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7 Hard Money Lessons for Small Businesses

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A lot of uncertainty from this pandemic surrounds business owners and important decisions must be made for a future that is difficult to predict. How much money should I be setting aside? Who should I surround myself with? Should I be investing my money in stocks right now? We answer these questions in the following, but these 7 tips shouldn't only apply to life during the COVID-19 pandemic; we should all learn to become money savers throughout our financial careers, even after this virus subsides. 

1. It's not about how much your business makes. 
It's about how much your business saves! A business owner and longtime colleague of mine once said, "This is a lesson you have to feel and encounter in your business and in your own life to truly understand." I know plenty of businesses and clients here at the SBDC who earn a large sums of money per year, yet they save very little. Thus putting their businesses at severe risk if and when an acute economic downturn occurs. Conversely, I know businesses who make modest income, yet save at a proportionally higher rate. Owners live modestly, but they structured the financial position for success in the long run. I strongly encourage businesses to operate like the latter. As your income scales up, the amount you put away for safe keeping should, too. 

2. Never underestimate cash on hand. 
When I first started making a little bit of money, I put everything I had into stocks. I wanted to start seeing my savings compound on themselves. This was great in theory, right up until the moment I decided to leave my 9-5 job and become an entrepreneur. Suddenly, having money in stocks, although liquid, felt unnecessarily risky. If the markets tanked tomorrow that would severly affect my safety net. We're witnessing the same thing happening in markets today. Part of saving money means having a balance between cash you invest, and cash you keep "on hand". A good rule of thumb that a mentor of mine gave me was to always have at least 3 months of living expenses readily available. Personally, I prefer 6-12 months. 

3. Live by the 50/25/25 model. 
Since the moment I graduated college (and for context, I was making slightly above minimum wage), I taxed my income at the highest tax bracket. I do this for two reasons. First, I wanted to beign cultivating the mentality that one day I would end up in the highest tax bracket. And second, I never wanted to end a year and realize I owed more money than I had set aside. I wanted to pay myself a bonus at the end of the year. 

4. Have a plan for the worse-case scenario. 
Like what we're experiencing right now. One of the biggest reasons I am so adamant about saving money is to be able to navigate another recession. Regardless of how much you make (I was saving $20 per month back when I first graduated college and was making just about minimum wage), you should work to save and build a financial foundation. It's one of those things that seems impossible or even insignificant when you aren't making very much, but you have to continuously remind yourself that small steps really do add up. $50 will turn into $100. $100 will become $500. $500 will become $2,000. And before you know it, you will have $5,000 in your savings account. The first few years of saving are always the hardest. But after about 3 years of cultivating the habit, and as soon as you see that first comma in your savings account, your entire mentality will change--and you'll realize the value of saving over the long term. 

5. Work to create multiple streams of revenue. 
Especially in today's world (where Millenials struggle to find jobs and the Internet is an easily accessible resource), it's imperative that you build multiple streams of revenue for yourself. 

6. Spend time around financially prudent people. 
This is a statement that should scale based on income level. Again, there are some millionaires you save or invest a large percent of their income. You want to hang around the ones who live like the latter, and not the former. The biggest reason this is so important is because (espeically in your early 20s), you won't have very much extra income to save or invest, which means you want to put to good use what you do have. And if you hang around people who blow their money, chances are you will too. Instead, I encourage you to seek out people who are very responsible with money. For me, I sought out people I knew were successful, but they didn't live overly lavish lifestyles: family, friends, people in my network, etc. I wanted to know how they treated their money so I could learn how to do the same. 

7. Don't ever "bet it all."
If you are ever faced with an opportunity for a financial upside that requires you to "put it all on the line," do not accept it. When you are young, these kinds of decisions are fairly easy to recover from. Even if you were to "bet it all" and lose, you would still have years upon years to make it back. You would be fine. As you get older, the tolerance for risk should be much more calculated. 


The Duquesne University SBDC provides free business consulting for entrepreneurs in the Greater Pittsburgh area. Click
here to request free consulting, or contact the SBDC for additional help and information. 

Rich Longo is a Business Consultant and the Interim Director of the Duquesne University Small Business Development Center where he assists new and existing businesses with developing and implementing business plans. He is also certified in Technology Commercialization. Rich has extensive experience with Federally Qualified Health Centers and has been a Senior Vice President of Network Management for Devon Health Services, Inc., one of the largest regional PPOs in the northeast. He has been an adjunct faculty member at Robert Morris University and the University of Pittsburgh. 





 
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Rich Longo
Interim DIrector/Business Consultant

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