.
  • Look into buying and selling – find a product or product line that you’re particularly interested in, and start selling it as a sideline.
  • If your compensation includes commission or bonus income, get serious about increasing your results.
  • Find ways to monetize your situation – like renting out a room to a boarder.

You don’t have to do any of the above for the rest of your life, but just long enough to get enough money put away that you’re in control of your financial situation.

 

4. Redirect any and all freed-up cash into savings

Whether you are improving your cash flow by cutting your expenses, increasing your income, or both, it’s vitally important that any additional cash from these activities be directed into savings. The idea isn’t to create additional cash flow so that you can buy more stuff, but to accumulate the kind of money that will eventually lead to something that looks like financial freedom.

The best way to make that happen is by making it automatic:

  • Take advantage of direct deposit with your paycheck, by having some of your pay direct deposited into your savings account.
  • Have your income tax refund direct deposited into your savings account.
  • Make it a policy and a habit to deposit any additional income into your savings immediately – as in before you have time to think about it.

If you’ve never been into saving money in the past, it will be very important to make sure that the money goes to its intended destination – and that’s your savings account.

 

5. Investing your savings makes it permanent

This is the final step, because it makes saving money permanent. Once you begin moving your money into investments – like stocks and mutual funds – it will be “tied up” and therefore unavailable in case you’re tempted to spend it.

Investing money can also provide outstanding motivation. The prospect of being able to earn money with money that you already have can turn investing into a lifelong pursuit. And once you’re earning money on your investments – in addition to earning extra income and cutting expenses – your move away from living paycheck-to-paycheck will become almost effortless.

How about you all? Are you having trouble breaking out of the cycle of living paycheck-to-paycheck?

Share your experiences by commenting below! 

***Photo courtesy of https://www.flickr.com/photos/orphanjones/677386754/sizes/n/

Why Your Debt Is Costing You More Than Money

debt reduction debt payoff debt minimization debt management The following is a guest post by Richard, who blogs about his personal experiences of getting out of debt, saving money and gaining financial freedom over at Frugality Magazine. Enjoy! 

As someone who has recently succeeded at paying off all my consumer debt I recently spent some time considering how debt has affected my life – and what changes I expect now that I’m free from the shackles of unpaid debt and all the negatives that come with it.

As it turns out, debt robs you of far more than the money we all think about. We know that once you take on debt, you then have obligations to repay it. You’re borrowing from your future self and reducing your freedom because you’ll not only need to pay back the principle that you borrowed but also the interest on top of that.

But what else does debt cost you?

 

5 Things I Personally Missed Out On Because of My Debt

Here are just a few of the things I realized my debt cost me – over and above the obvious financial constraints…

 

Sleep

When you’re drowning in debt, wondering if you’ll ever dig your way out and in some extreme circumstances even wondering how you’ll meet your minimum payments, it’s not surprising that a few sleepless nights can be had worrying about the situation.

But there’s more.

In my own situation, I opted for a “short term pain for long term gain” mindset in order to repay my debt as quickly as possible. In order to do this I landed the best paid job I could find – irrespective of any other factor (working hours, job satisfaction etc.).

I ended up working 50+ hours a week, which included shifts, which essentially meant I could either choose sleep or spending time with my friends and family with the few remaining hours I had each week.

And while I tried to find the best balance I could, a “normal” nights sleep weighed in at between 5 and 6 hours. Not healthy and certainly nowhere near as much as I need to feel refreshed and rejuvenated each day.

Sadly, I’m now so used to getting up at 4 am for work, even on my days off or while on vacation I still find myself waking up at a similar time.

 

Birthday Parties

I have a number of nieces and nephews of school age or younger. Which means there are birthday parties going on all the time. And while I get invites, they’re often last minute. Which means I haven’t got time to request the specific day off work.

So I miss out. I’m resigned to seeing all the photos on Facebook and hearing about the party second-hand from the family members who attended. While I don’t enjoy my job at the best of times, it’s hardest when I know I’m missing out on a big family get-together.

 

Vacations

Vacations cost money. Money that could arguably be better put into debt repayments. So while my girlfriend and I had a number of lovely days out, over the last few years we’ve avoided the temptation of taking off for foreign climates and instead put our hard-earned cash into paying down our debt.

Surprisingly, while I love to travel, this hasn’t been too painful. And now that the debt is repaid, there’s nothing to stop us jetting off the the sun this year if we so choose. And to do so without any feeling of guilt debt reduction debt payoff debt minimization debt management

 

My Dream Job

When I had made the decision to land a new job and get serious about my debt I was actually offered two different positions. There was the highly paid yet life-sucking position I took and then there was the alternative; in many ways my dream job.

Relaxed, enjoyable, reasonable hours, based around my passions and with loads of opportunity for personal growth and fulfillment. Except it paid barely more than half of the alternative.

If I’d been debt free I’d have jumped at the chance – I could easily have lived on the salary and would be doing something I love for a living. But, my debt repayments took priority, I (politely) turned down the dream job and instead went after the money.

A mistake? Who knows. Hopefully other opportunities will arise. Now my debt is paid off and my monthly expenses have dropped like a stone, I have far more options available and far more flexibility in my career.

I’m sorry to have missed the job, but I’m more glad I paid off my debt and bought back my freedom.

 

A House In The Countryside

Real estate is expensive – even more so in the UK (where I live) than the States. The prices we pay – particularly as a percentage of the average salary – would make your eyes water.

So in another attempt to keep costs down and snowball all available funds into debt repayments we opted for a low-cost home in the middle of the town I work in. It’s acceptable, but it’s not what we want long term.

We’ve found properties we like online and in newspapers but the additional cost of a “nice” home has kept us from making the transition. We’ve had to say no to the home in the countryside with the beautiful garden that we want.

 

Has It All Been Worth It?

You might be thinking by now that I’m a bit depressed looking at all the extra things that my debt has cost me. And in a way it’s a bit sad. But it was also temporary. And now I’m in a better financial situation than most of my friends with their nicer houses, fancy cars and piles of debt.

I’ve spent 4 years making compromises so that I don’t have to make any after that. Has it been easy? No. Would I recommend it to others? That depends. Am I glad I did it? Yes, actually I am.

I’m not proud of the things I’ve given up/missed out on, but it feels like I’m entering a new era of my life – free of the burden of debt. Where I’m free to dream about the future without needing to factor in any kind of debt.

In all, I’m pleased I made those compromises because the end result will be far better.

What have you missed out on because of your debt? What costs have you found to debt besides the obvious financial ones?

Please leave your experiences in the comments below!

***Photo courtesy of https://c1.staticflickr.com/9/8094/8456188296_375a94bc19.jpg

What Should You Expect From Your Banker When Applying For A Loan?

personal loans loan problems debt consolidation banking The following post is by MPFJ staff writer Travis.  Travis is a customer blogger for CareOne Debt Relief Services, and also appears weekly at Enemy of Debt.  Travis candidly shares his personal journey to pay off $109,000 of credit card debt and the tips he’s learned along the way. As a father and husband he provides a unique perspective on balancing debt, finances, and family.

I walked into our bank last November to discuss the possibility of getting a loan to consolidate our remaining unsecured debt.

We were just a few payments away from eliminating $109,000 of credit card debt through a debt relief program but had two accounts that we were unable to include in program.  I hadn’t ever applied for a consolidation loan before, and didn’t know what to expect with regard to what the process would entail, or how long it would take.

I didn’t know it at the time, but I was about to have a horrible experience.  When it was all said and done, we had been denied mainly because we still had accounts being managed by a debt relief plan.  We were told to try again after we had completed the program.

My wife and I agreed that when we made another run at it, we would go to a different branch of our same bank, and deal with someone new.  Last week we did exactly that, and had a completely different experience.

This is a tale of two loan applications; one fantastic, and one miserably sub-par. 

 

Tale #1: The Agonizingly Slow Path of Failure

My first meeting with the banker was setup at my request as an exploratory meeting.  I thought I should explain our situation with the debt relief program, what our goals were, and discuss our potential options.  The banker seemed optimistic that we would be approved and wanted to meet with both my wife and I to go over details.

We setup a meeting for a week later at his suggestion.

One week later, we both sat in the banker’s office as he asked us for some basic information, then sent us home with a list of documentation including W2s and tax forms that we needed to gather for him.  Since that meeting was on a Saturday afternoon, I wasn’t able to get him the paperwork until the following Monday.   He was to take the paperwork and submit a loan application.

The next few days were riddled with unreturned messages.  The banker was either not available, or out of the office.  Finally, on Thursday, I got the banker on the phone and found he was still working on the application.  He was to call us with an update by end of day on Friday.

Close of business came and went and no phone call was received.

We did, however, receive an email during the evening from him notifying us the loan application had been submitted, and we would likely hear back regarding the decision the next day.  The next day, of course, went by without any notification from the banker.

On Monday, I called several times leaving messages.  Towards the end of the day, I physically walked into the branch to find him in his office.  He quickly apologized for not returning my messages, and broke the news to me:  Our application had been denied.   But, he was going to attach a note to our application reminding the underwriters that we had been customers for a long time, that we were just a few months away from completing our debt management program, and ask for reconsideration.

A few more days went by.  Finally on Thursday, nearly three full weeks from our initial meeting, we were informed that our application had been denied again.  Tough luck, try back in a few months.

 

Tale #2:  The Fast Lane of Success

We met our new banker at 10am on a Saturday morning.  We quickly explained our situation, to which banker #2 nodded his head and tapped on his keyboard.

“I think we can help you now,” he said.

He asked us for our personal information, typing it directly into a loan application as we gave it to him.  He asked for the account names and numbers we wanted to consolidate, which we were able to give him since we had our smart phones handy.  He then asked for estimated income information, stating that if they needed specifics they would ask for them.  A message popped up after hitting the “Submit” button telling him that it may take up to 24 hours to turn around the application.

“Let’s see if we can do better than that,” he said as he picked up the phone.

He dialed an internal number and asked if they could expedite the loan application as the customers were sitting right in front of him and really wanted to know.  The underwriter  calmly explained that they were swamped and it would take 24 hours.

Kudos to the guy for trying.

We were in the bank for a total of 23 minutes, and in that time we were further along than in the first two weeks of our previous attempt.  When we got home I found a pleasant surprise from the bank in our email inbox.

We were able to check the status of our loan online.

On Sunday evening we were notified through their automated system that our application had been conditionally approved.  We needed to provide additional documentation such as W2s and pay stubs.  I quickly gathered them all and put them in a manila envelope.

On Monday, banker #2 called and reiterated what we already knew.  When I delivered the documentation to him, he made copies and was told to expect a phone call from him the next day.  True to his word, he called Tuesday morning telling us we could come in at any time to close on the loan.

Three days after our initial meeting, we signed the paperwork for our approved loan.

 

Lessons Learned

These were obviously two very different experiences from the same bank no less, even if you disregard the decision on the loan. Having gone through these two experiences, I learned several lessons that could benefit anyone who may be looking to apply for an unsecured personal or consolidation loan:

  1. Filling out a loan application takes minutes.  Banker #2 did it while we sat in his office and watched!
  2. Gather the account number and balance of any accounts you want to pay off with the loan
  3. Collect W2 forms from the last two tax years for all income streams and make copies of them
  4. Collect the last pay stub from all income streams and make copies
  5. Bring the information from 2,3 and 4 with you to your meeting with the banker
  6. Ask your banker how long the decision will take, and if they have a way for you to check  he application status online.
  7. Get a business card from your banker, and ask for his schedule so you know when he will and will not be in the office.

Knowing and executing these pieces of advice will help speed up the process of applying for an unsecured loan, not to mention reduce your own stress level while you go through the process.

How about you, readers? Have you ever applied for a personal or consolidation loan?  What was your experience like?

***Image courtesy of Stuart Miles / FreeDigitalPhotos.net

How to Avoid Taxes at Retirement

retirement The following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

Don’t you just love paying taxes?

Of course you don’t. Nobody does. Sure, some of the taxes we pay are for the good of the community, but it seems that much of the funds are spent for products and functions that we could care less about. Often times, I figure it would be best if I could just avoid as many taxes as possible, which is how this article came about. If you are interested in keeping your money, rather than gifting it to the government, you may want to keep reading.

 

1) A Low Income During Retirement

Just like when you’re working, your tax bracket is dependent on how much you earn each year. If you can live off of very little, then you will land yourself into a very low tax bracket and only owe the government a miniscule amount.

I know this might not sound like a great solution (since you might be assuming that you have to live an unhappy life just to avoid paying taxes), but if you have absolutely no debt then how much do you really have to spend to survive? You’ll need some money for food, clothing, insurance, and gas. That’s pretty much it. A happy life can be had for less than $1,000 a month (believe me, I’ve done it, and that was with a mortgage payment!).

If you plan to retire before the age of 59 ½, don’t sweat it, this plan will still work for you. According to Section 72(t) of the tax code you may withdraw a set amount each month from your 401k and receive no penalty. So, if you have no debts and are able to live off of very little, then this tax avoidance method should work fantastically for you.

 

2) Contribute to a Roth IRA

If you are worried about paying taxes during your retirement, then why not just get them out of the way now while you have a consistent income? By investing in a Roth IRA, you will be putting money away for your retirement and paying tax on it, but when you withdraw it in your retirement years you will not need to pay any tax whatsoever!

 

3) Contribute to Your Health Savings Account

If you currently have the high-deductible insurance plan through your work, then you most likely have the option of contributing to a Health Savings Account (HSA). This is an excellent option and I would strongly recommend it as a way to both grow your money and to avoid paying taxes.

Your dollars are put into the HSA pre-tax and as long as you spend the money on medical products or services (this includes vision and dental as well), then you will never pay taxes on this money. Better still, if you have over $2,000 in your HSA account, then you can invest your money and grow it exponentially for your retirement years. And, if by the age of 65, you have not used the money on medical expenses, you can start withdrawing the funds for non-medically related purchases as well without penalty (although, you will pay tax at this point).

 

4) Invest in Your Home

As home prices are rising again, the strategy of buying a home, living in it for a while, and selling it for a profit is making more and more sense. If you are handy and have a knack for picking out properties that will increase in value, then this might be a great option for you.

All you have to do is find a foreclosure in an excellent neighborhood, move in, put your hands to work and restore the house to appeal to the masses. After two years you can sell the house for thousands of dollars in profits and pay absolutely no taxes on your earnings (up to $250,000). As long as home values steadily rise, this is an amazing opportunity for anyone to earn some tax-free money, not just retirees.

 

5) Draw From Social Security

If you earned an average wage throughout your working years, then your Social Security checks will not be taxed. As long as this program continues, this is a great way to earn a non-taxable income in your retirement years.

 

6) Earn Capital Gains, Not Income

If you have a large income and often pay many taxes because of your high tax bracket, then you might want to earn more of your money through capital gains where the standard tax is just 15%. Capital gains are paid on the money earned through the buying and selling of assets. This phrase is often used in reference to stock earnings, but could be used for any asset that is bought and sold for more than the purchase price. If you have the ability to buy low and sell high, then the cap on your tax payment is 15%. Not a bad deal.

How about you all? How are you going to avoid paying taxes in your retirement years?

Share your experiences by commenting below! 

***Image courtesy of https://c2.staticflickr.com/8/7251/13291209304_81478cdc9d_z.jpg