Every week as SmallBizLady, I conduct interviews with experts on my Twitter talk show #SmallBizChat. The show takes place every Wednesday on Twitter from 8-9pm ET. This is excerpted from my recent interview with Jean Chatzky. Jean Chatzky is the financial editor for the Today show on NBC, thebest-selling author of 8 personal finance books (including her most recent, Money Rules: The Simple Path To Lifelong Security) and thehost of Money Matters on RLTV. She specializes in making money make sense. And, as a small business owner herself, knows what it takes to secure your own financial life at the same time you’re building yourbusiness. You can find her on Twitter @jeanchatzky andFacebook.com/JeanChatzky.
SmallBizLady: What is the biggest mistake small business owners make with their money?
Jean Chatzky: Without a doubt, it’s betting it all on the business – and leaving little in reserve for yourself and your family. Look, as a business owner myself, I know what it’s like to fall in love with your own idea. I also know what it’s like to invest in some of those ideas and see them go nowhere. The point is that you must protect yourself by spending at least a little time and effort on your own finances. That means having an emergency fund before you launch your business, saving for retirement (small business owners don’t have the benefit of a 401(k) or employer match, but they can take advantage of other options, like a Roth IRA and a Solo 401(k), which will allow you to save up to $17,000 as an employee – you’re considered your own employee – plus an additional 25% of your self-employment income, up to a maximum of $50,000 a year). You should also be keeping debt to a minimum, and making sure you have the proper insurance in place – health, life, and disability.
SmallBizLady: How much money do you need to start a business?
Jean Chatzky: It’s hard to say, because it varies so widely depending on the company you plan to start. This goes back to your business plan and the importance of doing a cash flow projection. SCORE has a template to get you started on their website. You certainly want to run lean and mean at first, so look for resources that can save you money. That might mean negotiating to use a restaurant’s commercial kitchen when they’re closed instead of opening your own, or taking on an intern from the local community college, or swapping services with another small business.
SmallBizLady: What do you think of the idea of moonlighting while you still have a day job?
Jean Chatzky: I love the idea of moonlighting, and it’s something I recommend to people all the time. Dip a toe in the water, test your idea. It takes the pressure off – because you have a steady stream of income from your day job – and it allows you to take things slow. And, of course, you have your job to fall back on if things don’t turn out the way you expected.
SmallBizLady: Let’s talk about your personal credit rating. Why is it important?
Jean Chatzky: Because if you need to apply for a loan, one of the first things the lender is going to look at is your personal credit history. You want to make sure that is it top shape before you start the application process. If your business is established enough to have a credit history, they’ll look at that as well.
SmallBizLady: Okay, if it’s so important, how do you maintain it – or even improve it if it’s not so fabulous to begin with?
Jean Chatzky: You maintain it by managing your debts wisely. That means paying bills on time, keeping your total debt load low, responsibly managing a mix of credit (both revolving – like credit cards – and installment – like mortgages and car loans), and not shopping around for credit too often. The best way to improve your credit is to give it time and stay on the straight and narrow. Pay your bills before they’re due and pay down balances, and you’ll start to see improvement in 18 – 24 months, as older blemishes fall to the back and your new clean record takes the stage.
SmallBizLady: And if it’s not so great, where are some places you can access capital?
Jean Chatzky: One popular idea these days is crowd funding, which allows you to get a little bit of money from friends and family – and strangers – and cobble it together to create a start-up fund. There are a couple good services out there – Kickstarter is probably the place to start. Keep in mind that this is an all-or-nothing fundraising strategy – in other words, if you set a goal and don’t reach it, all contributions are returned. So be realistic. You might also try a micro loan, which is a small, short-term loan. Check with your town or city’s economic development council.
SmallBizLady: How should you go about cutting expenses in your life and your business?
Jean Chatzky: When people ask me how to cut expenses, I always recommend tracking their spending as the first step. This works in small businesses, too, and it’s likely even easier because you’re already keeping close tabs on expenses for tax time. Write down every penny you spend for two weeks or a month, so you can see where your money is going. That will give you a road map to what you can cut out.
SmallBizLady: How do you know when it’s time to outsource and hire help?
Jean Chatzky: I think the most successful business owners capitalize on their strengths and outsource their weaknesses, so being able to recognize those weaknesses and cry out when you need help is key. But there’s also the element of affordability, and when you’re just starting out, you may have to get creative. That can mean enlisting your spouse or teenage kids for support, hiring an intern or two from the local community college, or bartering.
SmallBizLady: Is bartering alive and well?
Jean Chatzky: It is alive and well, absolutely, and I think it only saw resurgence during the recession. Bartering is great because not only does it save you money, it allows you to preserve your cash, and as any small business owner will tell you, cash is king. Even if you think you don’t have anything to offer, you likely do. Restaurants can offer free meals to a law firm for business meetings in exchange for representation. An advertising firm can offer free design work to an IT firm in order to get computer support. Dentists and doctors can swap care. We all have something to offer.
SmallBizLady: Any tips for all of us in buying our own health insurance?
Jean Chatzky: One thing many small business owners may not know is that if you have at least two employees on the payroll – and that can include yourself – you may qualify for small business group health insurance, which can save you a bundle and allow you to qualify for some tax credits. I like to direct people to ehealthinsurance.com – they have an entire section on small business health insurance. And if you don’t have any employees, you can find an individual policy through that
site as well.
SmallBizLady: Jean, a lot of people look at you and say – how did she get on TV? If I had a platform like that, my business would do really well, too?
Jean Chatzky: I actually think that is a great question – so much of brand building is really platform building these days. My story is two-fold. I was definitely in the right place at the right time. I was at a magazine called SmartMoney (they just sadly folded the print edition) when the personal finance revolution was starting in America. It was 20 years ago. People were getting 401(k)s for the first time. They had to manage their own investments and health insurance and there was a need for this information. My association with this magazine got me on television.
SmallBizLady: Ok, so what has kept you on television all these years?
Jean Chatzky: That’s the second fold. People will only keep you around as long as you are useful – to them – and on television you are only as good as your last story, your last idea. So if you want to be on television or on a particular website, if you want publicity, don’t think about YOU. Think about how you can be useful to THEM. What is the mission of that website? What kind of information are they in the business of dispensing? And how can you be helpful in providing it? I am an expert on personal finance, yes. But at my core, I am still a reporter. I know that there are new investments and types of mortgages and car and student loans, etc. being rolled out all the time and it is my job to know what these are and to be able to explain them to the general public. That’s how I got on the air. More importantly, it’s how I stay on the air.
SmallBizLady: How do you know when it’s time to throw in the towel with a struggling small business?
Jean Chatzky: That’s a hard one, because it’s emotional as much as it is financial. It’s like leaving a dead-end job or relationship. I think you need to take a clear look at the bottom line and the momentum. Is this a short-term slump, put on by outside forces, or a fundamental issue with your business plan? Can you see a light at the end of the tunnel? Are other, similar businesses suffering in the same way? How is this impacting you and your family? Are you missing out on opportunities because you’re struggling to keep this defunct business alive? Finally, I’d also consult with a small business counselor, like one of the folks at SCORE, just to get an objective point of view.
For more tips on how start or grow your small business subscribe to Melinda Emerson’s blog http://www.succeedasyourownboss.com.