There it was last week: the Blue Screen of Death. I freaked out. My computer was down for the count and I couldn’t bring it back. So off to the repair shop we went. By the time it was fixed (data transfers, larger hard disk inserted, rush fees) it cost me over $600. Holy Crap. (Is crap every holy?)
This is the type of expense that would end up on a small business owner’s credit card faster than you can say “For everything else there is MasterCard.” It’s a legitimate business expense after all. And it is tax deductible, of course. But I work with tons of business owners who are carrying too much debt—debt that didn’t come from “investing” in their businesses, if you know what I mean. Drag drags you down. It is hard to earn what you’re really worth when a ton of money is going out the door servicing your debt! It doesn’t matter how much you earn. It matters how much you keep.
How do I avoid nasty credit card debt in my business? I have a “five percent fund”. At the end of every month, I count up my total revenue (the total amount of money that came I into my business) and I multiply by 5%. Then I transfer this amount into a savings account attached to my business checking account. I use this for business “periodic expenses”. Periodic expenses are all those irregular business expenses that hit you from time to time. Some we know about: yearly membership dues and travel for business conferences. Some we don’t know about: the Blue Screen of Death. A sudden advertising opportunity. These are the type of expenses that reek havoc on a business owner’s bank account. The beauty of a five percent fund is that it is a percentage. If I have a great month, five percent is a larger chunk put into savings. If I have a down month, five percent is not that much money. But the point is this: I was able to pay the $600 periodic expense and not put it on a credit card. I just used my business debit card and transferred the money out of savings. (If you use a credit card, than you just transfer the money back to make the payment.) Beautiful. Besides, debt really sucks.
Great advice. With self employment comes both freedom and risk. This “five percent fund” you speak of is a great idea!