What Is Independence?

what is independenceIndependence is “freedom from the control, influence, support, aid, or the like, of others” (from Dictionary.com).  So independence is freedom from something. Children become independent when they are no longer under their parents’ control or funding.  You may be independent from a boss when you start your own business.  But the ultimate independence is when you answer to no one and you are financially capable of supporting yourself with no help at all.  So what is independence?  It is your next step to being capable without the help of others.

Having a Job and a Place of Your Own

Your first independence is when you get your first job or jobs and you are able to move out and have a place of your own.  This is independence from your parents.  You will be of legal age to be on your own and you will no longer need to take money from mom and dad, at least not on a regular basis.  At this point you are still dependent on your job for an income but you are able to make a lot of your own decisions – live where you want, date who you want, not date, possibly have a few drinks, or do what you want when you want… except when that interferes with your job.

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Spider Patience: Sometimes It Takes Time

Spider Patience - Chicago Cubs 2016The Chicago Cubs have waited 108 years for a World Series championship.  Talk about spider patience.  Especially those Chicago Cubs fans that continue to go to games or watch on television year after year expecting different results than the previous year.  How is it even possible to have that kind of patience?

Sometimes in business having patience, even spider patience, can be a virtue.  Sometimes being more aggressive is in order.  How do you tell the difference between the two situations?  As a rule of thumb, you want a new business to show a yearly net profit within 5 years.  Some businesses will show a good amount of revenue early, some will not.  It is up to you to determine what to expect and when to expect it.  Here are some things you can research or be on the lookout for:

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Contingency Fund Example

contingency fund example - change in a jarA contingency fund is cash set aside by a company or an individual to be used in the event of unforeseen need.  Unfortunately, unforeseen needs happen all the time, from the bill that was not expected to the loss of a major client.  A contingency fund example is a savings account with up to six months worth of revenue.

Liquid Money

Set up your contingency fund with liquid, spendable, money.  Cash under a mattress would be a good contingency fund example where the cash is easily spendable.  However, cash under a mattress would be susceptible to theft, fire, or flood; or some other sort of loss.  Cash in an FDIC insured account would be a better idea, as long as the amount of money is below the maximum insurable FDIC amount.

Gold, stocks, bonds, or other investment vehicle would not be liquid money as they must be converted to cash in order to be spendable.  The time involved for conversion may be a factor as the emergency event may be time critical.

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Retirement Age Coming Up?

retirement age - who says you can't stay active?I know my retirement age is coming, that is the age when people traditionally retire.  It is still nearly 15 years out, but I can hear it like the pounding of a drum.  I also see age discrimination.  It is harder and harder to get full time employment because people think you are not as sharp, that your career life is shorter, that you are bound to incur more medical expenses.  Truthfully, I am not sure what form age discrimination actually takes, but I can tell it is there.

Perhaps you want to retire but like most Americans, your savings is not enough, and will not be enough at the right time.  One solution many take is to increase risk.  While the promises of high returns are enticing, the downside could wipe out much of your savings.  Similarly, people take on risky behaviors to fill in the gaps.  The promise to get rich quick is always there, but almost always designed to take your money rather than provide you more.  So what reasonable options do you have to provide enough for you and your family into your golden years?

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Federal Tax Return: The Dread Of Filing My 1120

federal tax return - form 1120If you did not know by now, your United States C corporation 1120 federal tax return is due in April this year (2017) rather than March, assuming your business runs January through December.  Note that I am not a CPA so I am not an expert on all things taxes, I just know that Illinois and the Federal Government made this deadline change in 2017.  This does not mean that I am ready to file or pay, though I always have good intentions.

My main complaint with filing my 1120 is that it is busy work.  While it might be my only federal tax return that I file for the corporation, it is certainly not the only filing I make during the year, or the only paperwork that needs to be done.  I know, I know, the tax man needs his money, but it comes at the expense not only of cash, but of my time to do more financially productive things.  Here is an idea of all the busy work you must do with a corporation:

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Ideas For Success In A Network Marketing Business

ideas for success - Big Texan

The Big Texan

I was thinking of making the title “How To Succeed In Business” because perhaps these tips could be applied to any business and not just in network marketing (or MLM).  Business is business right?  The following are my ideas for success in a network marketing business, that probably could be applied to any business.

Have Your Own Brand

The first step to succeeding in business is to have your own brand.  If you are Joe, the XYZ distributor, you are promoting the XYZ company.  Create your own brand… perhaps Joe Smith, Network Marketing Coach, or Joe Smith Company; something to differentiate yourself from all the other distributors in your company.

Add Value

If you are just “You can buy from me too”, you are adding no value.  You must add some sort of value.  For instance, a while back we made great looking baskets and sold them as a product.  By reorganizing the product the way we did, we added value to the product.

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Stories Only Business People Would Understand

10004245_855682801114846_1636169639_n-300x300You have challenges that most people do not understand. You make an amount of money (revenue) that most people do not understand. They think you must be rich. But when it comes to spendable money, you have less than they do.

In fact, I feel a little poor right now.  I had three months without a project last winter.  I am behind on several things still.  But luckily my revenue, and profit after expenses, are decent enough to catch up at a pretty good clip.  Still, by the time I am done catching up, I may be between projects again.  I may be short on money to pay some bill, credit card, expense, in a manner that the creditor would approve of.

My best advice when it comes to finance is to make sure your margin is something you can live with through the good and the bad.  Your margin is your profit beyond expenses.  Or better put, profit divided by revenue.  Often we underestimate what our expenses are or do not include all expenses in our calculation.  Perhaps you do not include time off.  Or you do not include management expenses but only project expenses.  Best to calculate a margin you can live with and update it often when things become more tight than you expected.

What else?  I talked with my brother-in-law about paying myself once a year via payroll, but found the taxes withheld to be a bit high.  Who gets one paycheck a year?  Sometimes the guy at the top does.  The reason you might want to do this is to conserve cash until the end of the year when you really know what you can get away with paying yourself.

I also have a new appreciation for taxes.  For instance, the more you spend, the more you pay in taxes.  And I am talking about personal income taxes.  The more I spend personally, the more I am taxed.  It is better if my spending can be expensed to the business.  Or if I can save the money in a tax deferred account rather than spend it.  For those of you who receive a regular paycheck, this may be completely foreign to you… but when you have the option to pay yourself less, you really think about the money you spend.  You think that latte at Starbucks costs you $4.75?  Nope.  More like $7.50.  Think your car cost you $20,000?  If you paid in cash it is more like $28,000.  Every thing you spend that is not tax deductible has income taxes (as well as sales taxes) attached.

People sometimes think I am a little crazy to track my expenses like I do.  I am constantly trying to beat what I spent the previous week on travel.  Less on lodging, food, gas, everything.  I tried slowing down one week to improve my gas mileage.  I am usually buying food at the grocery, staying at the cheapest possible place… well I am paying all of my own travel expenses right now.  If I can save $50 a week even, this is a pretty good amount of money.  Think about it… that is $2,400 per year.  Good  business people watch their expenses like a hawk and make sure they keep improving the bottom line.  Why?  Because it is a very short distance between a good year and a bad one.

If you think all of this is mean to scare you non-business people, you would be wrong.  Being in business for yourself is very liberating.  You are the only one you have to answer to.

Handling A Cash Flow Crisis

I have been through cash flow issues over and over, so I thought I would share some of my wisdom.  I mean, where do you get cash when it seems like there are no options?

1. A cash flow issue is a problem

Consider your cash flow issue a problem and work to define what your problem actually is.  For instance, I know that I don’t receive any income until September.  What bills must be paid before then?  Perhaps you receive a variable commission and you think you’re going to be short.  Unless you can work through the numbers and find out when your problem starts and what amount will cure it, you will never be able to find a solution.

2. Planning is never perfect

While you can guess your receipts and when they will come, some may be short, some may be late, some bills may be larger, etc. so you must build in a small margin if possible.

3. Revise your plan as you get actuals

As you get receipts or pay bills, update your plan to reflect any changes.  If you fall more short than expected, you must come up with more of a solution.

4. Paying late is not the end of the world

Almost all bills can be paid a day late.  Some can be paid a month late.  Evaluate what you think you can drag your feet on and adjust your plan accordingly.  Talk with your creditors if you must and let them know what’s going on.  If you are paying significantly late, this would be a great idea.

5. Brainstorm some ideas for improving cash flow

So you’re still short?  What can you do to raise some cash?  Consider all options, even if you really don’t want to use them.  Think of ways to delay payments or quicken receipts.  Ask the bank for money.  Use factoring if possible.  Does somebody owe you money?

6. Implement your top ideas

See if your top ideas are feasible and add them to your plan.  See where you stand now.  Brainstorm again if needed.

7. Work for the long term

Once you have gotten through your crunch period, look for long-term solutions to improve your cash flow permanently.  Is your margin too low?  Are there expenses you should cut?

8. Expect the next time to be even worse

If you get through this cash flow issue and take no permanent corrections, expect next time to be worse.

Let me know if this advise works for you by commenting.

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How Cash Flow Can Get You

What would a successful business look like to you?  Would it be profitable every year, and every month?  What if I told you that you can have a profitable business that is short on cash?  Here is a good example of what it is like to have a cash flow crisis:

You take a job that pays you more than plenty enough to pay your bills, so say you make $20,000 per year and your bills are $10,000.  The only problem is that your employer will only issue you a paycheck when they have enough money to pay you.  So business is slow in January, you don’t get paid.  February is much better so they catch you up.  March is really good and they pay you on time.  April business is down so they delay paying you.  Get the picture?  So when you are caught up you have no problem paying your bills but when your employer is behind in paying you then you have a rough time paying your bills.

This example is exactly what happens during a cash flow crunch.  Generally your accounts receivable balloons and your payables are demanding attention.  If you’re like me, your payables are very small but your receivables are big… and you have to make payroll.  I am profitable each and every single month but if my client starts to slow pay, for whatever reason, then I start to feel the pressure.  The bank account dips to near zero and some important bills are just around the corner.

So why do customers pay better some times than others?  Often they are reacting to their own income and payables situation.  They are short on cash so they slow pay their vendors.  Sometimes it’s a matter of how fast paperwork moves through the organization.  Or sometimes the check is just lost in the mail.  All kinds of things happen.

What can you do to make the situation better?  When your accounts receivable (an asset) balloons, the only thing you can do is to increase your debt, sell more stock (or give yourself more money), float your accounts payable more, don’t issue payroll (owe your employees), or pay your payroll taxes on your credit card.  Perhaps you can come up with other solutions, but generally as assets increase you must increase liabilities to keep things in balance… unless of course you are high on cash.  That, my friends, is a nice problem to have but many businesses manage to retain only a bit of cash every month, much of which is taken by Uncle Sam at the end of the year.

I did apply for a business line of credit today to try to deal with the low cash situations.  Honestly, I thought I had my problem taken care of and then the check that was supposed to come this week didn’t.  It got lost or something.  So I must face reality and take some real action, not just hope for the best.  I have a week until payroll and I’m only a bit down, but then federal payroll taxes come just a bit after that.  I am concerned enough that I’m not going to get paid quick enough (because of lost check) that I had to find cash somewhere.

The worst thing about all of this is trying to explain to my wife the difference between not being profitable and having a cash flow problem.  The business of the business is being managed very well, but um just can’t make payroll, and um I need money to pay personal bills.  Crazy isn’t it?

The IRS Can Be Taxing

I would like to share with you a little experience I just had last night.  I received a notice from the IRS that I had filed my 1120 but they had not received payment, and now they wanted payment plus penalties and interest.  Now I had paid my 1120 payment via EFTPS, because you can’t just send a check with your 1120 form this year, you must pay electronically.  So like a good taxpayer of a corporation, I filed my 1120 with the Department of the Treasury and paid via EFTPS.

The notice had an 800 number on it to call if I felt some mistake had been made, so I called it.  After sitting on hold for 20 minutes, I talked with an agent who told me I had not paid.  Um, yes I did… I see it on my bank statement in front of me.  He said he did see my tax withholding payments from my payroll, but not the payment for the 1120.  Ok, I said, I’ll call EFTPS and see what happened to the payment.

I called EFTPS’s 800 number and was on hold for about 5 minutes.  Then I got an operator who told me I had paid and to disregard the notice.  I told her I didn’t think that was too wise since the Department of the Treasury thinks I haven’t paid.  So we both called the Department of the Treasury again and after 10 minutes the EFTPS lady said that she needed to go but gave me all the information I should need to talk with the IRS about my tax payment.

After 25 more minutes of sitting on hold I finally got through to an IRS agent again.  I went through the verifications and the description of my problem to where she promptly said: there it is.  She found my payment after doing some sort of update to the computer system.  She said the other agent probably did not do this.

So this is our tax dollars at work.  1 hour and 25 minutes of my time and countless resources on the other end to discover that I had actually made my payment.  Believe me though, this is much better than my experience with state government.  I had a situation once with my state sales tax…

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