Freeing Up Capital

One of the largest complaints that the business community has is the lack of capital available for business. But I think this isn’t correct, because there is plenty of capital out there. It just isn’t being used effectively. Small businesses are great job creators and are flexible enough to be able to boot-strap where necessary so they often times don’t need much capital. But there is a flip side to that coin that no one talks about. Small business owners are notorious for being emotionally involved in their business. They get so much ego and emotion wrapped up in their business, they can’t walk away when its time.

They typically don’t understand the concept “risk versus reward”. If they are making ANY profit, they assume they should continue operating their business. But smart business people know that “some” profit is not the same as a reasonable return on invested capital and time.

You see this same problem a lot in the retail investment world. In that world, this is referred to as “behavioral finance” and many, many people are studying the inherent irrationality of consumers and their investment decisions. The same problem effects small business owners because, by definition, the money and time you invest in your business is no different than the decision to invest in a mutual fund. It might feel different, which is why people don’t analyze it properly, but it really isn’t.

So how much capital is invested in your business?

Is it being used effectively?

Can this business be closed and the capital reallocated elsewhere?

If people really looked hard at these questions, we could likely free up all the capital we would need to fund profitable business.

So You Want to Run Your Own Business – Part 5

Track Your Money


You made a plan and executed on it. Now you are making some money.

You are now running your own business, right?


You are making sales. While that is AWESOME, it’s not running a business. Running a business requires you to measure and benchmark and strategize and analyze and improve and grow.

But we can’t do any of that without some data to analyze. Which is why the next step is to get your records in line.

I know, I know … NO ONE likes accounting. Heck, even I don’t like doing bookkeeping and I’m a CPA. That’s why I don’t think of it as “accounting” or “bookkeeping.” I like to think of that work as “I have an awesome business” time.

Let’s just go with it, ok?

In the beginning, I want to keep this very simple. We are still gathering lots of data from lots of sources, so my goal at this stage is just to make sure that all your information is in one place. We will work on keeping books and charts of accounts and all that good stuff later. But for stage one all you need is one bank account and one credit card.

See? That isn’t so hard, right?

It doesn’t even have to be a business account or a business card, per se. Most of us have more than one credit card. Designate one the “business” card and from now on only put stuff on that card that is going to be written off in the business. Get a new bank account (or designate an existing one) as the business account. All income gets put into that account. Bills get paid out of that account and the credit card gets paid off each month from that account. Any money left over at the end of the month gets transferred to your personal account. This represents your salary and your profit (for now, consider them the same thing) and can be used to pay personal bills.

This is NOT an accounting system. At this point, all we have done is get all your data in one place. At the end of the year when you go see me (your accountant) I will ask you for all your expenses and all your income. You will print the bank statement and credit card statements (or export them to Excel, which will make me fall madly and deeply in love with you) and BAM you will be done.

Yes, it really is that simple. And yes, despite the fact that it is really that simple, people spend hours and hours each year trying to figure this stuff out. All because they couldn’t simply put their business activity in one place.

Excel can then, likely, track everything else you need for your business, until it is time to upgrade to formal accounting software. I made this for you. It’s really simple. If you take 15 minutes each day to update it, you will have all the data you need to run your business. Seriously. 15 minutes. If you can’t find 15 minutes a day to fill this in, you should quit trying to run your own business and go find a job somewhere.

I will show you how to create more complex systems and analyze the numbers in future posts. I am also currently producing an ebook with more detailed instructions for some specific accounting systems. But for now, if you are just getting started, this is seriously all you need. Start using it today!

Other articles in the So You Want To Run Your Own Business series:

Alphabet Soup

I recently added another professional designation to my repertoire, the CGMA designation. It stands for Chartered Global Management Accountant. My official “alphabet soup” is now: CPA/PFS, CITP, CGMA. But what does all this mean? And why do I spend so much time maintaining all these designations?

If you have ever had any dealings with financial professionals, no doubt you have encountered the dizzying array of designations that exist in the world. If you are like most of my clients, then you have no idea what most of them mean.

I think professional designations are important for two reasons. First, they provide a way to establish minimum standards for finance professionals. Second, it allows you to know what sort of specialties and training the professionals you want to work with have. If you understand your professional’s designations, you will know if they have the experience and training to help you.

I specialize in being a comprehensive advisor to small business owners. If you knew my designations though, you would already know that. Let’s break it down:

CPA: Certified Public Accountant

This is my main designation. It is one of the most difficult to obtain in the business world. Most people have an idea of what a CPA is and does, but the CPA designation is VERY broad. You will find CPAs everywhere: in your local community doing taxes, helping small businesses or doing financial planning, in consulting firms doing specialty management and financial consulting, and in Fortune 500 companies as CFOs or doing international tax work. This is why many CPAs find it necessary to let people know their specialty.

PFS: Personal Financial Specialist

This is a designation given by the AICPA (which is the governing body for CPAs). It denotes a CPA that has done additional training and work in the area of personal financial planning. It means that one of the areas that I work with clients is on investments, insurance, and financial planning.

CITP: Certified Information Technology Professional

This is another designation granted by the AICPA. It denotes a specialty in information technology, as it pertains to accounting. When working with clients, in any capacity, I tend to leverage technology as much as possible and can design systems to help business owners streamline their operations.

CGMA: Chartered Global Management Accountant

This is my newest designation. The world of accounting has two main sides: financial accounting and managerial accounting. Financial accounting is focused on the recording and reporting of transactions. Management accounting is focused more on how to use numbers to make decisions and run a business. The CGMA designation means that I focus on managerial accounting, with a global focus. It denotes the fact that I act as an advisor to businesses in strategic ways.

So there it is… I also have several licenses, like a Series 7 and a Series 66 security licenses and a life insurance license. But these typically aren’t put on a card as alphabet soup, they are mostly a regulatory thing, and do not denote any specialized training. Hope this was educational!

So You Want to Run Your Own Business – Part 3.5

Excuse me while I backtrack a little bit

Board of Advisors

Running your own business does not mean that you work alone. All successful business owners have a team of people that they can go to, to bounce ideas off of or get advice from. There is a great discussion about this on the Home Work podcast that I recommend you listen to. This post is just my two cents on what kind of people you should have and how you should use them.

There are three types of people that you should have to help support your business: advisors, a board of directors, and outside labor.


Advisors are the people who have experience with business owners and can help you avoid the pitfalls that so many business owners fall into. The two most notable advisors you need are an accountant and a lawyer. Waiting until you need a lawyer or accountant is not the best time to start looking for one. Have someone in mind already. This does not mean you need to pay them thousands of dollars to look over every step as you launch your business. But having someone that you already know and trust is critical, so when the time comes, you are prepared and know where to go. Having a meeting or two beforehand also allows them to give you better advice, as they already have some familiarity and background on your business.

I would also recommend that you find a good marketing person or firm. Marketing is such a critical part of a business, and it is so easy to spend too much or too little in the wrong places. Get someone who knows marketing to make sure your message is clear and reaching your audience.

The other advisor you may have would be a business coach. I really dislike the term “business coach,” as it has such a poor connotation. There are a lot of BS business coaches out there, but the good ones can give you sound advice on everything from your strategic planning to marketing and sales.

Board of Directors

Having your own personal board of directors is different than having professional advisors. Your directors may or may not have expertise in business. But they should be people that you know and trust, who know you, and who will give you honest feedback. If you can have a professional advisor (a lawyer or an accountant, for example) who also serves this role, all the better. But having a small group of trusted friends or mentors that can reality check you is crucial.

Outside Labor

Outside labor is the other type of person(s) you should have. These are folks that do not necessarily give advice but can perform services that can make your life easier. The Home Work podcast said it best when they said, “You want to say ‘yes’ as much as possible, so find what detracts from your billable time and pay someone to do that.” I couldn’t have said it better myself.

A bookkeeper, a payroll company, even an administrative support or project manager can pay for themselves many times over by decreasing your workload. As a business owner, especially if you own a service-based business, you typically have one core skill that is your value add. Find out how to do that as much as possible so you can say “yes” to more projects and more revenue.

Get your outside advisors lined up before you start your business because when things start to happen, these people will save your bacon. Trust me.

Other articles in the So You Want To Run Your Own Business series:

Have A Number

I read a great essay by Patrick Rhone called Enough. I really think you should read it. He writes super fantastic stuff. Like, really super fantastic. Not the point though.

I have been meaning to write an article about “having a number” and Patrick’s essay is a much more elegant version than I could ever produce. So I’m going to just give you my two cents on how I see it relating to business and then stick to what I do best, the numbers.

Whenever I talk with small business owners, I always tell them to “have a number.” What does this mean? Starting a business is a lot of risk. Why do people do it? To make a living. Business is business, and you do it to make a living. Too many business owners get stuck in the cycle of working just for the sake of working and they forget why they are doing it. That’s because they don’t have a number.

Having a number means knowing ahead of time when enough is Enough. If you don’t decide ahead of time, you will never have enough. And that is the beginning of the work-to-death cycle.

So here is how you figure out how much enough is. It actually isn’t that hard. The first step is to make a budget. I know, I sound like a broken record with this, but seriously, it’s important. The purpose of the budget is to figure out what you need for income. This is where the enough idea really comes into play. You have to really think about what kind of life you want. And once you decide, you have to be strong enough to learn to be happy with what you have.

Once you have the income number, subtract what you are going to get from other sources, Social Security, pensions, etc. That tells you how much income you need to create from your assets. Just divide that number by your withdrawal rate. In my business, I typically use 4% or 5% as a sustainable withdrawal rate. There are several reasons for this, but they are beyond the scope of this article.

If you want, add to that any other things you want to have paid for at retirement and boom!

That’s your number! Work your ass off until you get there, but once you do, Enough is Enough!

So You Want to Run Your Own Business – Part 4

Start Making Money

OK, so you put some solid time into creating a plan for your business. This is an incredibly important first step, but planning will only get you so far. I heavily emphasize the importance of planning when I consult with businesses because so many people skip this step. But I have heard many great business ideas that never got off the ground. This happens for a variety of reasons:

  • They try to make their product or idea perfect before taking it to market.
  • They try to launch their business in a full-scale form out of the gate.
  • They are too scared to commit, and they make half-hearted attempts at launch.

Doing the planning that I laid out last week is important. But like in war, battle plans won’t survive beyond the first contact with the enemy. You can only do so much prep. Nothing will get you better information and allow you to grow your business better than real life responses from customers.

You’ll never get your web page perfect. Your product will never be perfect. Some people won’t like your service. But you will never know if you don’t try! So, here is what you need to do to start making money:

  • Make your plan.
  • Get your best first draft/prototype/idea.
  • Open a bank account.
  • Start selling.
  • Get a good accountant.

Notice what things I have conspicuously left OFF the starting list: Filing a DBA, opening a corporation, talking about start-up capital, finding investors. Money makes a business. All that other stuff is a way to make a business run better. But you don’t have a business until you have cash flow.

I always tell people to try to keep their initial investment as LOW as possible. The sooner you can start paying for start-up costs out of business cash flows, the better. By keeping your costs low, you limit your risk. It keeps more money available to help you pivot your business and make changes as you go along. If you invest all your money in the first pass, you won’t be able to make the necessary adjustments as you go along.

So get out, bootstrap your first pass, but do whatever you can to start making money!

Other articles in the So You Want To Run Your Own Business series:

Risk vs. Reward

I want to take just a minute to talk about the immutable laws of business. That’s right, we all know about the immutable laws of physics: inertia, gravity, and all that. But there is a law of business as well. It’s the tradeoff between risk and reward and it’s a law that is NEVER violated.

You heard me. NEVER.

There is no such thing as easy money. No one ever got rich quick, or easy. The Beverly Hillbillies never happened. You don’t shoot your gun and strike oil. You don’t stumble over bags of money.

Everyone who has ever made a bunch of money worked really hard for it. Or scammed other people.

Sometimes I talk with clients and they say things like “I lost a bunch of money in a bad investment” or “I should never have invested in that business, it  turned out to be a loser”. These are completely misguided statements. They are very few truly bad investments. Sure, there are investments that lose money, but that doesn’t make it bad. That’s how investing works. You take a risk and you either make money or you don’t. But to assume that the only good investments are the ones where you make money means you fundamentally misunderstand how business works.

An investment might be bad for you. It might involve more risk than you are willing or able to take. It might involve risks you don’t understand going in. But that doesn’t mean that it isn’t a good risk for someone else. And if you never take any risk, you will never grow your wealth.

The only bad investments are ones where you aren’t compensated enough for the risk you have to take. Risk adjusted return is the only return that matters. If you have to take on debt, then you should make a LOT more money. If the investment is hard to get out of, you should make more. If you have guarantees you should expect to make less of a return.

So the next time your neighbor says “My portfolio is up 15%”. You’ll sound really smart if you say “Oh yeah? I earned exactly what I needed to accomplish my goals while taking minimal risk”; because you will be the smart one.

I wish more people would take the time to learn this stuff.  It would make their life so much easier.  I learned this in college, but now I need to put it to use.  Maybe one of these days you can give me some pointers on how and where to start.

So You Want to Run Your Own Business – Part 3

Annual Planning

If you are reading this, then I failed in my attempts to scare you off. That is good. That means you have decided to run your own business and have thought long and hard about if you can do it or not. Now it’s time to get to work.

Everyone knows that the first step to running your own business is to make a business plan, right?


Your first step is to do your annual planning. How is that different than a business plan? You got me. It isn’t. The difference is how you think about it. Formal business plans have very little value in the micro-business arena. Annual planning, on the other hand, is your formalized process of taking a step back and looking at your business from the 30,000 foot level. Creating a “business plan” is simply the first time you do this annual planning. In this article, I am going to describe what you should be doing, not only before you start start your business, but every single year.

In fact, you should be looking at pieces of this several times a year, but we won’t get into that now. For now, let’s do our first pass in your business plan. In this article, I will use the terms “annual planning” and “business plan” interchangeably.

Big Picture AKA Strategic Planning

The big picture part of your annual planning can, and should, look very different every year. Sometimes you will want to spend time defining core values. Other times, you will be looking in detail at how you are filling an unmet need. Sometimes it is purely a selfish description of what you want out of life. Most often it is a combination of all these things. Here are the major ideas you want to cover:

Vision Statement, Mission Statement, Value Proposition

These typically don’t have numbers. This is where you start talking about what your business is all about. Write a vision statement to describe what it is you want to do or be. A mission statement is how you will do it.

The most critical piece is your value proposition. This needs to be reviewed at least once a year, if not more often. This defines what makes you special or different. If you can’t describe a clear and concise value proposition, then stop. Do not pass GO. Do not collect $200. You do NOT have a business idea. At best, you are creating your own job.

Here are some questions that will help you get started with this piece of the planning:

  • What do you want your business to do?
  • How do you want to do it?
  • What will it look like when you accomplish those things?
  • Who is your ideal client?
  • What does your ideal business look like?
  • Why are you in business?
  • What is the unmet need you are fulfilling, or what need will you meet better (or cheaper)?

Goal Setting

Goals have numbers but not necessarily researched or supported numbers. This is where you get to make things up. I want to have 10% net profit by year end, I want to have 50 customers by June, or I want to make $100,000 this year are all great examples of goals.

Goals should also be set on several different time frames. This can vary with your business, so do what seems the most appropriate. You should always have one year goals. But depending on the pace of change in your business and how quickly you want to grow you might have 2, 3, and 5 year goals. Or you might have 3, 5 and 10 year goals. Goals beyond 10 years are typically not useful. For goals beyond that point, you are creating your exit strategy. This is another key piece. When is enough enough? When will you be done? How will you profit from your business? How will you exit it? (You can’t work forever!)

The Details AKA Tactical Planning

These items need to have hard numbers supported with research and calculation. They break down into just a few major areas: Marketing, Competitive Analysis, Operations, and Financials.


Define your market. I’m not sure how to describe this other than to list all the questions you should be able to answer:

  • Who is your target customer?
  • How do you reach them?
  • Why are they your target customer?
  • Why will they want to buy your product?
  • Why will they pay what you are asking for your product?
  • How will you deliver that product?
  • How will they know about your product?
  • What will your sales cycle look like?
  • How will your prices change over time?

Competitive Analysis

The free market can be a scary beast. As Tyler Durden once said, “You are not a beautiful or unique snowflake!” If you can do it, someone else can too. You need to have as much information on who else is running businesses similar to yours. If you think you can do something better or different than them, why aren’t they doing it that way? Maybe there is a reason you didn’t think of!

Operations Plans

Your operations plan is very simple in concept and very difficult in execution. This is the one area that is the most neglected. How will you create your product and deliver it to customers? Simple concept, but the devil is in the details.

You need to consider scale, and your operations need to tie to your budget. If you expect, say, $200,000 of sales, how many units is that? Will you be able to produce that many? You would be shocked how many business plans I see where the targeted sales means the owner has to BILL 70 hours a week. Even if you can bill that much, you cannot do that and have a successful business. You have to have time for administration, marketing, etc.

I like to tell people to create a draft of their operations manual before the start. Like any good plan, it won’t survive “contact with the enemy.” But the exercise is invaluable. You also need to understand operations on an ongoing basis. How will you supervise staff? When will you know that you need to hire? What will they do, exactly, when you hire them? How your operations will look will also change over time. How will they look when you start? A year from now? Three years from now?

Budgets & Financials

Understanding the numbers is also a critical early step. You need to have a budget for your company AND for you personally. Remember, salary is what you earn for working. Profit is what you receive for being the owner. If you have no profit after paying yourself a salary, then you didn’t create a business, you created a job. I like to keep it simple. After you make your personal budget, your salary should be enough to cover those basic numbers. You should also have profit after that salary is taken out. That profit is how you build wealth.

This is one area where research is important. Do NOT guess at numbers. Pull up your bank statements and look at how much you actually spend. Call your future vendors and get quotes on what it will cost to operate your business. Your first year plan needs to include how you will use start-up funds and how much cash you will need to operate before you get to positive cash flow. Each year, you need to review the prior year’s numbers and redraft your budget for the upcoming year.

There are obviously a million details to doing this entire planning process correctly and well. But it would take a book to cover all the ins and outs. I hope this article will at least make sure you have all the major pieces in place and will get you thinking about some of the parts that you would not have considered.

Other articles in the So You Want To Run Your Own Business series:


I read an awesome special report in The Economist (it’s on the Guru Reading list, check it out) about 3D Printers and “digital manufacturing”. Now, I am not a trained economist, but I like to consider myself an amateur economist (maybe arm-chair is the better description!) I have talked before about the problems facing America and what needs to be done to fix it. My basic premise is that the current economic malaise won’t be solved, in fact, can’t be solved, without a revolution of some sort. I don’t mean an actual revolution; I mean a revolution in business or way of life.

Business is Simple. And it has the power to change everything. Even more power to change than any amount of individual action or legislation likely could. But business is one of the most misunderstood arts out there. So with that understanding, I thought I would take this chance to explain why a cool machine that can “print” goods could potentially change the world and maintain America’s superpower status.

A 3D printer is a device that makes things by laying down very small amounts of plastic or other materials, layer by layer, until something solid is built. But this article isn’t about 3D printers, per se, it’s about “micromanufacturing”. Micromanufacturing is, according to the Economist (and I concur) or at least could be the next industrial revolution.

Let’s start with some business, shall we? How about the business of manufacturing? Manufacturing has a very simple value chain:

  • Raw Materials –> Ideas & Design –> Physical Manufacturing –> Distribution & Shipping –> Sales and Marketing

Each of these parts is mandatory to the industry that we know as manufacturing.

Raw Materials: is relatively fixed (for our purposes). If you want to make a golf club, a plate, a television, etc., that item is going to need a certain amount of material. Metal, wood, plastic, fabric, etc. All have a cost that is determined by a different value chain.

Ideas and Design: Deciding what to make and how to make it is a very high value, high margin, piece of the puzzle. Just ask Apple. You can almost win on design alone. And a great deal of this work is still done in the US, albeit mostly by graduates and post-graduates, not the people we are trying to create jobs for now.

Physical Manufacturing: This is what most people think of when they think of manufacturing. It requires A LOT of capital (machines, buildings, inventories, etc.). Capital is expensive. It used to be that you had high set-up costs, which encouraged economies of scale. This meant that if I spent a couple million bucks buying and setting up a widget turning machine, I wanted to turn as many widgets as I could to spread the cost of that machine and it’s setup out as much as I possibly can. Depending on the product, labor can be a huge component of this cost as well. This is what drove manufacturing overseas. It was relatively easy to move this piece of the value chain off-shore. And the savings in labor costs outweighed the increased distribution and shipping costs.

Distribution and Shipping: Is also very expensive. And also requires a LOT of capital. Docks, airports, shipping containers, trains, boats, planes, warehouse space, retail space, etc. I reiterate, capital is expensive. Also, the labor costs associated with shipping are relatively fixed as well. At least, it is a piece that cannot be off-shored. You can’t outsource a UPS driver.

Sales and Marketing: Difficult to outsource, but not impossible. A critical part of the value chain. You can have the best mousetrap on earth, but if no one knows about it, or where to buy it, or understands the features and benefits of it, or feel that they NEED a better mousetrap, you won’t sell any.

Why I think 3-D Printers can change everything:

  • Eliminates economies of scale. One machine can be used to make any number of items without any set-up costs (besides the initial purchase). This by itself is a huge advantage. You no longer have to sell millions of units to be profitable. This means that lots of products that were never made because “the market wasn’t big enough” all start becoming viable.

There are several modern trends happening that I think can play on this feature of micromanufacturing:

  • The “etsy” effect –> people like having small batch, unique, and “homemade” goods. Extend that out to other things besides arts and crafts.
  • The “tribe” effect –> people like having things that support whatever group of “cool people” they belong to (or want to belong to).
  • The “mass customization” movement –> everything needs to be unique and custom for people. With no set-up costs, we can easily make custom items one at a time.

America is still the largest market for goods like this, and because of the above effects, the market is the driving force. Whoever can be the first to pick up on the trends, or the first to make those trends, is the most valuable person in the supply chain at this point. Ideas and design becomes even more valuable, therefore, it can support more people. And when we expand the ideas and design and the sales and marketing pieces of the value chain, we create more jobs that cannot be off-shored.

Appearance is Important

I wear a suit (or at least a jacket) to work every day.  Why? Because appearance is important. Many people seem to have forgotten this. I was at the annual conference for our broker dealer with financial advisors from across the country not that long ago. At the awards dinner, as you might imagine, they give out awards for varying levels of production. The group of people that made at least $50,000 that year was pretty large. It was filled with lots of people who all had very different looks, styles of dress, and levels of grooming. But then the group gets smaller as the income gets larger, $100,000, $250,000, & $500,000.  The highest (or most prestigious) award is given at the end of the night to people that produced at least $1 million in revenue. Five people, all in conservative, tailored, clean and pressed suits.


I don’t think so. Now, I’m not saying that everyone needs to wear a suit every day. But I think that people who think it doesn’t matter are being dumb or arrogant.

This goes way beyond clothes as well. If your office is a mess, people assume you are scattered or disorganized. If your finished products are great, but delivered in an unprofessional manner, people will value it less.

Your appearance is a physical representation of you. Like it or not, people will associate your appearance with who you are.

Appearance is important.