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6 Things About Money You May Not Think About – But Should

Too often, entrepreneurs fail to pay adequate attention to their personal finances, which often are interconnected with their business.

Jane Porter

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Here are six financial issues you might not have on your radar, but should keep in mind:

1. Protecting your personal credit rating. Often, small-business owners don’t consider how their company can affect their personal credit rating, says Bill Collier, author of How to Succeed as a Small Business Owner … and Still Have a Life (Porchester Press, 2006).

For example, if you sign a personal guarantee when buying from a vendor, you are liable should your business be unable to pay within the typical 30-day term. If you don’t come up with the money yourself, your vendor can file a report with one of the credit rating agencies and damage your personal rating.

“Keep yourself from being personally obligated to the business’ debts as much as possible,” Collier advises. If you are worried about making payments on time, seek vendors who don’t require you to sign a personal guarantee and are willing to extend payment deadlines to the business.

2. Diversifying your portfolio. Some small-business owners gravitate toward personal investments in companies in their same industry, says J. Jeffrey Lambert, a Sacramento, Calif., financial planner and co-author of Ultimate Guide to Personal Finance for Entrepreneurs (Entrepreneur Press 2007).

That lack of diversity can make an entrepreneur even more vulnerable to an industry downturn. For example, the owner of a technology business may like investing in other tech-related companies, but both his business and his portfolio could face many of the same risks.

To protect your wealth, Lambert recommends aiming for no more than a 5% investment in any one company. Furthermore, consider broad-based mutual funds that are not concentrated in your industry and include a mix of stocks and bonds, large and small companies, and international as well as domestic investments.

3. Choosing the right business entity. Be it a partnership, sole proprietorship, S or C corporation, the choice of business entity will affect your personal finances, says Jill Swan, a certified public accountant at Staszak & Co., a California-based accounting firm.

It’s wise to investigate your particular state’s laws, as well as seek an accountant’s advice about the best type of business entity for you. In California, for instance, you are required to pay a minimum $800 tax even if your business made no money.

This minimum tax rule, which exists in other states as well, means that if your company generates no income in a given year, you must use your personal finances to pay the fee. On the other hand, if you register as a sole proprietor, your income is reported in a Schedule C, and you won’t pay a minimum tax. But as a sole proprietor, you would be held personally liable if your company faced litigation or creditors demanded payment of business debts.

4. Discussing finances regularly with your spouse or partner. Small-business owners can get so wrapped up in their company that they make the mistake of leaving family finances completely in the hands of their spouse or partner, Lambert says. If you and your partner are not talking regularly about your personal finances, you should set a date on the calendar once a month to make sure you confer.

“It takes a lot of energy and focus to manage a business; sometimes it’s easier to let our personal finances slide,” Lambert says. “If you just make it a priority and look at the numbers every month, you can make a lot of progress.”

5. Keeping personal credit cards out of your business. While a personal credit card may seem like an easy source of cash for your business, you can quickly incur high interest costs, says Steve Gustafson, principal at Abeles and Hoffman, a Saint Louis-based accounting firm.

Unless your business is very new or you have a poor credit rating, a better option is a loan from a small bank at a much lower interest rate than most credit card issuers charge. While it may take extra work to secure a bank loan, it will help you establish a solid credit rating for your business in the long run.

6. Aligning your salary with your business cash flow. Small-business owners often don’t adjust their own salaries to match their company’s fluctuating cash flow and end up borrowing money to pay themselves, Gustafson says.

“Taking borrowed money and turning it into taxable income is not a good idea,” he says. Instead, you should be diligent about matching your own pay with the cash flow of the business and taking home less when your company’s cash flow is lower.

Jane Porter is a freelance writer and editor based in Brooklyn, NY. Her work has appeared in publications including BusinessWeek Magazine, The Wall Street Journal, Men's Health and The Chronicle of Higher Education. She has a bachelor's degree in English from Brown University as well as a masters of fine arts in creative writing from Warren Wilson College in Asheville, N.C.

Personal Finance

(Infographic) The Financial Advice Millennials And Gen Zers Want To Know

Having a grasp on your financials is tricky, but it’s crucial if you want to be successful. And that starts with getting the right advice.

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Whether it’s saving for retirement or paying off credit card debt, money management can be a challenge. Of course, different people have different concerns – and that often comes with age. While a 60-something baby boomer might be organising their savings for retirement, your 20-something millennial might be focused on paying off student loans.

In a recent study, financial intelligence company Comet surveyed more than 1 000 people to uncover the top financial concerns of various age groups, as well as the financial advice millennials and Gen Zers want to know and what they hear instead.

Overall, saving for retirement was the top concern across all age groups, with saving for an emergency and affording monthly bills following in second and third. However, it’s no wonder these are some of the most pressing worries – according to the research, 23 percent of people admit they don’t have a savings account, and 43 percent reported not being on track towards their retirement goals. Perhaps that’s because they didn’t hear the right advice growing up. At least that might be the case for Gen Zers and millennials.

According to the research, these young people want to learn things such as how the stock market works, how to manage an investment portfolio, how to invest in real estate and how to build credit. Instead, they’re simply told how to create a budget, save for retirement and pay credit card bills in full every month.

Related: 7 Critical Things Your Financial Advisor Must Meet

Having a grasp on your financials is tricky, but it’s crucial if you want to be successful and comfortable. To learn more, check out Comet’s infographic below.

1532099434_2-cents-worth-infographic

Related: Financial Wellness Coach Nelisiwe Masango Shares Retirement Wealth Advice

This article was originally posted here on Entrepreneur.com.

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Personal Finance

14 Ways To Make Quick Cash On The Side

If you need money quickly, here are some solid ideas.

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Need to make some fast money on the side, whether it’s to pay off a credit card or to make your rent?

Keep in mind, making quick side cash isn’t about making a lot of money or getting rich. It’s about getting a shot of capital to help tide you over and put something extra in your pocket. However, some of these side-income ideas can build up your wealth over time. There’s many ways to accomplish this: By participating in the gig economy, the sharing economy, online sales networks, passive income techniques and more.

If you’re looking to make extra money in a relatively short period of time, check out these 14 slides.

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Personal Finance

Take Advantage Of Financial Democracy Made Possible By The New Stock Exchanges

Why should financial democracy matter to entrepreneurs?

Etienne Nel

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Because it creates a society able to afford products and services. Without it, even the innovative products and services that are entrepreneurs’ bread and butter will fail.

What is financial democracy, exactly?

It’s both the right and the ability of the (wo)man in the street and business people to make the decisions that affect their financial circumstances.

Financial democracy does not automatically follow political democracy. For almost 25 years after South Africa’s political transformation, the exclusiveness of our financial markets continued to deprive the vast majority of South Africans of the means to invest, save, and build wealth. South Africa has, therefore, never developed a retail stock exchange environment. So, it has deprived the majority of small and medium sized business of access to capital.

For entrepreneurs to truly flourish, they need a mechanism that easily and seamlessly connects the investor pool with every size of business. And, they need affordable ways to enter both the retail and institutional market.

In short, they need stock exchanges. Ones on which listing takes weeks rather than years, doesn’t break the bank for listing fees, and provides the shortest route to the largest possible potential investor base.

That’s not been possible in the stock exchange monopoly that existed for six decades. Now, it is.

What’s changed?

We now have four new stock exchanges. The resulting competitive environment will significantly reduce the cost of listing – and the cost for investors of buying and selling shares.

Instead of restricting share trading to people or organisations who already have tens of thousands of rands to invest or millions to spend on listing, by licensing four new stock exchanges, the Financial Services Conduct Authority (FSCA, formerly the FSB) has recognised that most financial decisions do not call for high levels of education.

Related: The Role Of Foreign Exchange In The Economy

Most people know how to spend their own grocery money. Most know that it’s better to keep their R1 000 monthly income in a coffee jar than spend R50 of it on bank account fees. People who can barely read and write are immensely skillful at manipulating air time deals to their advantage.

There is significant financial savvy in all social strata.

In the same way, although the mechanics of bookkeeping and accounting may be unfamiliar territory to many entrepreneurs, most have a clear understanding of the difference between profit and loss.

The FSCA has therefore enabled democratisation of the financial markets by enabling the broadest possible spectrum of entrepreneurs and investors to use stock exchanges to participate in and contribute to the economy – on their own rather than prescriptive terms.

How do you take strategic advantage of this democratisation?

  1. Base your business strategy on people’s instinct for making decisions in their own best interests. Trust financial decentralisation, such as one sees in crowd funding and in digital environments such as block chain, where people would far rather trust one another than institutions and governments. This is democracy innately at work in the financial environment and it’s accelerating organically as digital technologies give people more means and the confidence to help themselves – to information and opportunities. Ride the wave.
  2. Tap into people’s desire to innovate. Consumer organisations have proved that letting people interactively help them develop products is a powerful growth engine. Apply the principle by letting people grow your business by buying shares in it, giving you capital and themselves a platform on which to build wealth.
  3. Remember, the ultimate loyalty reward is equity.

Your financial democracy business plan

Look to list on an entrepreneurial stock exchange; one that was founded by entrepreneurs on entrepreneurial principles.

That means: A stock exchange that is already built on financial democracy and decentralisation. One that has, at its core, a single operational concept that keeps things simple for you, automatically gives you an immediate competitive advantage, and, ensures that no matter what your business needs in terms of attracting capital, the exchange can provide all the options in the same, consistent way.

What does such an exchange look like?

It has fintech capabilities. So:

It slashes your listing costs. It achieves this, among other things, by enabling you to populate an electronic prospectus, demonstrating your financial viability, and self publish.

It gives you control by having the granularity and agility to impose relevant governance right down to the individual investor. You get to decide the types and quantities of investors you want to attract. This also enables you to achieve black economic empowerment in perpetuity.

It leads the world by clearing and settling trades in T+0. No-one in the value chain has to hold large sums of money for days following a transaction. Small transactions become profitable. Investors don’t have to risk their life savings on a single large trade. A retail market is opened. An investment and savings culture is entrenched. The economy expands. Your business grows steadily.

It enables anywhere, any time trading via a mobile app that allows investors to see share value in real time. See economy expansion point above.

It integrates processes and procedures, simplifying them and ensuring rapid onboarding of issuers and, therefore, speed to market with new concepts and alignment with the digital economy.

It operates a principles-based regime. So:

It treats you, as an executive, with respect. It’s not prescriptive. It does not insist on excessive oversight, allowing the Companies Act to guide you to sustainability.

It does not attempt to squeeze your company into a pre-defined business or listings format. It recognises and works with your uniqueness.

It obviates the need for expensive specialist listings advisors.

It focuses on financial inclusion and access. So:

Shares can be bought and sold for no more than R1 000. See economy building point above.

Related: 27 Of The Richest People In South Africa

The new world of stock exchanges is integrated, synergistic, holistic, organic, self-fulfilling

Decentralisation of financial control, democratisation of opportunity leads to a whole new economy. One in which, for instance, a taxi operator can finance a minibus through a company in which his purchase gives him shares. A single purchase gives him two benefits: a vehicle on which to found his business and a longer-term investment in shares that he can trade. The funding company gains liquidity through access to a wider base of investors while being able to control who buys and sells and the conditions on which trading takes place. Increasing black equity in business becomes an organic, natural, self-perpetuating process.

Everyone wins in a decentralised, democratised financial market. And it’s the stock exchanges that drive the process.

As an entrepreneur, can you afford to ignore the acceleration that listing could give your business growth?

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