NFIB

Setting Up Channels for Your Incoming Revenue
04/ 15/ 2002


As a small business owner, you need to set up and stick to an ongoing plan for what to do with every payment you receive. And since you are your own boss, you need to capture as much of the cash as possible for your future retirement. In today's Workshop, contributor Jeff Moses gives a few ideas that can help you make the most of your cash flow.

First, make sure that you pay yourself first. Money managers urge most individuals to take the first 10 percent of every check you get and immediately deposit it into a retirement account. Over the years, this will add up, and no one else will do it for you.

Make sure that you deposit all your cash as quickly as you can (even daily), and if possible maintain an income-producing account such as a NOW or a money market account for your day-to-day business check writing. Even if this makes only 2-3 percent a year, it's better than having your money sit in a non interest-bearing account.

If you're going to put money into a retirement plan, put it into a high-yield investment as soon as possible. Don't just leave it in your passbook savings account until April 15 (the last day you can make IRA payments for the preceding year), then try to decide where to put it. Make a plan in advance so you'll know where you're going to put it. In this way, your money is working for you from the first day you receive it, so that your investment income can maximize itself. Getting into this habit will make a tremendous difference in your retirement funds over the course of the years.

If you have excess money that you know you'll need for your business or for personal spending at some specific time in the future, put the money into the highest-paying Certificate of Deposit (CD) or money market until the time you need it. For instance, if you have $5,000 that you know you'll need in six months, search out the six-month CD that offers the highest yield. By the same token, don't take the money out early if you can avoid it because most CD's have a penalty for early withdrawal.

Consider leasing equipment rather than buying outright. This can help keep your capital freer.

Avoid making business purchases with a high-rate credit card. Instead, ask suppliers for interest-free extended credit. Make sure that you ask for the longest possible interest-free extension of payment from creditors (usually 30, 45, 60 or 90 days). If you've been in business for any length of time, you probably won't have a problem securing it.

If you are maintaining a balance on a high-rate card, try to pay more than the minimum payment each month. Paying only the minimum will cost you in the long run, and could require you to keep making payments for years. Instead, pay at least 2-3 times the minimum (more of course if possible). This will cut down on the total interest you pay, and allow you to pay off the card quicker.

workshop.accounting.tue

8.24.99

Small Business Sound Off
Does this story hit home?  Share your story with us