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Why It’s Critical to Save Money in Business and How to Do It

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Setting Up a “Rainy Day Fund” for Your Business

 

Currently it is common for people to spend everything they earn and not save anything for future investments or emergencies. For the most part, as a society here in America we have become comfortable. We have forgotten how important it is to save money.

There have been times through out history when things weren’t good financially, i.e. the Great Depression of the 1930’s. Enough time has passed since then, that for most people it’s become a distant memory. If you have ever talked with someone who went through the depression or a similar experience, saving money was more than something that needed to be done, it often was the difference between life and death.

As reported in a Market Watch post* from December 2015, approximately 62% of Americans personally have less than $1000 saved and 21% don’t have any savings. Businesses aren’t doing any better and it’s every bit as important. Part of a good business financial plan includes saving money for those irregular and unexpected expenses.

Just like in our personal lives, in business we get busy with the process of daily living. We work hard at the normal operation of the business and we neglect to intentionally plan for those “rainy days”. Things like; equipment maintenance and repairs, building maintenance and repairs, quarterly and annual taxes, irregular payments, etc.

When I started doing construction work I learned the skill of building from some of the best craftsmen. When later I went into business for myself I thought I knew everything that I needed to be successful. The problem is that while they taught me how to build a solid, well built structure, they neglected to teach me how to build a business that way.

Early on in my business career one of those business building lessons learned the hard way, was the importance of saving money.

I was working hard to keep construction moving forward. The material figured, ordered, and suppliers paid. The subcontractors and employees organized, having what they needed and paid. Things were going well and there was even some money left over. So, naturally I spent it. Then it happened…the accountant showed me how good my year was by telling me how much I owed in taxes. How was I going to pay them? I didn’t have that kind of money. What was I going to do? I was going to have to make payments. Just so you know, tuition to Hard Knocks University is high.

That’s why over the last 35 years of learning lessons the hard way I designed and developed a system to help me avoid pitfalls. I needed to find a way to separate money that would be needed later. How was I going to do it? Several years ago, my wife and I found out about Dave Ramsey and his Financial Peace Program**. It is a program that teaches you to, “Live like no one else, so that later you can live like no one else.” The very first lesson he teaches is “Super Saving”. It is a common-sense approach to saving money and the reasons it is important to do so. This was great for my personal finances but wasn’t an exact fit for my business.

So, using the basic principles of Dave’s plan for personal savings I began working on a way to do the same thing in my business. The “Savings Transfer Sheet” is the result and a small piece of the bigger Business Blueprint puzzle. The “Savings Transfer Sheet” is a simple spreadsheet that with a few basic entries will give you the dollar amount that needs to be separated from any received gross dollar amount. That separated money can then be put into a different account or turned into cash and put in a safe. This way that saved money won’t accidentally be spent on the wrong thing.

After talking with a lot of different business owners I realized that every business could use a solution like this. That’s why in the next few weeks we will be making available a free downloadable “Savings Transfer Sheet” including instructions.

 

Next week I will go into more detail about the “Savings Transfer Sheet” and how it can help you solve your business money problems.

 

*https://www.marketwatch.com/story/most-americans-have-less-than-1000-in-savings-2015-10-06

**https://www.daveramsey.com/

Three Ways Heat Moves

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If You’re Not Careful Your Money Will Go With It

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With the temperature on the thermometer hovering near the 100-degree mark over the last few weeks, I’ve been thinking about the need for keeping the outside temperature out and the inside temperature in. This is more relevant if you live in a home that is 40 years old or older. A home built before the mid-seventies it more likely to be effected by the outside temperatures. Not enough insulation, single pane windows and air infiltration are all issues that may need some attention.

 

Understanding how heat moves in and out of your home can help you determine what projects to consider and which ones should be first. A basic misunderstanding is that heat flows upward. Although hot air rises because it is less dense than cool air, heat is unaffected by gravity and flows in all directions. For example, if you apply a heat source to the center of a metal block, the bottom will get just as hot as the top and sides. This heat spreads in all directions and at the same rate. When the air in an attic or fireplace gets hot it rises the air begins to rise. This creates a draft or natural up flow. This is why vented ridges on roofs work so well.

 

Heat moves through your home in three different ways. Each of them needs to be considered and each will require different methods or products to minimize this heat transfer.

 

  • First is conduction, which would apply to the metal block example above or the handle of a cast iron skillet on your stove. This is how most of the heat moves through the walls, ceiling and floors in your home. The temperature difference on either side of a wall determines how fast and which direction the heat will flow through it. The higher the R-value of insulation in that wall the slower the heat transfer.
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  • Convection transfer is similar to conduction, but occurs in fluids and gases. When it is windy outside, cold air increases the loss of heat from the wall more than if the air was still. This is the “wind chill” factor you hear weather forecasters talk about. Convection ovens use this form of heat transfer to cook by moving hot air. This is why they cook faster than conventional ovens.
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  • The last type of heat transfer is radiation, which is probably the most difficult to understand. Radiation does not need a transfer material to move heat. This is how the sun warms the earth though millions of miles of empty space or how the top of a steak gets seared in the broiler. Radiant heat transfer is generally more of an issue in the summer, but shouldn’t be ignored during the winter. Radiant heat is not blocked by standard insulation, but rather by reflectivity. An example of this would be the way dark colors of roofing, siding, etc. absorb heat and light colors reflect it.For example, if your home has a particularly cold wall on the northwest, there is likely both conductive and convective heat loss to blame. Adequate wall insulation and high quality windows and doors in the wall would be the best place to begin. Also wind breaks, i.e. evergreen trees or privacy fences, can help. There are several small ways to make improvements, including new weather stripping, filling voids in foundations with spray foam, sealing around electrical and plumbing openings, etc.NOW would be a good time to give some consideration to these issues. Investing in these kinds of home improvements can help keep you warmer in the winter, cooler in the summer, as well as provide an economic payback with lower utility bills. Do what you can to keep the money in your home and minimize transferring it with the heat.
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