This is the time of year when many small businesses make the bulk of their revenue. In fact, a third of all U.S. small businesses report that 4th quarter is their biggest earning quarter. It can be very tempting to take the additional income generated through December and tackle debt, especially this year when so many businesses incurred debt to stay open.

 

I want to caution you against really slamming down debt this quarter without having a plan in place to protect your business in January, February, and March, a time when many businesses have slower sales. This is particularly true for Business to Consumer sales companies. Now, to be clear, you don’t want a lot of debt hanging over your business, but before you completely pay off the Visa, do these two things first:

 

  1. Have a Bit of Money Put Aside for Unexpected Stuff. If you haven’t created an “emergency fund” before now, consider it. Have a few months of expenses in the bank to cover anything unexpected that may arise. You may not actually need it, and then you can make decisions to use the set-aside money for debt in the future. Just make sure your monthly operations are covered, first.

 

  1. Create Your Debt Snowball. A debt snowball is a great way to plan to pay off debt quickly, much quicker than making the minimum payments for the life of the debt. As a trained Dave Ramsey financial coach, I find his method of planning your snowball (and getting it done) to be the easiest and best. Here are the basic steps:

 

  • Step 1: List your debts from smallest to largest amounts. Don’t worry about interest rates or payments.
  • Step 2: Continue to make all of your minimum payments on all your debts except the smallest one.
  • Step 3: Throw as much money as you can on the smallest debt, until it is paid off.
  • Step 4:Move to attacking the next debt, adding the payment from the paid off debt to increase your monthly payment amount.

 

You will continue these steps until all the debt is paid, and as you go the monthly payments get bigger and bigger as each debt payment is rolled into the next one, creating the “snowball.” You should sit down and list the bills in order, the payments for each, and generally calculate the payoff dates. 

 

Now, you can throw extra money at the littlest one at any time. So, don’t be in a rush to tackle it if you are unprotected. I don’t want you to fear debt, just don’t plan to stay there forever. If you create your emergency fund, and sit down to define your snowball plan, you will be in great shape to get your debts paid off while you continue to operate with ease. Happy Entrepreneuring!

 

Are you struggling with your cash flow every month? Grab our free resource, https://entremoneycoach.kartra.com/page/masteringcash >Mastering Cash Flow!

I get this question frequently: “When is it the best time to take a business loan?”

My answer is typically: “It depends”.

Taken too early or too much debt can kill your business. Debt is a huge reason many businesses fail. They can’t generate enough revenue for all of their obligations, not just expenses.

Large debt payments or leveraging equipment or inventory can become a financial burden that is too much to overcome when you are starting and beginning to grow.

That said, I took a business loan for a business coach to help me, and I leveraged my car to do it. At first, I was dead set against getting a loan at all, but the learning curve was very steep getting into the online space and, admittedly, I needed tons of mindset work and support to get out here after Mike’s accident and the UNEQ consulting experience (you can click this link and read about my experience: https://entremoneycoach.com/blog/our-story/)

Here are a few things to consider when thinking about getting a loan (and the things I did):

1. Ask yourself if the loan is for growth or for expenses?

When I took out my loan against my car (using collateral not only made it easier to get but gave me a lower interest rate) I was paying to grow the business.

I wasn’t borrowing money to pay expenses each month. It is always better to pay your monthly expenses from the business or personal money, a side hustle, or even another business rather than borrow to pay the rent or inventory.

2. Do you have a plan for every dime you borrow?

I see entrepreneurs get approved for credit cards and loan amounts that exceed what they really need to make the growth jump.

You should only take what you need, and you should have a plan for all of it. Money without a purpose will run off and spend itself, and this is borrowed money.

You owe it back. If you want to have a “cushion” of about 10% of your project or growth need in the bank, just let it sit there and do not spend it. Once you complete the project, you can pre-pay the loan. Just make sure there are no pre-payment penalties.

3. Do you have a plan, and the capacity to make the payments now?

Another mistake I see is when loans are taken with the idea that once you make the investment, you will make enough to pay the payments.

That’s definitely what happens most of the time, but we don’t know how long things are going to take to make a return.

Call me overly cautious, and maybe I need to work more on my money mindset and manifesting but have a way to make the payments before you take the loan. I already knew that I could make the payments from my other business venture if necessary.

When you decide to take a loan remember that you are leveraging the future of your business until you pay it back.

Again, it can be a good thing to invest in your growth, cut the learning curve, purchase what you need to be able to serve more customers and clients, and expand your impact.

Use loans for growth, have a plan, and have the capacity to make the payments before you start.

By the way, are you part of the Entre Pay Day movement? Join us now and get tips and strategies plus celebrations of everything entrepreneur every other Thursday with the Entre Pay Day Newsletter! Here: https://entremoneycoach.com/payday

I want to see you investing money and taking business loans in the right way! Wish you the best with your business.

 

NOTE: I am not an insurance agent, I don’t sell any policies, I don’t recommend products and that is best left to the professionals in the field. This is just mine and my husband Mike’s story. A story about what we wish we knew to protect our family as small business owners. I am sharing primarily because I work with entrepreneurs and these are the things we wish we would have known back in 2013. 

As the Entre Money Coach I get asked frequently, “What made you become a financial coach?” So, I am just going to share our raw story, and our mistakes that closed our previous company.  That closure threw us into severe financial difficulty, and took nearly  three and a half years to dig out. Also, this post is not about life insurance, the most obvious, or even insurance for our physical business. I want to share the types of insurance that we didn’t know about but can perhaps prevent financial ruin for another family.

When Mike wanted to start a consulting business in 2011, I was so excited. And it was great. It really was. Mike and I followed the state guide, took all the legal steps, got our business license and set up our office space in our home. Then we took courses through the Small Business Administration and met with awesome advisors through SCORE. In short, we followed the “rules.”

We had a business plan, a (now defunct) website, worked hard, read everything, learned a lot, made a ton of rookie mistakes, embraced them, kept going. After about a year or so, we thought we had it figured out. And for the business, we sorta did. But today we talk about UNEQ Consulting (pronounced unique), LLC, in the past tense. It’s been gone since March of 2014. Because on November 1st 2013, Mike was working at a site in Eufaula, Alabama and fell head first 18 feet off of a ladder. Onto concrete. Yup. In three seconds, our life was changed forever.Mike survived the accident. Thank God. Had he passed? This would be a different conversation. But Mike survived, with a severe head injury and years of rehabilitation ahead. But this post isn’t about the accident.dandelion seeds blown into the air

Here’s why our story is important. It’s about what we didn’t do, and really never thought about. It’s our mistakes in not protecting our family and livelihood first as self-employed small business owners. I am sharing so that you can make different decisions.

So, here’s a short list of what we wish we had done:
Had a management reserve, or emergency fund with three months of our B-number saved in it, so we could take regular paychecks for a while. 
  â€˘ Had some sort of disability insurance on Mike, or “business continuity” or Key Man insurance.
  â€˘ Understood that unemployment insurance is for the employed- just not the self-employed
  â€˘ And that Social Security has an “exclusionary” period for around five months, where even if you are approved, there is no back pay
  â€˘ Not incur unnecessary debt.  For example, credit cards “we paid off every month.” We paid them every month until the income ran out, the deductibles started needing to be paid, and I had to choose. I have a course module on when it is the “right” time to leverage for growth. But we weren’t doing that. Sometimes our b-number went on the plastic and that was a big mistake

November 1st, 2019 just marked six years since our life changing event. Mike has made an amazing recovery, and it took years of digging in and working hard to recover financially. We paid it all in full, including the IRS lien on the house (for back self-employment taxes), and have sworn off personal debt. Over those six years we have been busy. I finished law school and became a consumer attorney and financial coach. Mike went through three grueling years of rehabilitation and walks without a cane.

This is why I coach entrepreneurs to avoid the financial mistakes we made. I want your business to serve your customers for many years to come. Long after the scary 5 year statistic. We hope that this post reaches just one person who needs to read it, and that they take action now to protect their livelihood and family. Please share our story with every self-employed person and small business owner you know.