Six Financial Tips For Every Small Business

By Jerry Lynch of JFL Innovative Investments

Starting a business can be one of the most stressful things that any individual can do. It affects their family life, free time, personal finances, their relationships with family members


and friends who invested with them, and this is only a partial list. But if the idea is a good one that is executed successfully, the results will more than make up for it!

Especially in a startup business, the owner’s personal finances are totally integrated with the success of the business. Generally there is a period of time from when you start putting money into a business, until the first dollar comes in the door and even more time before you can actually take money out. I have always said, you are not a business owner until you have written a personal check to the company so that your employees can get paid…while you don’t get paid.

As a Certified Financial Planner that works mainly with business owners, my focus is to help owners understand that personal dollars and business dollars are the same. If they cannot pay their mortgage, the business will die, and if they cannot fund their idea, the business will die and their personal finances will suffer.

Prior to starting a business, it is critical to take some time and understand the cost of the project, your cost of living, where you have some wiggle room, and where you do not. Staying power is critical to a startup business and here are some tips that should help:

1 - Don’t buy a BMW, if a Chevy will do.
In a startup company, every dollar counts. Excessive costs in any area such as rent, office equipment or furniture take money away from the core competencies that you need to make your business grow. You do not need a 5th Ave office or top-of-the-line office furniture unless they are necessary to support your core functions.

2 - It’s all ball bearings
Everything is related. Ever dollar spent on “Stuff” reduces ever dollar you can spend on marketing, research, or whatever you do to make money. Always look at what you are spending money on and challenge yourself to find a better and cheaper way to do it. Unless that expense is helping you long term, minimize it or eliminate it.

3 - It’s not the shoes
Always look at everything as a system. The parts of the system need to work effectively. But the overall system and how everything works together is more important than any of the parts. Develop cost efficient ways of running your business. Continue to refine them so that your customer’s experience is positive. This is how you build synergy and get more and more clients

4 - Have a "Plan B"
Virtually everything is more expensive than you estimated the first time, and there are always hidden costs. Whatever you estimate the cost of setting up the business to be, you should set aside as much as 25-50% more, just in case. Begging for money because you can not make payroll next week is not an appealing sales pitch. Getting it up front makes it much easier and avoids a lot of problems down the line. If employees think they will not be paid, they’re leaving and you’re out of business.

5 - Don’t irritate the IRS
If you upset your spouse, you can always buy flowers. If you irritate the IRS, you have a problem for a long time that may be very expensive and time consuming to fix. Keep good records, get a bookkeeper and a good CPA. Deduct reasonable expenses and document all your costs. These costs are justified from a management standpoint, so you might as well get it done right the first time.

6 - Before you jump, make sure you know your parachute works
Sit down with a good certified financial planner (not a stockbroker or insurance agent) and understand what you have in place before you ever pull the trigger. How much do you need to survive? Can you fund your start-up? What assets are available to you? There may also be tax planning opportunities, like starting your business early in the year and cashing out your stock options so you are in a lower bracket. Know your options!

A great idea, executed in the best possible way without enough cost efficient funding is almost sure to die. Making sure you understand how your money works and establishing financial priorities will give you a much greater chance of success.

Jerry Lynch CFP CLU ChFC is a financial advisor with JFL Innovative Investments, LLC a Registered Investment Advisory firm