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You're listening to Carrie Letts's Financial Survival
Network where you get valuable information you just

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can't find anywhere else to thrive in
today's trying times. You need the Financial

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Survival Network now more than ever.
Go to Financial Survival Network dot com and

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get your free newsletter in gift Financial
Survival Network now more than ever, and

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welcome. This is Financial Survival Network. I'm your host, Carrie Lutts.

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Well, we got a recession.
If it's not here already, it'll be

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here very shortly. And basically,
what do you do to prepare for it?

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If you are a business owner,
how do you get ready for what's

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about to hit? And Grant Let's
says with us the grant, you're a

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financial planner and you work with the
small businesses in money management, in retirement

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planning, in cash flow management,
etc. So let me ask you a

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question. Is the recession coming?
You know it? Probably you know you

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as you as you put it.
You know we might be there already if

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you look at all the numbers.
We're not quite there, but things seem

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to be slowing down a little bit. What we're doing with our clients at

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this point and just to provide our
listeners a little bit of context. I

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run a financial planning firm. We
work with business owners to help them optimize

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cash flow, reduce taxes, and
invest prudently. And so for that demographic,

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a lot of small businesses really struggle
with how to handle their cash,

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both in good times and bad.
And I think a framework that really works

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well for business owners in any economic
environment is probably applicable now. And regardless

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of whether we're headed into a recession
or not, or whether we're already in

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one or not. I think everybody
needs a good framework for handling cash,

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and I can describe what that is
if that's helpful, but from my perspective,

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the how people handle that is kind
of irrelevant. You need an operating

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model that's going to work when the
economy is working in your favor and when

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it's not, because that's simply something
that's not in our day to day control.

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So a lot of this comes down
to how your business is organized.

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If you have a pass through entity, either a sole proprietorship or an LLC

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or an S corporation, it doesn't
matter from a tax perspective whether cash in

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your company's bank account stays in the
bank account at the end of the year,

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or whether you take it out and
pay yourself. And one thing that

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I think a lot of small businesses
struggle with is when do I take cash

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out, how much do I pay
myself? How much do I leave in

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the business account for operating purposes?
And I think of it kind of as

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an emergency fund. The financial planning
one on one for your personal finances,

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you need to start with a little
bit of cash in his savings account available

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to you for a rainy day,
so that you're not compelled to dip into

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your retirement accounts or your investments at
an inconvenient time when the market is down.

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The same goes for your business,
and I think most businesses should probably

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shoot for somewhere between three and six
months worth of operating cash. So,

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if you pull your profit and law
statement from QuickBooks or your bookkeeper, and

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you look at your ordinary monthly operating
expenses, how much does the business need

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to survive? Multiply that by somewhere
between three and six based on your comfort

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level, that's the amount of cash
you ought to have in the business.

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And so the kind of long winded
way to get back to your question carry

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is is I think i'd start with
how much cash do you need for your

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business the emergency fund, and if
we're expressing it as a function of your

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monthly operating expenses, if you're concerned
about the fact that we might be headed

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into a recession, if your ordinary
emergency fund is three months worth of operating

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expenses, well then you might let
that swell to four or five or six

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in preparation of revenues drying up a
little bit. Obviously, the other things

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you can look at are reducing those
operating expenses or maybe changing your contracts with

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vendors to allow for you to pull
back on those expenses a little bit if

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times could really get tough. But
really, I think the core framework ought

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to revolve around how much cash do
you have in the bank. If you

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have more than that amount of three, four or five six months worth of

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cash, that's when you think about
pulling it out into your personal bank account

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and doing something else with it.
Right, And when it comes to like

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receivable management, you know recessions coming, you know there's potentially going to be

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a cash shortage, and it's going
to be harder for your clients to pay

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you. So maybe it's a good
idea to put in incentives to get paid

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up front, to limit your extension
of credit to all only those who are

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the most credit worthy, and that
can help you get through it as well.

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Right, A great point. Yeah, this varies a lot by industry.

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You know, receivable management is more
important in some industries than others.

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But yeah, I think we probably
have to lower our expectations of how much

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of those receivables you'll be able to
collect, and the more cash upfront that

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you can get, the better.
And if the effect comes from some kind

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of an incentive program, maybe you
reduced your prices a little bit for people

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who are willing to pay all up
front, or your only extending credit to

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the most credit worthy the organizations.
That that's another great avenue to consider,

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right all right, So where do
you think most business owners go wrong?

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to throw now more than member.
A lot of it has to do with

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the cash management, a lot of
it has to do with tax planning in

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their own personal financial planning. So
the biggest, the biggest mistake or the

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big misconception I see is proprietor or
entrepreneur goes out and starts this business and

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they assume that if I pour everything
into the business and can make it a

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success, by definition, I will
be financially successful myself. That definitely helps,

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right. Entrepreneurship is a wonderful lever
of wealth building for a lot of

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people. It's a great way to
become financially successful, but it is not

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an inevitability. You still have to
do the work and put some money away

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on your own diversify out of the
business in order to be financially successful yourself.

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So that's over and over and over
again. That's where I see people

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go wrong, is they put their
own personal financial planning for themselves and their

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families on the back burner because they
think that if I just focus everything on

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business success, throwing cash into the
business, and if I can just make

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that part work, then I will
inevitably, inevitably be financially successful. And

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that's just not a guarantee. And
I've made that very same mistake myself,

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grant and so. But it's hard
to convince people you're on a mission.

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You're going to build your company and
once it succeeds, then you're going to

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benefit from all the trappings of success. But you need to plan for success,

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don't you Exactly you speak from experience. Carry's I'm not saying that people

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should not focus all their attention on
building the business and making it successful,

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because that will be a wonderful lever
of your future success, but just keep

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it in the back of your mind
that that's not the only thing that has

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to happen. And at some point, when you get some momentum and make

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that start to make that thing profitable, you're gonna have to put some more

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mechanisms in place and pay attention to
your own personal objectives to make sure that

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you're on inadequate trajectory. And oftentimes, some really great mechanisms for that are

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a qualified retirement plan in the business. You can set up your own four

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oh one K. It's a great
benefit for employees, it's a great retention

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tool, it's a great way to
put money away, a tax deferred basis.

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Other benefits that you can put in
place in the business that will benefit

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yourself that an ordinary W two employee
you may not have access to. You

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There are a lot of avenues,
there are a lot of arrows that you

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have in your quiver. And I
think that's exactly right. You know,

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you do need to focus all your
attention on making this thing successful first.

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Just remember that there's other stuff you
have to do at some point along the

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way, all right, so you
have the plan for success. I mean,

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I think that really is key,
and that means different things to different

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people. In your travels. Here, what's the biggest mistake so one of

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your clients make. I've seen people
make six figure tax mistakes in the past

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with regard to you know, specific
retirement plan rollovers, putting the wrong amount

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of money in the wrong account.
There are a lot of technical things that

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will tend to screw up that cost
them a lot of money. I've also

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seen people not put cash into the
company four one K plan when they were

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compelled to by the way it was
set up, and so they have to

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pay a bunch of back penalties and
taxes, and that's a huge cash flow

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suck. If you've if you head
down a wrong path. Let me put

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it this way, if you make
a commitment in the business to establish something

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like a four oh one K or
a simple IRA, you're making a commitment

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to putting in a little bit of
money on behalf of your employees. And

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if you forget to do that or
get headed down or wrong the bad path

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where you don't have the cash to
do so, that can compound and really

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run you into trouble. And I've
seen a number of those cases over the

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years, and it's cost people multiple
six figures. If you do it wrong.

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Yeah, that can be costly.
All right, great, well,

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we really appreciate your coming on.
Can you just tell us your website how

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we connect with you on the web
and find out more. Sure, Yeah,

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we're all over the place. You
can check out three Oakswealth dot com.

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That's spelled out. It's our financial
planning firm. I have a blog

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I write on it's called Above the
Canopy Above the Canopy diet Us. And

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we've I've got a podcast where we
talk about this stuff as well, called

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Grow Money Business. So google any
of that stuff and we'll pop up.

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Excellent. And if you've got a
question for a Grant, shoot me an

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email k l at carry Lutz dot
com. Make sure you go over to

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the site to the show notes.
You can click the link and you'll get

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right to Grant's site to three Oaks
and Grant. Appreciate you coming on.

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We'll talk to you again soon.
Thanks for having me, Carrie. That's

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great, Thanks for listening to Carrie
Lutz's Financial Survival Network, your solution to

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00:11:43,480 --> 00:11:48,960
today's trying times. For the latest, go to Financial Survival Network dot com.

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00:11:48,960 --> 00:11:52,799
Financial Survival Network now more than ever