If you’ve been following me for any time, you know that I am all about protecting your business, now, wherever it is in its evolution. One of the best ways to protect your business is to have an emergency fund. Also known as a management reserve, this fund is a stash of cash equivalent to at least three times your monthly expenses, including your paycheck. The importance of having extra cash for emergencies cannot be overstated. I have worked with entrepreneurs who spend everything they make each month in profit. They enlarge marketing budgets and add services to their businesses but have no cash to protect their existing milestone.
Three times your breakthrough (B-Number) is my recommendation for a first emergency fund goal (you can easily calculate your numbers with the free worksheets at www.entremoneycoach.com.) The reason I believe three months is a minimum number is that if the sun explodes, you still have a full quarter to right the ship. You will have expenses and a paycheck for the three months it takes to pivot, to launch, to take corrective action in your business.
At first that number may seem a bit high, and honestly you may be thinking, “I’m barely surviving right now, you want me to save HOW MUCH?” But it is possible to save towards your goal and hit it in a few simple steps.
- Get Set Up for Success. Make sure you have a separate bank account so that your emergency fund money doesn’t get comingled and accidentally spent. Keep it liquid but keep it separate, even in a different bank. Have a fee free checking account, with checks, for access and have a defined list of what constitutes an emergency.
- Put a little in each month. Make your emergency a line item in your budget. If you write down your savings goal, and you write in a goal for saving a certain amount, you are more likely to do it. Save a little each month, and you will be amazed how fast it grows.
- Make larger deposits as you make more money. Alternatively, or additionally, save a portion of your profits over your B-Number in a good month. Let’s say that you have a very successful month in sales, commit to stashing some portion of that profit in the fund.
- Celebrate your progress. You are actively taking steps to protect your business should you need a little money to cover you.
Treat your emergency fund as a priority and it will be funded faster than you expect. And once it is funded, you are done! You will then be in a better position to grow and take on new growth and risks, and more confident knowing you can cover what you need to every month. Happy Entrepreneuring!
I am a multi-passionate entrepreneur. Across the businesses I am a teacher, coach, and cheerleader, but my businesses are very different and have very different audiences. I teach and coach entrepreneurs with their money and strategy, I tutor and coach non-traditional law students through school and the bar, and I teach ballet, tap , and jazz one day a week. And I am passionate about each one of my ventures. I know there are some of you out there who are just like me. I wanted to take a minute and support you by providing a few tips and tricks for balancing the finances across entrepreneurial pursuits. We will start with the “rules.”
Rule number 1: Every venture is different; you must separate your finances. Period. I have accounts for each business. I have check books for each business. I go so far as to have Stripe for one and PayPal for another to process payments. The money is earned in different businesses. By using PayPal, I can also “park” the money until I need to transfer it. No co-mingling. I keep everything absolutely separate. So should you.
Rule number 2: Expenses are different and should be tracked for each venture separately. This is as easy as putting all the receipts in a different folder, one for each business. Make sure that you pay the right expenses from the right account. Another benefit of PayPal is I can send money directly from the business account to pay expenses. You can set up the same for your businesses. Keep them separate.
Rule number 3: Taxes are separate in each business. You must pay the self-employment taxes on each venture. If you are a sole proprietor in the US, you will have one EIN if you are operating with your own social security number. You can make a single tax deposit online to cover the taxes for all three, but you must keep withholding separate in your tracking. You must file a “Schedule C” every year for each business that you own as a sole proprietor on your taxes. If you are an LLC, Limited, Corp or any other structure you must absolutely deposit your own taxes but let your accountant do the K-1 filings at the end of the year.
It doesn’t have to be complicated for the multi-passionate entrepreneur. I sit down and handle each business separately and in turn. I have a written spending plan for each, and the B-number that goes with them. I spend less than 1 hour a month on the financial planning and management of the companies.
How to do it:
- Have Your B-Number. Know your B-Number for each business separately and have a written spending plan for each. I’ll say it again, know your breakthrough numbers and have a plan for the money in each business. If you need to calculate your breakthrough number get the free workbook at entremoneycoach.com. This step will save a ton of stress and crazy. You know what you need to make, what you need to pay, and where your money is going.
- Use color coding. I have different colored folders for each business. I mark receipts as I have them and place them in the correct folder by color. To avoid payment errors, I have checks in different colors with a little icon in the corner. Color coding keeps everything easy and organized. You can find different colored folders at any office supply store.
- Delegate what you aren’t good at, or don’t like to do. Stay organized with a virtual assistant, bookkeeper, accountant, etc. The actual bookkeeping for my businesses is very straightforward, and I don’t do it, and it takes less than 3 hours a month for all the businesses. I only manage the income and planning.
- Always have a plan for your money. Don’t let your money run off and spend itself. Know what each business’s income is for. Your money every month needs to have a purpose. You may decide to take a salary from one business, with the intent to use the money to grow a different one. Have a plan, withhold your taxes, and use your money strategically.
I celebrate multi-passionate entrepreneurs like me and understand that being organized can sometimes be a challenge. But take these few steps above to make managing the finances across multiple businesses easier. Happy entrepreneruing!
by, Mike Kennedy
In April of 2011, Dawn and I decided to risk it all and start UNEQ consulting. I had spent the previous 14 years working at the Army’s Maneuver Battle Lab as an Experimentation Manager in the Unmanned Systems Team. My team and I conducted experiments with small unmanned aircraft systems, commonly referred to as drones, and unmanned ground systems, or ground robots. I loved my job; was very good at it; and had earned a great reputation in the unmanned systems community. But still, every day I got up and went to work at a government agency. Bureaucratic BS prevails at all government agencies and that was the part of the job that was troubling me. For months I had a nagging feeling that I was faced with a choice; succumb to the bureaucratic BS, keep my head down and just keep going; or resign my position and go do something else. I was making a six-figure salary, got to work around soldiers a lot, and my work helped to make their lives better. That was the good part. Putting up with the bureaucratic BS was the bad part. Go do something else won out and UNEQ Consulting was born. I closed my 401k, sold all my stock options, and away we went. Dawn agreed to keep working her job with the Army for the time being.
We thought briefly about renting some office space but after careful deliberation decided it was best to work from home. In the beginning, it was great. We had offices set up downstairs and called it the world headquarters of UNEQ Consulting. It was fun. I got to work in my pajamas most of the time and never had to drag myself to the car and drive to work. The first year we took a loss, but the second year we made more than $200,000. The problem with working from home, though, is that you are always at work. Soon enough, when the dogs got me up in the middle of the night to go outside, I would start working. From 2 or 3 am until 8 or 9 am I would be at my desk. I would take a short nap until 10 am or so then get back at it.
The thing is most of that work was just busy work. I was chasing clients. We had contracts with Georgia Tech Research Institute, the Defense Advanced Research Projects Agency and several companies that developed unmanned technology for the Armed Forces and/or First Responders. We were making great money, but I was working 16-18 hours a day trying to get more contracts and was spending near zero quality time with Dawn and the kids we still had at home. It got worse when Dawn’s contract with the Army expired and she started running operations for the company. Her work was invaluable; a definite asset, and truly made a big difference. That wasn’t the problem. I had become an obsessed workaholic jerk. Obsessed workaholic jerks find a way to manufacture arguments and fights over things that are not important. That was me and argue and fight we did. What’s worse than becoming an obsessed workaholic jerk? Knowing that you are one and not caring. I would tell myself that things would get better with Dawn and the kids when we were making millions and none of the fighting and arguments would matter then. For our third year we were on track to make $375,000, then the best thing that has ever happened to me happened.
On Friday, November 1, 2013, my two oldest sons and I were planning to spend the day at our training site getting ready for an event with first responders that was scheduled for the next day. Kevin, Patrick and I went first to a local tire store so Patrick could get new tires put on his car. Patrick was going to catch up to Kevin and me later in the day. Kevin and I got to work and a few hours into it, I climbed a ladder to about 18 feet to hang something on a light post. That is when the best thing that has ever happened to me happened. I fell off that ladder, fell the 18 feet or so and landed on my head on concrete. Wait- that doesn’t sound quite right, does it? How in the world can falling off a ladder and landing on your head on concrete be the best thing that ever happened to anybody? I’ll tell you. In the second that it took to fall that 18 feet, UNEQ Consulting died and with it, so did the obsessed workaholic jerk.
Of course, I am not actually dead. But in that second I went from obsessed workaholic jerk to helpless guy with 4 skull fractures, severed VIII Cranial Nerve, diffuse bleeding in the brain and catastrophic Traumatic Brain Injury who would spend the next 2 and a half months in the hospital learning to walk again. In that second, UNEQ died, the obsessed workaholic jerk died, but our marriage was saved. We wouldn’t know that our marriage was saved until a few years later because I had to recover and learn how to live with hearing loss, Oscillopsia (google it), swimmy brain, and getting to know the new Mike. That was extremely frustrating. Looking back now though, six and half years later, it is clear the accident saved our marriage.
Now, I sometimes think about it all and reflect. UNEQ probably would have gone on to make the millions of dollars I was obsessed with reaching. But, more likely than not, Mike and Dawn would have divorced, and the obsessed workaholic jerk I was would be all alone. That, my friends, is not worth it.
Here are the things I want you to take away from reading my story:
1. If you are working 16-18 hour days and not spending quality time with the people you love and who love you- you are a workaholic. Stop. It is not worth it.
2. If you are working 16-18 hour days, work is all you think about, and you know you are not spending quality time with family- you are an obsessed workaholic. Stop. It is not worth it.
3. If you are working 16-18 hour days, work is all you think about, you know you are not spending quality time with family, and you are fighting with them- you are an obsessed workaholic. Stop. It is not worth it.
4. If you are working 16-18 hour days, work is all you think about, you know you are not spending quality time with family, you are fighting with family, and you don’t care- you are an obsessed workaholic jerk. Stop. It is not worth it.
Finally, running your own business is only worth it if you keep the reason why you are building your business in the first place, front and center. You want a better for life for your family, you want your business to impact a lot of people and change the world, but what good is all that if you lose yourself and your family in the process?
I’ve developed the concept of the business 4 walls from the Dave Ramsey 4 Walls approach, which makes sense, since I started my practice as a Ramsey Financial Coach. Imagine the 4 walls are the sides of a box, and you will consider the things on the inside of the box more important and needing protection than things on the outside of the box. That is how you need to view your business. You need to protect the things that keep the doors open and keep you able to continue to make money. The inside of the box.