Tag Archives: savings

Start Up Strategy: Money then business

latte“I was thinking about something you said awhile ago, about how you save for your vacations.”

I was getting ready to do some writing at the local coffee shop and one of our friends was sitting with me, waiting for their latte. “Yeah, we have been doing it for a few years now, it makes a huge difference for us”

“We finally did it, well not exactly, we didn’t have it all saved up, but most of it. Going on a paid vacation is a LOT of fun, I never would have imagined it would make such a big difference.”

I smiled, and nodded, I love hearing about people trying out new money money management tactics, especially when they work. “No credit card bill takes a lot of the stress off for sure. We save for Christmas the same way.”

“I’m not sure we’re there yet, but maybe…”

* * *

Saving ahead of time for retirement and your children’s education is something most people understand (even if they are not doing it yet). Saving ahead of time for vacations, toys (the child and grown up kind), Christmas, cars, and houses is a little more foreign. Those are the types of things that are “above” the usual costs, and you just put them on a credit card, get a loan, or a mortgage, and pay it off over time.

Similarly, when you start a business you go in knowing that there will be start up costs, ongoing costs, and growth costs. Not to mention the cost of loss income if you decide to quit your job and start your business full time. Not a problem though, like vacations, Christmas, and cars start up costs are a “good debt” to take on as they help you start and build your business. Right?

Right?

entrepreneur-696962_1280If your risk threshold for debt allows for using loans or a credit card to start your business, then yes, taking on debt to start your business works, but, it doesn’t have to be that way. What if you had cash savings to start your business with? What if you had ongoing income while you get started and grow?

What if you had the start up money first, then built the business?

5 Ways to start with the money, then build your business

1. Work and save: Continue at your current job, but cut back your living expenses to the bare minimum. This has two advantages, one you can save the extra to fund the start up of your business, and two you learn to live on less, and while starting your business you may have less to live on. Figure out how much money you need to comfortably start your business with minimal risk and keep your job until you hit that number, THEN start the business.

2. The “side hustle”: I first heard this expression from Pam Slim, but basically it means keep your full time job, and full time income, and start your business on the side. This way you can keep earning your income while discovering if your business idea will actually work in the market. You can also prepare for an eventual launch into full time business by cutting your expenses and saving for the time when you switch to your business full time.

3. The part time job: if you can’t maintain a full time job and start your business, but need cash flow, then grab a part time job to help smooth the transition. This could mean finding an unrelated job that helps pay the bills, but still gives you time to work on your business. Or, it could mean taking on less-than-ideal clients in your business so you can generate the cash flow needed to get your real idea off the ground.

4. Partner support: if your partner has a source of income you can initiate the conversation about using their income to support your life while you build your business. This could mean full support of all life expenses while you are in start up mode, or you may be required to provide income from your business as it gets started, or from a part time job.

5. Outside funding: venture capital isn’t usually an available source to most entrepreneurs starting small business, but there is no harm in trying if you have an idea that fits what the investors are looking for. This could also come in the form of government funding or grants if you qualify.

My Personal Experience

When I started my business I began with tactic one: the side hustle. I was teaching junior high and high school at the start of my business. My teaching job covered everything in our Life Budget, and I built the business for free, with any extra money we had, or by volunteering my time in exchange for services my business needed.

Once my business picked up I ended up using tactic five: outside funding. I was laid off from my teaching job for the summer which qualified me for a government program called “Community Futures”, which paid me my unemployment while I built my business. It wasn’t enough to cover all of our Life Budget, but it was enough that my business could supplement our income and grow at the same time.

Now, my wife has a full time teaching job, so I have partner support for my business. Between the two of us we can cover our Life Budget, and the business has enough money to continue to grow and make changes.

Throughout all of these stages I have also used debt, but I have always stayed safely below my “Business Debt Risk Threshold,” but that is a topic for another post…

Debt doesn’t have to be the only option

Yes, most, if not all, of these tactics will slow down the start up and growth phases of your business. However, if (like me) you have a low risk tolerance for building your business, then each of these tactics can take some of the pressure and stress off of your business building adventure.

Working a job while building your business, saving money to build your business, being patient and waiting for things to unfold without putting you or your family at risk are all great “Secure Entrepreneur” methods of building your business.

If you are interesting in reading, watching, and listening to more Secure Entrepreneur strategies, tactics, and tips you can sign up here.

Spend money to make money

burdenI received a marketing email last week that told an interesting story. It went something like this:

“I was talking with a friend about signing up for a $5000 marketing program that is easy to implement and will quickly make you back your money and then start turning a profit. I was shocked when my friend told me that he wanted to save a bit more money before purchasing the marketing program. This is a concept that so many business owners don’t understand: you have to SPEND money to MAKE money” – Internet Marketer

The phrase “you need to spend money to make money” frustrates me, not because it is not true, but because so many people end up spending money they don’t have to try and make money they really (or desperately) need.

This results in an endless spiral of debt, as people buy programs with credit, struggle to implement those programs, then jump into the next program in the hopes of making money to pay off the debt from the last program AND the new program. Then, they end up buying the next…well you get the idea.

I would love to create a new phrase and mindset for building your business:

You need to SAVE money to SPEND money to MAKE money.

BAM! The spiral of debt comes to a hault. You pause, take some time to save up for the program you want to buy, the ad you want to run, the team member you want to add; whatever the expense. You save first, then spend the money, and then you immediately begin to make money.

No interest payments on credit cards while you struggle to break even on your purchase, because you break even on your purchase the moment you make it, everything else is upside.

This is going to feel like you are slowing down the progress of your business, but there are always other strategies and tactics you can be putting into action while you are saving for the purchase you want to make. And, the reality is debt (especially large amounts of debt) also slows down your business, you are just deferring the slow down in exchange for the “quick fix” of buying stuff now instead of later.

Example – Publishing an ebook

At the moment I am working on writing an ebook for the Secure Entrepreneur, and part of my plan is to have this ebook properly edited and designed, which is going to cost money. I could have used my business credit card, or business line of credit to buy the editing and design services now, but I have no desire to go into debt to create this ebook.

Instead, every time one of my current clients pays me, I take 5% of that invoice and put it into a separate column on my money tracking spreadsheet as “Book Savings”. While I have been saving money I have been writing the ebook and doing my own editing. I have also been increasing the posts I make on this blog. This work has kept me busy, and my business continues to move forward, while I save for the editing and design of the ebook.

This month (May) I have accumulated enough money in my “Book Savings” account to pay for the editing and design work up front. The ebook will hopefully be ready to share at the start of June, and any business that this ebook brings in will immediately be adding money to the business, NOT paying off the debt I incurred to create the ebook.

Is the No Debt Plan for you?

moneygraphIf owing money to others:
– stresses you out and keeps you up at night
– drains your energy and focus
– blocks your creativity
– makes you alter your strategies
– changes how you speak with prospects and clients

Then try making the shift from the original phrase: “you have to spend money to make money” to the new phrase:

You have to save money to spend money to make money

And let me know how it works.