You’re Losing Passive Income and Big Money

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We’ve all seen those extreme coupon people. The ones who end up on tv or in the paper because they bought $1,000 in groceries for 67 cents. Impressive as that may be, who has the time to figure all of that out? It’s a full-time job clipping coupons, researching deals, mixing and matching, and calculating up the right mix. Not to mention, you’ve got $1,000 in groceries, but is it even food you like?

If you’re not into the minimalist lifestyle all the compulsive clipping, I just mentioned, I don’t blame you. I’m not here to tell you that you should be. But the truth is, you are probably missing out on a lot incredibly easy money. From cash back to receipt redemption, to digital coupons there are a lot of opportunities to keep more of your money, get some back, and even earn residual income.

According to Statista, the average American spends $2,912 annually on entertainment, $1,434 on apparel and services, $9,826 on transportation, and $7,316 on food every year. That’s $21,488 per year on things that could be earning you cash back.

Let’s say conservatively that you earned 2% cash back on all that. You would be getting about $432 per year. That may not sound like much, but if you’d been doing that for the past 10 years and investing that cash back you would have well over $6k earning you income right now.

A Deeper Dive

Credit Cards

So, let’s take it a bit deeper here. Some say credit cards are the enemy, some swear by them. The truth is, if you use it responsibly and pay off the balance in full each month, they are generally an income tool. I’ve managed to get one with an incredible cash back of 5%, which is hard to find, but if you can even do 1-2% its well worth the trouble in my opinion.

Swagbucks

Many people know Swagbucks as a survey site and its still very heavy on surveys, but it has a lot more to offer. A LOT. But what I’m going to focus on here is the cash back. For almost every online venue you can think of, Swagbucks has a cash back program. You just install the Swagbutton on your computer or visit the retailer through Swagbucks website, buy what you want, and get cash back. Now this is in the form of swagbucks (SB), which are redeemable for giftcards or straight up cash. So, say you spend $50 at Walmart and get 1% back, then you get 50 swagbucks which are equal to $0.50-$0.65 depending on your choice of card.

Take it a step further with swagbucks, you can also scan your receipts and get at least 2 SB, but often much more. For example, I recently got 150 SB ($1.50) because there were bananas and bread on my receipt.

Ibotta

Ibotta isn’t a guaranteed deal every time you shop. It’s select products and if you’re not careful the cash back can tempt you to buy things you wouldn’t otherwise buy. That’s not saving money, that’s spending. However, if you find something you would buy anyway you can get cash back. One example for me is some supplements and deodorant last week earned me $4 back. My total purchase was only $15 so that was awesome.

Fluz

I’ve written about this one a few times and I can’t believe more people haven’t hopped on this. Fluz offers some crazy cash back from time to time. I’ve seen 35% cash back on everything from X-Box Live to Uber Eats in some cases – granted it doesn’t always last long. The general norm across the board is about 2% in my experience.

The cool thing is that you can invite others and if they join from your reference then you get a 10% bonus on their cash back for life. Now, don’t think that’s some kind of crazy windfall though. To put it into perspective, if your friend spent $1,000 and got 2% cash back that would mean you get a bonus that month of 10% of $20, which would be $2.  Still, its passive income and that’s a step closer to never having to work again.

Honey

This is probably my favorite plug-in for Chrome. I’ve not earned any cash back from it, but it sure has saved me a lot of money. At the checkout it can take its wealth of discount codes and run through them to find you the one that will benefit you the most. Some times its free shipping, sometimes its nothing, but on occasion I’ve had up to 50% off some of my purchases.

Receipt Redemptions

Finally, once you have squeezed the cash back and discounts as dry as you can with nearly no effort, you can get a little extra out of your receipts. As I mentioned, Swagbucks will give you at least 2 SB and often much more. Coinout will also pay you for your receipts. I’ve not pinpointed the rhyme or reason as to how its calculated. I’ve gotten $0.01 and I’ve got $0.20 off of a single receipt. Usually its $0.02-.03 though.

Fetch is another good receipt app. Generally, you’ll get what translates to about $0.02 per receipt, but sometimes it’s a lot more if something they are promoting is on your receipt.

Dabble is a fantastic app for some quick easy money. Granted, its not a lot, but its quick and easy, which is my second favorite way to make money. The first being passive income. Dabble has a feature much like the previously mentioned apps that allows you to upload receipts for roughly $0.02 each or more if you’ve purchased select products.

Stackable

The absolute best thing about all of this is that every bit is stackable. Its rare that a purchase falls into the best of every single category, but there is usually a really good overlap. For example:

Say you want to buy something from Amazon and you have a credit card that pays 2% cash back. Well, Fluz is offering 2.25% back, and Swagbucks is offering up to 4% back. So, you spend $100 (on something you were going to buy anyway).

You get $2 from your card, $2.25 from Fluz, and $4 from Swagbucks. You then upload your digital receipt everywhere and get $0.02 from Coinout, Fetch, and Dabble. You’ve got $8.31 back and now you can invest it and make that start earning you more income.

That’s just one purchase. Imagine how much money you would have if you did this every time you bought something?

Fuel

This one isn’t really stackable with anything other than your credit card cash back, but it can still save you a ton. The GetUpside app can save you up to 25 cents per gallon on fuel, 45% on snacks, and 22% cash back on some convenience stores. Its super easy to use

Its More than Extra Money

Everybody loves having some extra cash, but this is more than just that. Its extra life. If you follow my passive income articles, then you are probably someone who understands the value of freedom. The idea of not having to wake up early and go to work is great. Not because you’re lazy, but because there is so much more to life than stocking shelves, sitting in an office, or leading presentations. Its hard to even know who you are when you’re so busy filling a role in a job sometimes.

This isn’t your overnight ticket to early retirement. But I encourage you to consider this, to retire you need to determine your monthly need and make your monthly passive income match or exceed that need.

If you can lower your need by even one percent, then you are instantly closer to full financial freedom. Moreover, you can compound that. What if you took that same one percent and put it into something that would generate passive income? And what if that passive income continued to compound and grow?

The real question is, do you want financial freedom, or do you just like the idea of financial freedom? Its never going to fall into your lap, you have to make the first move.

Starting a Successful Business You Love- Structure

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You’ve found your idea, worked out the finances, discovered your competitive advantage, decided on a funding method, and now its time to get to work on actually making your vision a reality. The next step is to decide on a business structure. There are many routes you could go and no real one size fits all. Some are better on taxes, some limit your liability, others give you more control. So which one is right for you?

Sole Proprietorship

The most common business structure type is a sole proprietorship. Usually, sole proprietorships tend to be smaller in scale than other business structures, but there is no law limiting its size.

Sole proprietorships are owned by a single person. They don’t act as a separate entity, so all the business and tax liability are your own if you choose to go this route.

It can be a good option if you are looking for full control of your business and you are okay with that liability.

Partnerships

A partnership is a business that is owned by more than one person or business. The ownership doesn’t have two be 50-50 either. It can be any combination of percentage which is agreed upon by its members. Each member would get a K-1 for their taxes, splitting income and equity according to their contributions and operating agreement.

There are different forms of partnerships which are general, limited, and limited liability partnerships.

General Parthership (GP)

In a general partnership, all partners share in the profits, responsibilities, and liability for debts. They also have a responsibility to act in the best interests of the other partners.

Limited Partnership (LP)

A limited partnership is different from general partnerships in that partners can have limited liability. That means that they aren’t able to loose more than they put into the business. In other words, they are not liable for business debts that are greater than their contribution. These are sometimes known as silent partners or can be angel investors.

So, general partners manage the day to day business and are liable for company debt including litigations. Limited partners just contribute financially to the business as an investor.  

Limited Liability Partnership (LLP)

A limited liability partnership is a type of structure where all partners have a limited liability, unlike a general partnership or LP. All partners are may also be active in the business.

This structure is often found in professional services where partners may want to limit their responsibility from litigation arising from the conduct of other partners.

Corporation

A C corporation is a separate entity from its owners. For most purposes it is its own person, so these grant you the greatest protection in terms of individual liability.

The downside is that corporations are taxed as their own entities. So, as an owner you may pay taxes on your income from the business, and the business will have to pay taxes on its income.  

Corporate taxes can become extremely complicated very quickly so it may be more costly in its need for a dedicated accountant as well.

S Corporatoin

An S corporation is a type of structure where profits and losses are passed through directly to the owner’s personal income. This means that it isn’t subject to corporate tax rates. This is an election which can allow you much of the benefit of a C corporation without the double taxation.

There are restrictions regarding S Corps. For example, members must be US citizens and an S Corp can only have a maximum of 100 shareholders.

Limited Liability Company (LLC)

A limited liability company, or LLC is another very common structure for small businesses. An LLC gives you a good mix of the advantages of the sole proprietorship, corporation, and partnership business structures.

An LLC is its own entity and therefore provides you with liability protection like corporations but does so without double taxation. Your business can avoids double taxation since by can passing through taxes to your personal income.

LLCs are treated differently in for tax purposes in each state, so tax liabilities vary depending on where you are. Check with your state for specific LLC regulations.

Choosing your business structure

As you select a business structure, be sure to choose the one that provides the most benefits and is the best structure for your small business.

Some things to think about as you weigh your options:

  • Legal liability
  • Taxes
  • Members
  • Flexibility
  • Your long term plans

After you decide on your business structure, check out your state’s website or talk to an accountant about registering your business and moving on to next steps.

Starting a Successful Business You Love – Getting Funding

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A successful business takes a lot of time. As the old adage goes “time is money”, and you will likely need a lot of both if you want to see your business take off. Funding is an important aspect of any startup, but not all funding is created equal.

You have many options for how to finance your business operations and each comes with its own set of pros and cons. You can choose one or utilize multiple options. What is important is that you thoughtfully consider what is best for you and your business rather than taking whatever comes along first with the greatest ease.

So What Are my Options?

Investors

You can find investors to fund your business. There are multiple routes to this as well, from crowdfunding to partnerships. An investor is someone who puts money or resources into your business, but like the name suggests they often expect to get a return on their contribution.

Finding investors can be a good solution for you because it doesn’t typically require monthly payments. Investors may require a profit split, ownership percentage, a specific percentage return or any number of things in exchange for their investment.

You may have more free cash flow upfront not having to worry about monthly payments. You also may have the benefit of investors vested interest in your business. They will be quick to offer input, advice, and may even contribute more capital if the need arises.

In many cases you may not need collateral or any money of your own. Investors are aware of the risks going in, so another benefit is that if the business fails you aren’t on the hook to repay that money.

Keep in mind though, that the greater risk your investors are taking, the more they are going to want in return. Whether that’s control, money, or ownership they will want something for their contributions.

Unfortunately, if your goal is to work for yourself, you will also have to answer to investors. They may want some form of control or threaten to pull out if you don’t do things their way. You may be trading one manager for another.

Finding investors can be a great thing, just weigh your options first.

Loans

Small business loans are probably the most common method for funding startups. They are readily available and generally fairly easy to obtain as long as you’ve done your due diligence. Which, if you have been following my series on How to Start a Successful Business You love, at this point you should be well prepared.

The nice thing about these loans is that the interest and terms are usually manageable. The lenders want you to succeed so they aren’t normally going to try to kill you on the loan. The SBA has tools to help match you with lenders based on your business profile and needs.

The downside is that while your loan should be manageable, a payment is still a payment. A portion of your cash flow will be tied up for the duration of the loan and you’re paying interest.

Additionally, most business loans require you to contribute 10-20% of the total amount needed for the project. So if you needed $200 thousand to start the business, then you would be expected to come up with $20-40 thousand yourself.  Some may also require a certain level of collateral, but that can usually consist of business assets. So if you are buying equipment for your business with the loan, then that equipment would count toward the collateral.

Contrary to some investor agreements, the payments on a loan do eventually stop. There is no shared ownership and no ongoing dividends. Not only that, but you retain full control throughout the life of your loan and beyond.

Self Funded

Choosing to go the route of self-funded probably takes the longest but offers some great benefits. First, you don’t have any payments so your cash flow can be utilized quickly to invest back in your business. Next, there is no interest or investors for you to pay. That means that every dollar has a slightly bigger impact in your business, since a portion of it isn’t going toward paying interest.

Furthermore, you don’t have to answer to investors. Every decision is your own (within the confines of legality). That is a double-edged sword however, because the consequences of those decisions are yours also. Not only that, but you miss out on the benefit of guidance from the experienced business professionals who typically invest in startups.

Lastly, the biggest downside to being self-funded is the time it takes to raise enough money to start. You should have enough capital to cover about 6 months’ worth of expenses before you open the doors. Unless your business is something akin to a small lemonade stand then it may take years to save that kind of money.

Combination

You don’t have to settle for just one funding source. Its perfectly acceptable to mix and match your funding. For example, if you wanted to take out a loan but you only had half of the 20% you needed, then you could look for investors to cover the other 10 percent. The SBA is a great resource for finding investors as well as loans and other business resources. There are many more funding options than these, including grants and I highly encourage you to check them all out.

What is ideal will depend on your situation and preferences, so I encourage you to play around with the numbers. Continue to research and find what works best for you.

Start Your Passive Income Life – Free Money to Start

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Photo by Helena Lopes on Pexels.com Passive Income Life

2021 showed us the start of the Great Resignation, a mass move to work from home jobs, and a general unrest in traditional employment. Most of us would love to live off passive income and just escape from the shackles of work altogether.

 Everyone wants to be totally financially free, but there is a difficult truth to why most of us are not.

You want money but ignore it when it comes your way

If you pass up opportunity because it won’t get you rich quickly then you will likely never actually get rich. Opportunity knocks constantly, but since it’s not Publishers Clearinghouse, most people don’t open the door.

My point is, that the journey of a thousand miles starts with a single step. The first steps are usually the slowest and hardest, but I’m wanting to get you started today with a free $30+ and a diversified portfolio.

I’ll wrap up with a few ideas to supplement your income and grow your investments & passive income even faster.

Real Estate Investing

By far one of the most common and easy ways of becoming wealthy and creating income is through real estate investing. The catch is that its usually only easy if you are already very well off, and at that point you don’t really need it anyway.

Thankfully, it has become easier and easier over the years to invest in real estate. I’m sure if you’re reading this then by now you have at least heard about crowdfunded investing. Well, I’ve been using Fundrise and I do really like it, but another platform has joined the scene.

HappyNest if you sign up using my link then you get $10 added to your account when you deposit $10. Now this may seem like a shameless plug to get my own referral bonus, and to some extent it is. BUT I really have found this to be a good app, otherwise I risk losing all my credibility for a couple of bucks.

The thing is, Fundrise is good too, I get a little bit on referrals if you use my link there, but you don’t and last I checked you needed $1,000 to get started.

My goal here is to help you build a small foundation with money you got for free. So, about HappyNest:

Pros

  • You can start with just $10
  • You can link a card and do roundup investing on all your purchases
  • Dividends are calculated daily and distributed or reinvested quarterly
  • Compound interest

Cons

  • It can be time consuming and difficult to cash out your principle (as with all real estate)
  • Automatic round up program $1 per month after trial (program itself is totally optional)

Lending your money

Everyone knows about P2P lending by now, but not everyone is privy to the world of crypto lending. The technical aspects are a bit complicated, but here is a thousand foot view. You deposit USD in your savings account and someone else deposits Bitcoin, or some other crypto. Their crypto serves as collateral and they can borrow USD for short term loans (30, 90, 180 days). They pay interest and the holding company distributes that interest to you. It works in reverse as well, i.e. you can deposit or borrow crypto.

The platform I use is MyConstant. The rate of interest is 4% compounded constantly. If you choose to commit your cash for up to 180, meaning you wont be able to withdraw for that period of time, you can earn up to 7%. 

If you sign up using my link you can get $5,000 as a trial balance to earn interest for 15 days. Note, that doesn’t mean you get $5,000. That means that you account will grow as if you are earning interest on $5,000.

That means that if you sign up with my link and deposit at least $10 then you get roughly $8.33 in 15 days plus the interest on your $10.

Dividend Investing

I absolutely love dividend investing. I think it’s because it’s a little more of a wild card. I try to choose mostly stocks that I have a great confidence will continue to pay a stable dividend and grow, but sometimes they surprise you. One example is ARCC which is a REIT (Real Estate Investment Trust). When I found them and bought in just under 2 years ago the price was sitting at $17.10 per share with an incredible dividend of $0.39 per share per quarter, or $1.56 per year. At the time of this writing the share price is $21.01 and the dividend is $0.41 per quarter or $1.64 per year. So not only did the value of my holdings increase, but so did my passive income!

I can’t promise that will happen to you, do your research and invest wisely. But if you do sign up using my link, or anyone else’s (they’re everywhere), you will get a free share of a random company. 98% of the time is value is between $2.50 and $10, but you could get something as high as $225.

Where does that leave you?

If you do all that you should be better off than you were yesterday. You won’t be rich. Not even close. But you should have close to $30 you didn’t have do work for, a diversified portfolio, and about $0.19 per month extra in the form of passive income.

What am I going to do with that?

Nothing. You can do basically nothing with a 19-cent monthly income. But if you never take that first step you are going to find yourself 10 years down the road browsing the internet trying to find a way to get rich overnight, so you don’t have to go back into work. And you will be no closer to making that a reality.

You can however, make that future self’s wish come true today. Interest compounds quickly. There is a reason for the saying “the rich get richer”. The more passive income you have the more you can build.

Make your money start working for you so you can stop working for your money

Once you get started earning passively you will see how addicting it is. Putting money back every week, even as little as $5 can make a huge difference in your future income.

Every time you add to your investments you give yourself a raise.

Bonus

I’ll save the in depth analysis for another day, but there are many ways to increase your free cash that you can invest to boost your passive earnings. (links included).

Swagbucks – Est about $20 per month for casual users

Usertesting – up to $40 per hour but qualifying tests are sparse

Premise– Est $12 per month, but $50+ is very doable

Slicethepie – About $0.2 per review, basically unlimited earnings if you have time

Reklaim – App in app store, $4 per month

Current – Est $10 per month

Ibotta – Est $20-50 per month, but higher earning is possible. This one is a spend to earn situation so more of a discount app

Fluz – Est $10-50 per month, potential is unlimited however

ATM- Available in app store, Est $5-10 per month

What Now?

Get to investing, earning and repeating. If you use all of these you could make an extra $100 or more in your spare time. Investing that could quickly grow your passive income and get you to financial freedom fast!

Running a Business You Love – SWOT and PEST

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What’s your favorite sports team?

How’s their offence? What about defense? Who’s their star player? What do they need to work on for the upcoming season?

I’m not well traveled I’ll admit, so I don’t know about the rest of the world, but in the US about 90% of people can answer all those questions. In fact, if you ask someone those questions they can usually go into great detail and run through hypothetical scenarios. They get fired up and you can see excitement and passion bubbling out. Not only that, but hey have ideas and feel vested. Also, they want everyone around them to be as excited as they are.

So why aren’t business owners like that when it comes to their businesses?

The first reason is that people often monetize what they do well, not what they are passionate about. And they became good at what they do by working a job they hate.

The second reason is that business can be complicated. You learn sports from childhood. But we don’t grow up learning the ins and outs of business. We don’t buy tickets to watch businesses compete and have accountants sign our jerseys.

Running a business is a long game and the “rules” change often.

Look back 20 years ago and very little business was done online. If you look back 15 years, cell phones weren’t that big of aspect of business. And just 10 years ago giving customers Wi-fi access was a competitive advantage.

What I’m saying is, you need to constantly take stock of where you are. You should examine your business like you would break down your NFL team. The technical way to do this is with a SWOT and PEST analysis. They can help you to break down your business and dig deep into where you stand.

What are SWOT and PEST?

SWOT stands for Strengths Weaknesses Opportunities and Threats. PEST is similar and sometimes the two overlaps in some areas. PEST stands for Political, Economic, Social, and Technological and it examines external factors that can impact your business.

You can get pretty deep into these if you want, and you really should, but for now I will run though a simpler look to give you a feel for how to do your own.

So, lets make up a crazy business to exaggerate things and drive each concept home.

Scenario: We’ll say you exclusively sell swim wear for house cats. Your supplies come from China and you primarily advertise via flyers, word of mouth, and local newspapers.  

SWOT Analysis

StrengthsWeaknesses
– Your business is unique
– Low sales volume allows for greater focus on customer service  
– Little demand
-Cats generally do not like water/swimming
-Limited customer reach
-Major debt from purchase of inventory
-Holding far too much inventory  
OpportunitiesThreats
-Low competition allows for a large percentage of the market share
– Expansion to online sales
– Inclusion of online marketing  
-If popularity grows it could lead to competition entering the market
-Supply chain issues may limit ability to purchase inventory  

For strengths you’ll need to ask yourself what your business does well, or “What does it have going for it?”

Weaknesses is the other side of that coin. This is what is holding you back or needs improvement.

Opportunities and threats are usually externally focused. In its simplest form, it’s what you can do to improve, vs what you may have to face.

Sometimes weaknesses compound or create threats. Sometimes your strengths can do that as well. Its a balancing act which is why you need to lay it out. Teams have players on the sidelines waiting to jump in if they are needed. That’s because not everything goes to plan all the time. Weaknesses, and setbacks arise, but you cant ignore them. You have to plan for what to do when they come up. Knowing where they may arise is half the battle.

PEST

PEST is primarily external and a bit more obscure in some ways. Each category may have positives and negatives as well, unlike SWOT.

PoliticalEconomic
– Relationship with China is becoming strained
– Imports/Export regulations may harm ability to obtain inventory
– Minimum wage increase may allow greater disposable income
-Inflation may counteract the wage increases  
SocialTechnological
-Some may consider cat swimsuits unethical due to cats aversion to water
-Select social media communities may offer support and growth opportunities  
-Your business is not currently utilizing technology to its fullest
-Consumers may be able to find overseas direct ship suppliers online as well  

The Takeaway

This is a hypothetical business I made up in about 2 minutes, but when you examine your own business, you will be amazed at what you find. You know your business better than anyone, but when you start to really break everything down you start to see beyond the day to day. You’ll start to get an idea of the competition’s playbook and what your offense and defense are up against.

Starting a Business You Love- Competitive Advantage

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Why Are They Doing So Much Better Than I am?

You may find yourself asking this question if you approach business with a “build it and they will come” attitude. You can set up a business with the same products, same prices, on the same street as your competitor and have vastly different results.

This is largely due to something behind the scenes, often intangible – the competitive advantage.

Now competitive advantage can come from a variety of things, and some are more obvious than others. For example, Walmart’s low prices are one of their advantages. They are a large enough corporation that they can vertically integrate, buy massive quantities for low prices, and maintain low margins in order to offer the lowest prices possible. It is practically impossible to compete with Walmart’s prices in any meaningful way.

You can also have more than one competitive advantage. Think about Amazon, how they have such a vast network of products and suppliers. This allows them to offer an incredible variety of products at a wide range of prices. There lies an advantage over big box stores, if they don’t have it you can bet Amazon does. Their next advantage is their quick ship times. Amazon offers same day delivery in some instances, and that can be a powerful driver for consumer purchases.

So, What Do YOU Do Better?

If you look at your business, or business idea and have no idea what you do better than anyone else it may be time to review your business.

It’s time to think through every aspect of your business from first interaction to collecting on sales. What can be improved? Where are your weaknesses? You will be able to find your specific answers better than anyone, but I’ll give you some hints.

You Are Your Advantage

If you have been following my series on How to Start a Successful Business You Love, then you likely already have one advantage. You built your business around your passion.  You know your products inside and out and are able to effectively engage with potential customers. You are also likely to build trust easily and upsell when the opportunity arises.

Your Employees

If you have employees or have ever worked with another human, you know the importance of hiring the right people. Your employees can make or break your small business, especially in the early stages. If you start off right, you can set yourself up to have your team be your competitive advantage.

Imagine walking into a local coffee shop and all the staff are enthusiastic, have a deep knowledge of the products, and are extremely personable.

As you look around in your minds eye, are there customers in the shop? Does it seem like a place you would enjoy being in? My guess is that the answer to both of those questions is yes.

Of course, the quality of product plays a large factor, but passionate employees with a sense of shared ownership look for ways to improve your business. If you’re thinking that’s a ridiculous statement, then you have likely only ever had managers, not leaders. It’s your job to recruit the right people and turn them into passionate employees.

Your Differentiation

What do you have that the other guy doesn’t? If you don’t know the answer to that question, then you likely haven’t created any differentiations. A competitive advantage doesn’t have to be what you do better than your competitors. Sometimes its just what you do differently.

For example, Hooters is an extremely successful sports bar. There are hundreds upon hundreds of sports bars across the US, but few are better known than Hooters. Its obvious what they do differently and its crazy simple.

Netflix is another good example. While competition has adopted their approach, what made them successful was their unique model. While Blockbuster was the giant of the day, Netflix beat them by offering a different way of renting movies.

How do I Develop my Competitive Advantage?

  • Think about what resources you have that access to that are more difficult for your competitors to access if any.
  • Take recruitment seriously. Consider personality and competency tests. Don’t hire just to fill a spot, no matter how insignificant or “unskilled” you may think it is. Every job has value and the right people bring more than you could hope for.
  • Can you leverage your location somehow?
  • Can you get ahead on the technology to build efficiencies or make a more enjoyable client experience?
  • Can you offer lower prices than your competitors? You don’t need to make $1million on your first sale if you can make $1 two million times.
  • Build trust and recognition at any and every given opportunity. In fact, make opportunities. Go to events, host events, get your name out there and fix customer issues before they arise.
  • Be a leader, not a boss. Don’t ask anyone to do something you wouldn’t do yourself. Lift up your team and encourage them. Celebrate their successes and build a sense of shared ownership.

Survive or Thrive?

Identifying and properly leveraging your competitive advantage can mean thriving instead of just surviving. Most small businesses fail, of those that don’t, the majority plateau quickly. Don’t be one that stops short.

If you enjoyed this article, don’t forget to like and follow. Next in this series on How to Start a Successful Business You Love we’ll be taking a look at how to develop a SWOT analysis for your business.

Run a Business You Love – Understanding Cash Flow

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Photo by Pixabay on Pexels.com Net Income and Cash Flow Analysis

Its common sense to think that if you made a net income that you would have a positive cash flow as well. Unfortunately, that’s not always the case in business. You have accounts payable, accounts receivable, depreciation, WIP accounts and so on.

Your finances can get really complicated pretty quickly, so if you don’t have an accountant keeping track for you, I hope this article can help you shed some light on things.

In business very rarely are all things done on a cash basis. Service work is sometimes an exception to that if you’re a sole proprietor doing a short-term job, but for the most part you can expect to wait on your money. If you aren’t careful, you can get yourself into a cycle of high income, low cash flow and struggle to make ends meet.

What is Business Income?

Business finances typically work best on the accrual method rather than the cash method. With the accrual method you recognize income and expenses as they are earned rather than when money changes hands. The accrual method helps you to match expenses with income.

For example, imagine you pay someone $1,000 today to repair a car, then sold the car for $10,000 in 12 payments the minute the following month. For simplicity sake, lets pretend you have $0 in the car aside from the repairs. Based on the accrual method you would have an income of $9,000 from the transactions. You would also have a loan receivable of $9,167.

Using the cash method you would have a net loss of $1,000 in the month of the repair. In the 12 months following you would have an income of $833 per month.

If you have a business with multiple transactions every month, cash method can get really difficult to tell whether or not your business is successful very quickly.

Cash Method

Here is a quick glance at what cash method may look like in running a car lot. ( G & A removed for simplicity). Assume each vehicle costs $10,000 to purchase and the initial vehicle cost only the repairs and parts. Purchases are made on account and paid at $500 per month. Each vehicle is sold for $15,000 on payments of $1,000 per month.

Cash Flow Net Income

Does this look like a profitable business? After three months your net income is negative and you’ve yet to see a good month.

Accrual Method

Accrual method is different in many ways from the cash method. Sales are recognized as income when they are made and a receivables item is created if the cash isn’t delivered at the point of sale. Inventory comes into play on a more detailed scale as well but that’s a topic for another day.

So what would this exact scenario look like in the accrual method? Well, below are the entries that would have occurred.

This is a vastly different picture. In truth this business is very profitable. In the first quarter it earned a net income of $23,600. Who wouldn’t want to earn that in their first three months of business?

So you know I’m not just throwing numbers out there, here are the entries that make up these financial statements.

If you’re not an accountant these may seem like gibberish, but what you see here is the flow of your business. Equity, liabilities, inventory, sales, and cash are all lining up here to paint a picture of your business’s health.

So I Can Forget About Cash Flow Right?

Please don’t misunderstand. Cash flow is a vital part of your business success. Without knowing where your cash is going you can end up getting into trouble.

If you are only looking at your income statements then you see a hefty profit and it may be tempting to spend that income.

As nice as it would be to take out that money and go on a well earned vacation, the truth is you have $2,900 less cash than when you started.

I can’t tell you how many times I’ve worked with confused business owners who see that their making a killing, but have no idea why their bank balance is overdrawn EVERY SINGLE WEEK.

Other times a business owner may see a large balance in their account and go spend it while their income is in the gutter. They think they are doing great, then get hit with reality.

So How do I Handle My Business Finances?

Keep a close eye on your financials. Make sure you understand that cash flow and net income are two entirely different things in business. High net income is generally good. Low cash flow isn’t necessarily bad and high cash flow isn’t necessarily good. You just need to know what your cash flow is and optimize it for your business.

High cash free cash can mean you aren’t investing back in your business, or it can mean you’re being cautious.

Low free cash can mean you’ve put a lot into inventory, advertising or something else that will come back and then some. It can also mean that you are struggling.

Not knowing your cash flows absolutely means that you are in a vulnerable position. If you know your books, that is fantastic. If you don’t, then you would be well served to find someone to help you who does.

Let me know if you would like me to go more in depth on financials. Drop a comment if there is another topic you would like me to cover!

Next we will be looking at how you can develop your competitive advantage.

Running a Business You Love – Understanding Your Finances

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What good is having a business you love if you can’t pay the bills or feed yourself? Some people may find their passion and know just how to make things flow in order to deliver their product flawlessly to the consumer, yet still fail as a business. That is because proper money management is vital to your business’ survival. In fact, some may argue that money is what makes the business.

To succeed financially, you need to know where your money is going and what you are getting in return.

You need to have a clear understanding of your cost of goods and margin, as well as fixed and variable costs in order to make informed decisions.

So, what are all these costs and what do they mean?

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Cost of goods is pretty straightforward. It is the price you pay for the product you are selling. So lets say you are planning to sell T-shirts and each one costs you $10. If you buy 100 shirts for resale. Your Cost of Goods Available for Sale (COGAS) is now $1,000.

Let’s assume you opened shop and the first month you sold 40 t-shirts. Your COGAS, or inventory, is now $600 and your Cost of Goods Sold (COGS) is also $400.

Unless you’re trying to go bankrupt, you’re probably selling your shirts for more than you buy them. So, let’s say you’ve marked up each t-shirt to $15. That means for those 40 you sold the first month you business earned a revenue of $600 with a COGS of $400, leaving you with a gross margin of $200.

That’s great, right?! You made $200 your first month! Or did you?

Fixed Costs

Covering basic business expenses can be your first major hurdle before you achieve profitability. These are what your accountant would call Fixed Costs or what many may think of as G & A (though not all G & A are necessarily fixed costs).

What are Fixed Costs?

Fixed costs are those costs which you would have if you did not sell a single unit, think rent. For example, if you have a storefront that you rent for your t-shirt business and your rent is $1,000 per month, you still owe $1,000 even if you sold nothing at all. 

Some costs can be slightly ambiguous like utilities. If your store is open fewer days then your bill will be lower.

While utilities may fluctuate, they generally they are regarded as fixed. The same can usually be said about wages unless hours worked directly correspond to units produced or sold (that can get really complicated and is best served as a standalone article or series).

 All in all for now just think of it this way, if you sell could sell nothing one month and sell your entire inventory the next without the cost changing substantially on its own, then consider it a fixed cost.

What Does That Look Like in Practice?

For this scenario lets say you have rent, utilities and one part time employee as its fixed costs.

Rent: $1,000

Utilities: $300

Employee: $2,000

                Total: $3,300

Suddenly that $200 gross margin doesn’t look so good. You’re short $3,100 this month.

Why So Gloomy?

A lot of articles out there want to give you a feel-good feeling, so they paint a picture of how you’ll be making $10,000 in your pajamas watching TV. When you inevitably don’t succeed then you think that it is something you did wrong, and you really need to go read more of their advice to see how they did it. Worse still, you need to buy their program and sign up for their coaching.

That’s not me. I want you succeed now and keep on succeeding. This is the harsh truth of small businesses. Owners see that $200 margin and think they are making money, then get stressed and upset because they don’t know why they can’t cover the bills.

“I’m getting a 50% markup, why is my account overdrawn?”

How Much Income do I need?

You know that you have fixed costs to cover and now you know the total you’re spending on them each month. So now you only need to make that $3,300 right?

Not quite. To figure out the total sales we need, we have to find what is called the Contribution Margin. For that you need the cost of goods and the variable costs.

Variable costs are those costs which fluctuate as a direct result of increasing or decreasing sales volume.

Commission is a great example of this. If you pay your sales staff an hourly rate plus commission, then that commission would be variable costs.

For this example, we’ll say that you pay your employee $1 for every sale he or she makes. The 40 t-shirts that were sold have a variable cost of $1 each in addition to the $10 COGS. So that leaves you with a contribution margin of $4 for ever unit. (Sales price -COGS – Variable Cost).

Contribution margin is the amount of income which is over and above the cost of sale. This is used to find your Break Even Point or a target income.

Break Even Point

We have established that the fixed expenses equal $3,300 per month and that the contribution margin is $4. Now to find the breakeven point you can simply divide fixed costs by $4.

This gives us 825, which means that you will need to sell 825 t-shirts to come to a net income of $0. Meaning, your business paid all of its bills and neither lost nor gained any income.  

Target Income

So far, we have not included a salary for you, the owner. Often the owner of a small business doesn’t get to take a salary for the first 3-5 years. Still, you certainly will want to get paid and knowing what you need to get there is important.

Let’s say you want to earn at least the median income in the US which is roughly $2,700 per month. That formula would look like this (fixed costs + target income)/Contribution margin.  In our case that would be ($3,300+$2,700)/$4 = 1,500 t-shirts that you need to sell per month.  For perspective, this would be $22,500 in revenue.

Adjust Your Expenses

You may think that 1,500 t-shirt sales per month seems impossible when you’re just starting out. Truthfully it will likely take a lot of time and effort to ever reach that mark. Your small business may need to sustain at a loss for an extended time before even consistently reaching the breakeven point of 825 units per month.

There are some things you can experiment with or consider that may help you reach your goals faster. After all, you picked an item you are passionate about for your business. You know the ideal price points and have a good idea of what drives sales.

Can you raise your prices? If you increased to $16 per unit then your breakeven point would drop to 660 t-shirts and your target income would drop to 1,000 units.

Does the $1 per sale actually cause any additional sales? Can you reduce this or other variable costs?

Would spending more actually reduce your time to breakeven? That may sound crazy, but as you know you have to spend money to make money. Does your target market respond well to paid advertisements? Keep in mind that attracting a new customer is multiple times the cost of retaining, so an upfront investment in ads may kick start your revenue and save on expenses later. This will increase your fixed costs, however, so carefully weigh your options.

Can You Say That Again? But Try Making Sense This Time

Ok, I’ve thrown out a lot of terms and some math that may seem all over the place. While its usually best to hire an accountant or bookkeeper, you still need to know how everything works for strategic planning.

Here’s the Rundown

You have recurring costs that don’t change based on sales volume. You have some that do. You need your sales price to be low enough to still attract customers, but high enough to make a margin you can work with. You need to identify how many units you have to sell to reach your goal and build a strategy around that.

Revenue does not equal profit, and money in the bank doesn’t mean usable cash. Next time we will be discussing income verses cash flow and why that’s important to you as a business owner.  

Creating a Business You Love, Tough Questions

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Creating a business you love is hard work, but very worth while. Taking it one step at a time can be immensely helpful. Previously we went over the foundation – finding an idea. We discussed why it is crucial to base your business on an idea you are passionate about rather than one that simply looks profitable.

The next step is to determine if its feasible. So lets say you want to build and sell a wearable device that monitors glucose in diabetic cats because your pet fluffy would still be around if that had existed. Okay, this is a weird example, but it gives us a good starting point.

So, let’s examine the idea. You can apply this method to whatever your real idea is and get a feel for what your going to need.

  • Do you know how to build the technology?
    • If so, what is the cost?
    • If not, where will you have it built?
      • What is the cost of outsourcing
  • How many devices will you need?
  • How will you fund the project?
  • Is there a demand for the device?
  • How will you deliver to your market?
  • How will you get it to stay on the pet?
  • Are there ethical or medical hurdles to overcome before its rolled out?
  • Can the devices survive long term wear and tear/weather?

There may be more questions you can ask but these are some general basic questions to get you off the ground.

At each question there is a hurdle to overcome that can tear down the feasibility of your business, but its better to ask now than after you’ve poured your finances into it. Also, a negative answer doesn’t mean failure, it just means you need to adjust your business until it works.

Looking at the Questions

Do You Know How to Build the Technology, or Will You Outsource?

If you are going to develop your business offering yourself then you will need to be an expert in whatever it is you do. Also, you will need a lot of time to work for very little or no money in the beginning. Outsourcing will free you up but cost a great deal more. How much time and effort are you willing to invest in this business? If you take a look at the project and see that it is going to take more than you are willing to give, consider this unfeasible.

Don’t partially commit to something that’s success will depend on your full time and attention. Don’t partially invest in something that requires more. In business 50% investment does not equal 50% of the desired results. Often times it equals 0% or worse, wasted time and a load of debt.

How Many Devices Will You Need?

Its important to know what sort of starting inventory you are going to need. You don’t want more than you can store or sell, but too few means missed sales and potential life long customers.

Free cash and free cash flow is vital to a small business, especially a startup. Having all your funds tied up in inventory is a common mistake and one that’s cost goes beyond storage fees. Having cash on hand can mean payroll is made, the lights stay on, and your ability to operate another day. In other words, cash on hand can be the difference in having a business or closing shop.

Once you have determined your beginning inventory needs you may find that the cost is greater than the funds you are able to secure. Here you may decide that the business is not a possibility at this time, or you may consider a “soft opening”. Doing so will allow you to open to a select customer group, limited audience, or open with the premise of “while supplies last”. This will allow you to start with a significantly lower inventory and “test the waters” in a way.

How Will You Fund the Project?

There are many options to funding your business. Some choose to save up the money themselves while others pursue investors or loans. There are pros and cons to each, but however you get your funds that money is expected to be returned with interest.

Lenders and investors generally want to know a handful of things before they are willing to issue any capital:

  • What are you selling?
  • Who is your target market?
  • How will you generate income?
  • What return do you expect?
  • What is your breakeven point?
  • When do you expect to make a profit?
  • Do you have experience in the industry?
  • Do you have business experience?
  • Who will manage the business & What are their credentials?
  • What is your exit strategy?

I’ll be going over how to answer most of these as I continue through How to Start a Business You Love

If you can’t find a way to obtain funds then your business is over before it began in most cases. However, you may be able to work doing freelancing in order to put back some extra cash while building your connections and experience and start your official business at a later date.

Is There a Demand for the Product/Service?

If the answer to this is no, then that’s pretty much the end of things. You could try to create a demand, but this is extremely difficult. It has been done before, but it takes a great deal of time, capital, and for lack of a better term, luck. You will be much better off shifting or altering your offering to serve some sort of market.

If there is a demand for the product your next question is where that demand lies. Is it in your country, an online market, or it local?

How Will You Deliver to Your Market

If there is a demand but it is beyond your ability to connect your products with those who desire them, you have no market. If your target market lies within your ability to deliver your offering, then you are in a good position.

At this point you need to figure out if you will deliver your Cat glucose monitors yourself or ship them? Will you use a freight carrier service? Would you package the monitors yourself or hire staff to do so?
Much of this comes down to time and money. Remember, hiring out costs money and you will need to make sure your margin is high enough to cover labor costs. On the other hand, doing it yourself may take away from other important activities that could be needful for growth. This can be a real balancing act and requires a good deal of deliberation in finding the right solution.

How Will You Get it to Stay on the Pet?

Obviously you’re probably not working on a device for diabetic cats, but this is still a relevant question. What I’m asking you to think about is basically this- How well will your product fit the clients needs, and what are the possible issues? Will your device “slip off”?

If you have something people want, but your product, service, delivery, or customer service are lacking for a customer then you likely won’t have that customer for long. If that’s the case for the majority of your customers, then your business will be short lived.

Put yourself in the customers shoes and find all the ways things could go poorly from their perspective and work to solve them before they happen. Being proactive is exponentially more cost efficient than being reactive.

Can the devices survive long term wear and tear/weather?

Similar to the previous, your product needs to be one of quality. If you bought a toaster today and it burned out next week would you be interested in buying from that store or brand again?

Maybe they could win you over by exchanging for another toaster, but lets say that one lasted no longer than the first, would you still buy from them?

The same principle applies to whatever your product is and especially services. Imagine you go to a dentist and their service is terrible. They pulled the wrong tooth and forgot to numb your mouth to boot. That will make for one interesting yelp review.

If what you have to offer isn’t worth the price, customers will soon spread the word. You may last for a short time, but as a whole that business model is not viable.

Are there ethical or medical hurdles to overcome before its rolled out?

Various industries run into issues with certifications or license requirements. Of course, something being developed that touches in the medical field would have to go thorough rigorous testing and various quality controls as so forth. Many other, more common small businesses face other challenges.

For example, restaurants face health inspections and have to have food service certificates in many states. Additionally, there are rules regarding seating and facilities in many cases.

If your business requires a license or other criteria you don’t meet, then it may not be feasible just yet. You may try adjusting your business model to avoid actions that would trigger those requirements, or simply invest in yourself so that you are able to meet them.

Your Job

At this point you’ve found an idea you’re passionate about and want to monetize and you know you can connect with your audience. You’ve questioned it to iron out the details to find out if it can survive as a business. You’ve looked at what it is you are offering and how much it will cost to develop or purchase, who will be performing the work, inventory needs, funding, demand, and possible issues or regulations.

You should be well on your way to developing a business you love. Next time we will look at costs associated and developing a break even point as well as a target profit.

Remember to subscribe to make sure you don’t miss out on learning how you can start a business that you love!

How To Start a Successful Business You Love

Your First Steps and Where to Go from Here

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All businesses start with an idea. Some are ideas are simple and some complex, but the successful ones solve a problem. Sometimes it’s a problem you didn’t know you had. Ultimately, as long as your business adds value to the lives of consumers that’s what matters.

An Idea is key, but you need more than just an idea. You need passion as well. If you find a product or service that sells but its something you hate, you’ll never be as successful as you could be.

Your idea should be something you care about. Ideally it will be the solution you’ve been looking for. For example, you really wish there was a bowling alley in your town because you love to bowl but you hate driving to the next town over to bowl at their run down alley.

Examine Your Idea

Starting a bowling center in your town doesn’t guarantee success, but it does guarantee your interest. You’ll need to tell people about it, be excited and get them excited too. You’ll need to take everything about why it solves your problem and turn that into the “why”. As in “why would people spend their money here”. That is all business is, solving problems in exchange for money. The thing is, money solves a lot of problems. So your job is to identify why the solution your offering is more worthy than another solution to another problem.

To put it simply. I’ve got 99 problems and money would solve most of them. I have enough money for the big ones- shelter, food, clothing and some left over. Lets say the remaining problems are minor, they are things you want but don’t have. They fall into Entertainment, Travel, Goods & Services, Charity. What is going to make what you are offering more appealing than satisfying the consumers desire for something else? Your passion may make the difference.

Trust In Your Business

In order to be successful you need to know your industry, know your customer, and connect with everyone involved. That may seems a little extreme, but its true. Relationships are key to everything in business, especially where marketing is concerned.

No one wants to buy from someone they don’t have any trust in. In fact, nobody really wants very much from someone they don’t trust. For all I know there really could be a Nigerian prince out there trying to give me $10 million. I will continue to miss out because I don’t trust the emails or whoever may be sending them, so they continue to go to spam.

Now you may not care if you trust your customers, but if you’re a supplier you might. Trust allows you to work on net terms instead of cash. It also allows you to build relationships and be informed of new deals you can then pass along to the consumer.

Basing your idea around something that you love helps you to quickly build that trust. You know your product and you are thrilled to share it. You’re not a sketchy used car salesman trying to pawn off a lemon when you care about what you’re selling and people can tell.

Developing Your Business

Once you have your idea you need to decide if its something that can generate revenue. As mentioned above, why would someone pay for what you are offering? Once that question has been answered your left with the task of making sure your expenses are less than the revenue.

The easy part is finding something you’re passionate about and selling it. The hard part is making that turn a profit. For that you will need to determine how you will deliver your offering to your market. You’ll need to identify your costs and margin by asking yourself questions like “do I need an office?”, “will I hire employees?”, “will I need storage?” and so on.

You’re on Your Way

For now, focus on identifying your idea. Think about how you can do things differently and add value that others don’t. Develop your concept of how you will get your product or service to the market. Above all, make sure its something you want to do for the rest of your life. You will pour countless hours into your business at the start with little financial reward, but if you do it right you will likely set yourself up for financial success in the long run. You can have a business that will last that you’re proud of and love.

I’ll be continuing to post the step by step journey on how to start a successful business so don’t forget to subscribe! I’ll be covering everything from financials to marketing

For a complete overview check out How to Start a Business.