Common

Sense Finance
Common Sense Finance
Finance for Individuals and
Entrepreneurs
Sean Stein Smith
Common Sense Finance: Finance for Individuals and Entrepreneurs
Copyright © Business Expert Press, LLC, 2018.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means—electronic, mechanical, photocopy, recording, or any other
except for brief quotations, not to exceed 400 words, without the prior permission of the publisher.
First published in 2018 by
Business Expert Press, LLC
222 East 46th Street, New York, NY 10017
www.businessexpertpress.com
ISBN-13: 978-1-63157-986-8 (paperback)
ISBN-13: 978-1-63157-987-5 (e-book)
Business Expert Press Finance and Financial Management Collection
Collection ISSN: 2331-0049 (print)
Collection ISSN: 2331-0057 (electronic)
Cover and interior design by Exeter Premedia Services Private Ltd., Chennai, India
First edition: 2018
10 9 8 7 6 5 4 3 2 1
Printed in the United States of America.
This book is dedicated to my family, for their patience and support as this
book took shape.
 Abstract
This book addresses, from a conversational and hands-on perspective, the
implications of finance, financial literacy, and the importance of
understanding finance for both individuals and entrepreneurs. Finance and
understanding financial matters are the ones that drive the decision-making
process for businesses, large and small; but it is especially important for small
business owners as they attempt to build, expand, and develop their
businesses. As a CPA, member of the AICPA Financial Literacy Commission,
and a weekly columnist for Inc., it is clear that personal finance and financial
literacy is something that drives decisions and plans for both individuals and
organizations. Better informed people make better decisions. This book
addresses the multitude of financial issues faced by individuals,
entrepreneurs, and small business owners. Incorporating technology trends
into this text, resources, links, and additional information are integrated
throughout this text.

Keywords
entrepreneurs, entrepreneurship, financial literacy, personal finance, small
business
 Contents
Acknowledgments
Introduction
This Is Important
The Overview—How This Book Is Structured
Part I Financial Literacy, Education, and Health—What Is it and
Why Is it Important?
Chapter 1 Finance for Individuals
Chapter 2 Credit and Your Financial Team
Chapter 3 Key Financial Junctures and How to Plan for Them
Chapter 4 The Stock Market and You
Chapter 5 How to Start
Chapter 6 Putting Pedal to the Metal
Chapter 7 Personal Finance—The Takeaway Issues
Part II Finance for Entrepreneurs
Chapter 8 Financial Literacy for Business
Chapter 9 The Business of Strategy
Chapter 10 So Why Be Literate?
Chapter 11 Economic Literacy and Business
Chapter 12 Cost-Effective Strategic Planning
Chapter 13 Getting the Money Right
Chapter 14 The Checklist
Chapter 15 The Takeaways
How to Start
In Conclusion
Concluding Thoughts
About the Author
Index
 Acknowledgments
I would like to thank Dr Thomas Schaefer, whose expertise and guidance
have helped me for years. His review and analysis of this book, including the
questions and suggestions made therein, is very much appreciated and
resulted in a much-improved final product.
 Introduction
In a world that is increasingly volatile, competitive, and globalized, the
importance of having access to information, and using that information, is
essential. Financial concerns are important for national governments, large
organizations, and business executives; media outlets are blanketed by
headlines with financial ramifications. Finance, it appears, is everywhere and
impacts virtually every aspect of both commercial life (business), as well as
the lives of individuals. With so much information available, almost all of it
available for free, there are very few reasons to not use it to improve your
personal financial situation. People count calories, track steps, and exercise
consistently; financial fitness and health are not much different. Like anything
else, however, financial education, financial literacy, and financial health are
ongoing processes that require consistent effort and constant tweaking.
Additionally, and arguably more important as an increasing percentage of
the population engages in side hustles or other entrepreneurial activities, a
foundational understanding of business and business finance is increasingly
important. Understanding what finance means for an enterprise, how to
leverage financial information, and how to make the best use of
organizational information appear to be trends that will represent competitive
advantages moving forward. Resources and information available to business
include the financial and physical capital that have always been available.
Moving forward, however, and reflected in the changing business landscape,
it appears to be true that data, information, and making effective use of this
information form a resource to be developed and used by entrepreneurs. This
in turn, brings us to the core reasons as to why this book exists, and more
importantly, what I hope you will be able to get from reading it.
The reason behind this book, and why I wrote it to begin with, is to help
people access the volumes of information available to them related to
personal finance. As a CPA, advocate for financial literacy, member of the
American Institute of Certified Public Accountants (AICPA) National
Commission on Financial Literacy, and someone widely quoted and published
about financial literacy, my mission is to help make you better informed
decisions. A driving force behind this book, which covers the topics of
personal finance, financial literacy, and finance for small to medium size
businesses, is to help entrepreneurs and go-getters realize just how important
money management is to a business. The unfortunate truth is that many
people are dissatisfied with their financial life, and most new businesses fail
due to a lack of adequate startup capital or ongoing cash flow issues. What
makes the book unique, and will help it add value to you, both as an
individual and budding entrepreneur, is that I am focused on practical
solutions instead of theoretical conversations. Breaking down complex topics,
outlining some best practices, and discussing what I have seen as a CPA
provide you with the information and context you need to make better
decisions. So, let’s roll up our sleeves and get to work.
Better informed people make better decisions.
 This Is Important!
How many times have you been in a situation and thought to yourself that if
only you had planned ahead, or done a little more work in advance, that you
would be in better shape now? That same concept and mindset you have at
that moment should never be one that you associate with your personal
finances or financial planning. It does not really matter if you are thinking
about that credit card penalty you had to pay, or the fact that you have not
checked just how much you are paying for web-hosting, the effect on your
finances is negative. This stuff might not seem as exciting as watching
Bellator MMA, NCIS, The Flash, planning your next trip to Vegas, or reading
up on the upcoming Deadpool movie (this time with Wolverine?), but it really
is as exciting—here’s why. If you do not have a financial plan together, or at
least an idea of how you want to manage and plan out your personal finances,
how can you hope to do the things you want to do?
I don’t have to remind you what happens when people are not ready for
unexpected financial events or crises; if you are old enough to be reading this
book you are old enough to remember the crashes of 2008, 2000, and maybe
even the ones before that. Bad things are going to happen in the economy, the
job market, and in your personal financial life, and you have to be able to deal
with them as they happen. Vacations, movies, and going to World Series are
all great things that add some variety to life and make it fun, but you
absolutely must have the financial foundation in place in order to enjoy these
things. The same mindset can, and should be, applied to your entrepreneurial
activities. For every runaway success and business headlines that we read or
hear about, there are numerous organizations that fail to gain traction, and
then fail altogether. A leading cause of small or new business failure is a lack
of financial capital or planning—hopefully this book can provide you with
some tools to keep your business from suffering such an unfortunate fate.
So, get started! I’m not talking about next week, next month, or whenever
you have some free time on your hands—I mean today or tonight. Problems
do not fix themselves, as anyone with a leaky faucet will tell you, and your
personal finances are not going to get themselves into shape either. Taking a
small step, no matter how painful it might be (especially if you have not been
the best manager of your money until now) is not too small, and we can do
this together.
 The Overview—How This Book
Is Structured
This book is divided into two parts, and that is for the following reason. Most
books that focus on personal finance topics focus on the ramifications that
personal finance and financial literacy can have on individuals, but that is
only half of the battle. Obviously, the importance of having a well thought-out
financial plan cannot be overstated, but for any budding entrepreneur (and
who doesn’t have a side gig these days?) understanding your financials can
mean the difference between profit and loss. More importantly, every
entrepreneur and small business owner is, first and foremost, an individual—
getting the money right starts with the individual and then also involves their
business. Part I of this book focuses on finance and financial literacy for
individuals, including references to some resources that I have found to be
objective and without a sales aspect. Part II takes it one step further, and
reviews some of the key financial concepts and information you should
always watch as you are bootstrapping your startup. You might not have been
a finance or accounting major, but that is no reason not to maximize these
topics and information for your personal and business benefit.
 PART I
Financial Literacy, Education, and
Health—What Is it and Why Is it
Important?
Financial literacy is a term and phrase that has been bantered about quite a bit
following the financial crisis, but what exactly is it and what does it mean for
you? Literacy, at its core, represents the ability to understand something and
interpret the information that is presented to you; financial literacy is merely
an extension of this concept focusing on financial terms and ideas. The ability
to understand and use the financial information available to people in the
marketplace is essential—as we will discuss later on there are many pivotal
life events that can have a dramatic effect on your personal finances and
financial health. Literacy, however, is not possible without education, that is,
learning and teaching yourself about key finance terms, ideas, and strategies
to help you make better decisions. That said, education does not always mean
sitting in classroom or reading a textbook. For our purposes, the concept of
education refers to the learning processes and techniques that work best for
you, and allow you to absorb and remember the most pertinent information
for your particular financial situation.
Financial health, at the end of the day, is the ultimate goal of both this
book and of financial education in general. Much like physical fitness,
financial health is a process that must be attained and maintained over time.
Financial health and well-being has two primary characteristics that are both
equally important. First, the technical knowledge and awareness of financial
terminology and concepts forms the bedrock of financial health; these are the
nuts and bolts of how individuals can attain greater financial security. Second,
and perhaps more importantly, is the peace of mind that comes with financial
health. While individual events or things might occur that put stresses on your
personal finances, building and maintaining a sound financial path and
platform enables you to logically evaluate the situation at hand, as well as the
effect the situation will have on your personal finances.
For your business, as virtually everyone reading this book will realize, it
is important to take into account the fact that things will go wrong and have
hiccups along the way, not always going according to plan. Having a plan,
understanding the mechanics of how to execute that plan, and being able to
integrate financial information into this plan are the essential characteristics
that every entrepreneur must understand. This book is not meant to be a be all
or end all of finance books, but should help you lay out a plan that works for
you and your business.
Financial health is a more comprehensive definition that can be summed
up as follows:
Knowing what you know about finance, knowing what you don’t know,
and knowing how to make intelligent decisions about your finances is
what financial health is all about.
One More Thought…
Before diving right into the specifics of personal finance it is important to
take a step back and really understand what we are talking about when we
bring up the topic of financial education and health. Financial fitness,
exercising, and eating healthy are all almost universally understood to be the
cornerstones of living a healthy and productive lifestyle. Your personal
finances, although they may seem more abstract and not as linked to your
day-to-day decision making and lifestyle decisions, can have an impact on
your life both in the short term as well as the long term. Approaching and
treating your personal finance regimen as a work out regime is a good way to
both embed good financial habits into your day-to-day life, and develop a
plan that will help you stick with the plan over the long term.
Working out to achieve a physical transformation, despite the many New
Year’s resolutions, diet plans, and exercise equipment to the contrary, is not
something that can be accomplished overnight. Exercising, and achieving the
level of physical fitness that you want takes time, dedication, and consistent
effort. Improving your personal finances, developing a savings plan, and
setting up your short-, medium-, or long-term goals are items that require
quite a bit of time to get up and running, and maintaining these goals and
items is not always a simple task. Many of the same concepts, including
taking rest weeks, changing up your specific exercises (or savings tactics),
and rewarding yourself occasionally, can be applied with equal effectiveness
to getting your personal finances in shape.
The most important part, of linking together your financial life, physical
fitness, and other aspects of your life together might be the recruitment of a
budget buddy. The most difficult part of any journey is usually the first hiccup
or stumbling block that happens, and if you have a team, network, and
budget/workout buddy to help keep you motivated you are more likely to
succeed. This is not like some advice you get in books that tell you to develop
a power network or power team, without any real advice on how to do so.
Getting your finances in better shape is something everyone wants to do; if
you ask your friends they will inevitably also want to improve their personal
finances. Working together on this is a win-win, no one loses because it’s not
a zero-sum competition; healthier finances benefit everyone.
Let’s get to work.
 CHAPTER 1
Finance for Individuals
Personal finance and financial literacy forms the cornerstone of what you
would like to do, how you want to live your life, and the broader business
goals you might have. Understanding how finance works, the building blocks
and foundational aspects of finance and financial literacy, and how to get a
handle on your personal finances is an essential step in this process. The first
part of this guide focuses on the different aspects and parts of personal
finance, but it is important to understand that personal finance provides a
platform for any budding entrepreneur. Whether you are simply trying to
improve your personal finances, or looking to shore up your personal finances
before launching your newest business idea, getting your personal finances
right will only help.
Back to Basics
Before diving into some of the specific life events and concepts related to
personal finance and financial health, it is a good idea to review some of the
most oft-repeated concepts and terms linked to personal finance. Additionally,
this provides us an opportunity to examine some of the tools and information
that exist for individuals seeking to learn more about personal finance and
improve their financial health and well-being.
Credit Score—Your credit score is arguably one of the most important
pieces of financial information about you as an individual, but what exactly is
it, and what does it represent?
The most commonly used credit score is known as the FICO score, which
is a proprietary tool created by the Fair Isaac Corporation. Due to the
proprietary nature of the calculation the exact formula is not revealed, but
according to publicly available information, the calculation consists of the
five major categories listed below:
1. Payment history
2. Amount owed
3. Length of credit history
4. New credit
5. Type of credit card used
 As you can see, a credit score is a combination of multiple factors that are
used to assess and document both your credit history as well as your potential
for paying down amounts borrowed in the future. Knowing is half the battle,
as the saying goes, and being aware of the factors taken into account when
your credit score is being calculated will help you manage your credit habits
to help you get the highest score possible. As noted above, one of the factors
weighted into the calculation of your credit score is the amount owed on the
credit cards; paying down credit card is one of the healthiest things you can
do for yourself with regard to improving your credit profile and score. Like
many things, however, there are multiple points of view related to the most
effective and efficient way to accomplish this goal. One of the most
commonly debated items is whether or not to pay down credit cards bills with
the highest outstanding balance or credit card bills with the highest interest
rate; both methods have merit depending on the specifics of your situation.
There are benefits to both methods, and depending on your personal financial
situation you may benefit from one approach over another.
Paying down credit card debt with the highest amount owed will
obviously reduce the amounts you owe as well as improving your payment
history and track record. Proceeding with this approach will also involve
building a budget to pay down the credit card in a timely manner; simply
making minimum payments will not get you out from under credit card debt
in a timely manner. Conversely, and especially if you have one or two credit
cards with interest rates much higher than your other cards, it might be
advisable to pay down those individual balances before paying down balances
not linked with higher rates.
Every dollar paid in interest represents dollars that are not being applied
to pay down the principal owed on your credit cards. Interest payments can be
one of the most costly personal finance items to overlook; these dollars do not
reduce the amount you have to pay back and deny you the use of those funds
for other activities or uses. Funds that are used to make interest payments are
funds that are not available for other investments, educational opportunities,
or other endeavors you are interested in participating in. Einstein is thought to
have said compound interest is the 8th wonder of the world—don’t let it work
against you!
Monthly Payments versus Total Cost—An old piece of financial advice is
that commercial lenders and creditors tell people not to worry about the total
cost or total price of the product they are buying, and to only worry about the
monthly payments they will have to make. Monthly payments can quietly
become part of your subconscious routine so that you do not even fully realize
the drain that these monthly payments have on your financial health and
flexibility. Purchasing big-ticket items, putting these items on credit, and
signing up for additional monthly payments can eventually create a wall of
payments (and cash outflows) that severely restrict your financial flexibility.
One recommended step is to put together a list of all of your non-optional
monthly payments (items like utilities are usually not optional in nature) to
get a more accurate picture of how much money you are actually spending
each month. A key aspect of financial well-being and financial wellness is the
flexibility to embrace your life and activities as you would see fit.
Interest—Interest, by default, increases the total amount that must be paid
back over the life loan; this is not necessarily always a bad thing. Particularly
on loans that are longer in length, such as student, auto, and mortgage loans,
the interest rate can have a dramatic effect on the total dollars you actually
pay back. In addition to increasing the total amount that you must pay back
over time, it is always important to keep in mind that every dollar that is
repaid in interest has no impact on the principal amount you must pay back
when the loan term ends. Whenever possible, and it usually is open to at least
a brief discussion, advocate and push for lower interest rates.
Interest is the profit the lender generates by lending money to you—
every dollar paid in interest does nothing to pay down your debt
faster.
On the other hand, if you are attempting to save funds and increase the
total amount of investment through accumulation of interest, and an increase
in principal, higher interest rates will be of benefit to you. Anybody who has
taken a look at the interest rates on saving accounts or fixed income items in
the last decade or so is surely to have noticed the rates paid are extremely low.
This once again goes to show that it is important to understand both the terms
themselves and the effect such terminology will have on your personal
finances, including interest and the flipside of interest—inflation.
Inflation—Inflation is a term that is bantered around incessantly online,
on business television networks, as well as in print media, but what exactly is
it and what does it mean for you? Cracking open an economics textbook will
probably generate a definition that goes something like this
Inflation is the rate at which prices are rising, and consequently, the
rate at which a currency loses purchasing power.
Put another way, inflation is an occurrence that reduces the value of what
your dollars can buy in the future versus what your dollars can purchase
today, that is, you would have to earn or have more money to buy the same
amount of products or services in the future versus the present. While some
economic policy makers look to some inflation as healthy, and tout deflation
(the opposite of inflation) as a financial enemy, it is important to keep in mind
the effect these terms and concepts have on your personal finances. On an
individual basis, products and services that cost less year over year enable you
to buy more of them (think DVD players or flat-screen TVs), whereas
inflation means that certain items and/or services have become more
expensive (think cars, rent, and college tuition). When discussing or analyzing
personal finance or finance at large (including inflation) it is always important
to keep this following concept in mind:
What is good for the individual at the economic level is not always
good for the economy, and vice-versa.
But more on that in the coming pages … back to the good stuff!
Assets and Liabilities
Assets and liabilities are financial terms that almost everyone has heard of, in
one context or another. Businesses have assets and liabilities on what is called
the balance sheet, or in the case of operations managed as not for profit
entities, the change in net assets. Assets represent future economic benefits,
and liabilities represent future economic detriments. Definitions presented in
some textbooks, and definitions used by many people (who assume they are
correct) might vary from these, but I feel these definitions are most accurate
for the following reasons. Businesses and individuals acquire assets for one of
several reasons, but the underlying motivation is that having this asset will
improve either performance or quality of life down the road = a future
economic benefit. Liabilities, conversely, represent funds or items that you
have gained the usage of in the present without fully paying for; you will owe
this money in the future = an economic detriment in the future.
What works for the individual does not always work for the economy
at large, and vice versa.
Stocks (Equities)—Media outlets such as CNBC and Bloomberg dominate
the airwaves and online news space with daily coverage of stock markets
around the world. Jam-packed with graphs of all shapes and sizes, market
commentary, and analyst predictions these media organizations generate their
revenues by attracting viewers to watch their coverage of market events. Via
analysts in suits, celebrity appearances, and whirlwind of cuts to reporters on
the ground and the end result is fast-moving vortex of financial information
and data. But, at the end of the day, what exactly is a stock and how should it
factor into your personal financial plan? Does this whirlwind and constant
activity have anything to do with the core topics and information that truly
impact your personal finances?
 First and foremost, we are taking the time to cover this topic because
everyone who has a retirement plan is a stock market investor. Whether it is a
pension, 401(k), 403(b), or some other type of retirement setup, virtually all
retirement funds invest heavily in stocks. Second, and arguably more
importantly, the price of a stock can have very little to do with the actual
performance of the organization. Investopedia represents a great resource for
anyone looking to learn more about financial terminology, and what it
actually means for them—I can’t tell you how much this site helped me in
college! Third, and perhaps most importantly, is what the ownership of a
share of stock actually represents. Stock ownership represents fractional
ownership of the organization, meaning that shareholders are the actual
bosses of the organization:
Company ABC has 10,000 shares outstanding, and Jim owns 1,000
shares. Jim is a 10% owner.
Hundreds of books have been dedicated to the concepts of stock market
investing, and how best to do so, but for the vast majority of people the most
appropriate route to take might be to invest in index funds. These financial
tools mirror the performance of the market they are designed to emulate, and
you are spared the work! Additionally, many index funds charge lower fees
than either you yourself would incur from buying and selling individual
stocks, or from putting your money to work with an active money manager.
Regarding investing in stocks, or bonds (which are up next), you must always
keep the following rule in mind:
Never invest money you can’t afford to lose.
Dividends—Dividends are, in this author’s humble opinion, one of the
best aspects of owning stocks—whether you decide to purchase individual
securities or invest in an index or other sort of aggregation of individual
equities. There are three dates—date of declaration, date of record, and date
of payment—that are always important to remember with dividends, but only
one really matters to you as the stock holder is the date of record. This date,
the date of record, determines who will actually receive the dividend
payment; regardless of who actually owns the shares at the time of payment.
Usually paid in the form of cash, dividends are, in essence, cash payments
that owners of shares receive simply because they own the shares. If this
sounds like a good deal that’s because it is. One caveat to keep in mind,
however, is that dividend income is taxed like regular income.
Bonds—If stocks represent ownership of an organization then bonds
represent a possible less volatile way to invest some money, as these
instruments represent amounts that creditors and other lenders have lent to the
organization to fund growth, capital expenditures, and other organizational
objectives. Bonds can be issued for terms varying between 5, 10, 20, and even
longer durations; this means that owners must be compensated for the lack of
availability of their funds. Compensation in terms of bonds typically has two
forms; the return of the original principal as well as interest payments
received on a periodic basis. Bonds are repaid at the maturity date identified
on the instrument when it is first issued, that is, the original face value of the
bond is repaid in full. Additionally, and of greater interest to your personal
finances, is the interest income that you can generate from owning bonds.
529 plan—A 529 savings plan is a savings plan that takes advantage of
specific section of the tax code (hence the 529) to assist people savings funds
for college education. The rules and restrictions can vary from state to state
regarding contributions, deductions, and whether funds contributed can be
used for nonspecific education items. Numerous online resources are
available to answer some of the most common questions related to these
plans, and links to resources you can use to find out the rules applicable to
your state.
401k—The 401k is probably one of the most oft-discussed financial terms
and plans, but it is also one of the most commonly misunderstood and
misinterpreted financial terms. Mirroring the origin of the 529 college savings
plans, the 401k system takes advantage of a section of the tax code that
specifically outlines both the benefits and disadvantages of utilizing a 401k
savings plan instituted by your organization. In essence, what the 401k plan is
a matching plan between you and your employer that contributed a pre-set
amount (determined by you), that is deducted out of your paycheck and
allocated to funds that you have selected. Usually the amount that is deducted
from your paycheck is expressed as a percentage—let’s say 3 percent of your
paycheck amount.
The pre-tax deduction of these funds is an important characteristic of this
savings plan; 3 percent of your pre-tax earnings is obviously going to be
higher than 3 percent of your earnings after taxes have been taken out.
Additionally, many employers will match your contributions up to a certain
level, that is, your employer will match your contributions, $0.50 on the
dollar, up to 6 percent of your pre-tax check amount. To put it another way,
you are getting a risk-free return of 50 percent on the money you are putting
away into your 401k if you are contributing the full amount; this totals 9
percent of your pre-tax earnings being saved with every paycheck. Throw in
the fact that this is automated and you do not have to manually do it every
month, and the 401k system is a solid way to start (and continue over time) to
save for retirement.
Now, it is important to keep in mind that there are some restrictions when
it comes to the amounts that have contributed to this retirement savings plans.
Funds normally cannot be withdrawn from the account before the contributor
(you) has reached the age of 59.5 years old (don’t ask why it’s 59 and a half
years), and the funds are taxed as they are withdrawn. Remember that while
the funds were contributed (and grew) over time without any taxes being
withdrawn the tax man does eventually collect his share of proceeds. Always
consult with your employer regarding the specifics of your organizations
401k plans, investing options, and institutions that your organization has
partnered with to manage the fund.
Fees—Fees are an especially important aspect to monitor when examining
different fund options. While at first glance, fees of 3 to 4 percent on your
investment amounts might not seem like a large amount, the effect of 3 to 4
percent fees compounded year over year can have a severe effect on how
much money you are able to save over time. This harsh reality also has had
the effect of helping to promote the spread of index funds, which differentiate
themselves based on low fees, and other alternative investing strategies. I
cannot overstate the importance of paying attention to exactly how much you
are paying in fees, as every dollar you pay in fees represents dollars you will
never get to save, invest, and use in the future.
 CHAPTER 2
Credit and Your Financial Team
Credit card debt is one of the most oft-cited reasons why people cannot get
their personal finances in order, have a difficult time saving, and are stressed
out about their financial situation. The first step to getting a better handle on
credit card debt, and establishing a solid plan for paying it down, is to really
understand what credit cards are. Credit cards are debt, plain and simple, but
they are convenient debt tools. You cannot, for example, buy anything online
(including plane tickets or anything from Amazon) without credit, but as with
any tool it is important to use it carefully. Just like you would not try to use a
jackhammer without training or making sure to wear the proper safety
equipment, you should always use credit with the respect that it deserves.
Credit cards are a powerful tool that provide the users with financial
flexibility to make purchases remotely, finance items they would be able to
purchase outright at once, and allow individuals to build credit to obtain
financing for automobiles and residences in the future. That said, and as many
people are painfully made aware of over periods of time, credit can have
serious downsides and risks as well. When assessing credit possibilities,
whether it is related to specific credit cards or taking on debt in general there
are several factors that should be considered before taking on this future
financial obligation. This is a good opportunity to revisit the working
definition of credit that we are going to keep in mind throughout this book.
Credit is another word for debt, which is another way of saying that
you now have a future financial obligation. You, after taking on debt,
must eventually repay the funds (plus interest) later, and so you are
incurring a future economic detriment. Remember that this is the
definition of a liability from Chapter 1.
OK, enough economic theory for the time being, let’s get back to what
should be on your radar when you are considering debt.
1. Is there an annual fee involved? If you are paying an annual fee for a credit
card, you are paying for the privilege to borrow money that you will have
to pay back later. Does this make sense for your purposes; again, it really
boils down to a trade-off between convenience and financial ramifications.
More importantly, with so many options available in the marketplace that
do not require you to pay an annual fee it does not make business sense to
do so. Remember, every dollar you pay in fees equal fewer dollars you
 have to pay back the money you have borrowed. The more you know.
2. What are the interest rates and fees? Most people, despite all of the
planning possible and precautions, will inevitably either miss a payment or
not be able to pay off the entire balance at the end of every month. That is
why it is so important to check, before signing up for a credit card or
agreeing to the terms and conditions of extending your credit, to check just
what the interest rates are. Every dollar in interest you pay back means you
are not paying back the principal.
The more you know, the better equipped you are to make informed
decisions.
In addition to being aware of what, exactly, credit cards are, and what they
represent, it is especially important to understand what types of information
are included within your credit score, and what these items mean for your
personal financial situation. Some items that you might not immediately
recognize as being applicable to your credit score include the following:
1. Cell phone—with data plans (and overages) becoming an ever-present part
of our society we might forget what these plans represent. I know that even
I have occasionally been dinged with unexpected overages. From the
telephone company’s point of view they are extending you credit, in the
form of both minutes and data, prior to your actually paying for these
items. Framed against this backdrop it is relatively straight line to draw the
connection between a payment history on cell phones and your credit score.
a. Especially since many telecommunication companies report their
accounts to the credit bureaus as credit information, this might have an
especially negative effect on your score.
2. Unpaid or late payments on non-credit card items—being late with your
rent or other payments might be inconvenient, but these items can also
affect your credit score. All of this information, whether it is related to
credit cards or not, has an impact on your payment history as an individual,
and impacts how you are perceived by potential lenders and creditors.
3. Checking your credit score—there are many options for checking your
credit score, and you are entitled to one credit report from each of the three
major credit bureaus every year. Despite that, however, it is important to
keep in mind that initiating excessive credit checks throughout the year
may have a detrimental effect on your credit score.
Why Does it Matter?
Some people might ask why does it matter what exactly your credit score is,
with all of the major credit card companies (not to mention auto dealerships)
offering no money down, low rates, and extended repayment dates. It matters
because while there is a lot of flexibility now in the credit markets does not
mean it will always be that way. Also, and arguably more importantly is the
fact that even if you are able to obtain financing now, at low rates and limited
fees, later down the road you will not be in a good financial shape. Remember
that every dollar of additional debt you take on limits the willingness of
lenders to lend you additional funds; you are at higher risk. Looking at it from
their perspective, there are only a number of ways they can use to offset the
increased risk. These include, but are not limited to higher fees, increases to
your interest rates, or extending you smaller amounts of funding. Personal
finance is a marathon, not a sprint, and it is important to keep that in mind as
you are trying to establish and develop a credit and payment history. As many
people find out too late, it is important to start early in your journey toward
establishing and building a credit history; your future financial flexibility
depends on it.
Build Your Team
You might be thinking, why are we talking about networking in a book about
personal finance? That is exactly the point! Personal finance, and your
financial health, is an embedded part of your entire life, and this includes the
circle of people you know and most commonly interact with on a day-to-day
basis. Meeting new people and networking is encouraged, almost by default,
in virtually every business class, school, or seminar, but doing that can be
very challenging for most people. In addition to the usual uncertainty that can
accompany meeting people for the first time and interacting with them in an
artificial environment (such as a networking) event, it can be even more
difficult to try and build meaningful relationships that way. That said,
traditional networking, which is what we have been discussing, is a powerful
tool in your professional toolbox and should be used whenever possible. One
of the best ways I have found to help develop and expand your professional
network is to actually work with people, either within your industry or with
an advocacy or professional association. Virtually every profession has an
advocacy branch, or people that advocate and promote the profession and
people employed within it. They want to talk to you and hear your ideas.
But what does this have to do with personal finance and getting yourself
set up on the path to financial success? Actually, it has everything to do with
it! Meeting new people and, more importantly, being exposed to new ideas,
are two of the most important things you can do for your development as a
person, a professional, and for your intellectual capability to address problems
and issues as they arise. Learning new ideas and concepts, whether it has to
do with career development or (more specific to our conversation) about how
to save, invest, and put your money to work for you is always a good thing.
While not every idea will be a good fit for your goals and lifestyle at this
point in time, learning about them and storing them for future use is always a
good tactic for long-term thinking. Also, and arguably most important to this
concept, the very fact that you are thinking of new ideas, or thinking or old
ideas from a new angle, means that you are exercising your creative side—
that’s a great thing!
Even if you do not agree with everything someone has to say, which
happens quite often to be perfectly honest, it serves you well to at least listen
to what they have to say. You might pick up a tidbit or piece of information
that is applicable to your situation.
A mind once stretched cannot go back to the way it once was.
So, who are some of the people you should try and meet, to learn ideas
from? Outside of everyone, which is my usual recommendation, there are a
few groups that can really provide a boost to your professional and financial
development over time. One suggestion that I find to be especially helpful
when you are starting to build a professional network is to start contributing
to your industry associations. As mentioned previously, these industry and
other professional associations exist solely to promote your industry and its
members (which can mean you), and virtually every industry has these types
of associations. A great way to be exposed to new idea, increase your
network, and increase potential opportunities for professional and financial
development is to start producing content. Blog posts, podcasts, or full-blown
articles (or even books) are a great way to develop your brand and network in
the industry.
Another technique that I am personally a fan of is to start developing an
advisory board. Let’s go into a little bit of detail as to what exactly that
means. Large organizations, whether they are for-profit or non-profit, have a
board of directors whose purpose is to chart the direction and strategic
initiatives—why should you treat your career and personal finances any
differently? It is important to remember that personal finances, professional
development, and career trajectory all work together as you move through
different stages of your life and career. When assembling an advisory board,
which can be as informal or as formal as you want it to be, there are a few
things you should keep in mind.
1. Is it helpful—as fun as it might be to sit around and watch baseball while
barbequing with your advisory board, that might not be the best use of their
(or your) time. Make sure that your meetings, and again these can occur in
whatever format you are most comfortable with (Skype, phone, or in-
person), have an agenda, direction, and take-away points.
2. Make it a win-win—if people are taking time out of their busy lives to be a
part of your personal advisory board, it is up to you to make sure that they
are also benefitting from their involvement. While the focus of the group
for you might be to trade ideas over how to best develop your career or
financial situation, be sure to make it a mutually beneficial enterprise.
3. Get a broad perspective—one of the most important parts of trying to
develop a plan is making sure that you have the correct information in
terms of both variety and quantity. Covering all of your bases, or spending
a few minutes thinking/researching a point of view you had not previously
considered cannot hurt.
The main takeaway that I want to make sure we are aware of is that your
personal finances and the ability for you to successfully navigate your
financial future go hand-in-hand with your professional and career
development. Notice that I kept those two items, professional and career,
separate and distinct from each other. While these two items are closely
related and depend on each to keep moving forward they are different. Let’s
take a look at how these two similar, yet different, concepts, can have a large
impact on your personal financial journey.
Career Development—Career development is a hot-button issue as it
relates to higher education, and is always one of the top concerns for
organizations and the individuals working within them. Developing, learning
new skills, and refining existing skills are imperative for developing a solid
financial footprint. Put simply, the more skills you have, and the more
marketable those skills are, the more earning power you have in the
marketplace. This relatively straight forward relationship is what drives
individuals to go back to school, obtain new licenses and certifications, and
continuously learn new things. Another key aspect of career development,
which links back to the importance of networking and being open minded, is
the very objective reality that most individuals will hold a multitude of jobs
during their professional life. Transitioning into new organizations, meeting
new people, and learning new things provides you a perspective that will
undoubtedly be helpful as you navigate the financial obstacle course that is
life.
Professional Development—While career development focuses on your
improvement and engagement as a member of your profession, interest group,
or industry sector (such as accounting for the author), professional
development is arguably more important. As the economy changes and
evolves there are going to be certain sets of skills, competencies, and abilities
that are going to be more coveted than the rest. With that in mind, and
integrating the reality that the average American will hold multiple
professional roles throughout their adult life, maintaining flexibility and a
willingness to adapt to a changing environment are essential characteristics
that cannot be overlooked. Focusing on your career within an organization is
obviously important, but you must also look at it from a broader point of
view, as the development of you.
Clearly, the choices you make as they relate to your chosen career and
profession of choice will have an impact on how well you can successfully
plan for and execute your financial goals. That said, the choices you make
related to who you associate with will also have a lasting impact on your
financial situation. Your choice of social activities, friendships, and people
that you bring into your life has a large influence on your behaviors, your
outlook on life, and your habits (money related as well as others). That is why
I so strongly recommend either forming a budget team, getting a budget
buddy, or assembling a personal advisory board that can help you reach your
personal and financial development goals. At the end of the day, no one can
do it by themselves; we all need help, and sometimes all we need is to be able
to talk to someone with the same goals as us. Being open-minded and meeting
new people might not lead directly, or instantly, to improved financial
conditions, but the lessons learned via interacting with a broader set of
individuals will not be in vain.
How to Start
The first obstacle and the first real hurdle on the path to financial freedom,
flexibility, and well-being is to get the ball rolling with regards to saving.
Again, and it is nearly impossible to overstate the importance of this fact is
that saving and building a financial plan for well-being and success is a
marathon and not a sprint. Just like you would not attempt to run a marathon
after sitting on the couch not exercising for several months, you should not
attempt to dive head first into a financial saving and decision-making plan
without first establishing a logical and reasonable plan to help you get where
you want to go.
This brings us back to beginning, and there is a good reason for that.
History is full of examples, and quotes, that state/reinforce the fact that failing
to plan is a recipe for disaster, failure, and frustration. The biggest single issue
preventing people from establishing a personal financial plan, and paving the
way forward for future success and well-being is the fact that there is a lack of
consistent planning and monitoring of that plan. Establishing a plan obviously
requires that thought be put into the process, goals be established, and that
monitoring processes be put into place to assist with executing that plan. The
mere act of writing down or otherwise documenting a plan has been proven
time and again to improve rates of success and helps motivate you to keep
going.
Planning, and planning for saving money (spending less), can be a
depressing or painful subject; it is important to keep a long-term view and
really understand what you are attempting to accomplish by doing this.
Improving your financial situation, and savings ability results in several
benefits, only some of which are quantitative in nature. Obviously, the more
financial stability you have in your personal life the less stress you will be
under on an overall basis; life is full of enough things to worry about without
also constantly worrying about your finances. Also, being able to save
sufficient funds provides with financial flexibility, that is, the ability to do
some of the things you just “want” to do.
Probably the second most important aspect of building and maintaining a
savings plan is to be aware of the resources that are available for your use.
Technology has given us the ability to be in constant communication, as well
as having constant access to information; why not put that to use with regards
to your personal finances? Organizations such as the AICPA produce
unbiased and free information that is vetted and updated by CPAs on a
continuous basis, and other financial services organizations also sponsor
workshops and other financial literacy tools. That said, whenever you are
receiving information, goods, or other services from a financial services firm
it is important to keep in mind that they are possibly attempting to push a
specific product. This is fine, and we all realize this this might be a reality, but
it might slant your opinion of some of the information provided.
Build a Team
While referring to your budget team by a nickname might seem a little silly,
forming a budget team or at least finding a budget partner might very well
provide you with the extra incentive you need to stay motivated and dedicated
to your financial planning process. Many self-help books recommend
constructing a network of like-minded associates, but this is usually
approaching the issues related to making money or generating wealth; this
goal is a little more realistic and down to earth for some people. Building off
the concept popularized by Fitbit and other fitness tracking devices, you could
make budgeting and saving a weekly or monthly contest. Competition is the
life blood of business and finance, so why not insert a little friendly
competition in your financial workouts as well?
For example, one week it could be to see who can find the best deals on
dinners, movies, or other entertainment, and another week it could be to see
who can make the most creative lunch out of leftovers in their fridge. The
specifics are not as important as the motivation and ideas behind it.
Competition motivates people, and if you are among friends working toward
a common goal of improved finances there is a vastly lower chance of any of
you dropping out; sometimes some peer pressure can be productive. Another
added benefit of making budgeting and saving a competitive theme among
friends is that when you succeed or reach a specific milestone you can
celebrate! Saving, budgeting, and planning your finances are not always the
most enjoyable aspects of the daily grind—it’s always good to go out and
have a little fun to reward yourself for making good progress.
Use the Tools
Like any task, having the right tools can make the process much easier, but at
the same time you must know how to correctly use these tools. As the old
saying goes that only a poor craftsman blames his tools, the same idea must
be applied to your personal finances, credit, and financial well-being in
general. The tools that exist today in the marketplace run the gamut from
mobile apps that can by synced on your phone, tablet, and laptop, to more
traditional techniques like allocating certain percentage of your direct deposit
to a separate savings account.
Specific applications and tools that are available for individuals to take
advantage are available for both Apple and Android devices, but despite the
layers of technology available it is important to remember that these tools
only serve to amplify the existing techniques and requirements necessary to
build maintain a healthy financial plan and budget. Planning, setting
reasonable goals, monitoring these goals and milestones, and updating your
goals and milestones to reflect the realities of the situation are cornerstones of
a personal financial plan, and should be included regardless of the technology
used to facilitate and advance the plan.
Linking together technology, planning, and some common sense is a great
combination that can be applied to work, vacation planning, and improving
your personal finances, but technology should be a crutch or an excuse. Your
finances are your responsibility.
Remember This…
Financial planning, savings, and planning for the future might seem like
something that you can put off until the future, but the reality could be any
more to the contrary. Millennials especially, having come of age during the
Great Recession, and entered the job market in a highly unstable and
competitive environment, are aware of the havoc that economic volatility can
have on a career and personal finances. Partially because of these experiences,
as well as seeing friends and family suffer setbacks both personally and
financially, the millennial generation is particularly aware of the volatility that
is embedded in the economic landscape. At the same time, however,
millennials (who are quickly becoming the largest generation in the history of
the United States and the largest component of the labor force), are
increasingly focused and determined to spend money on experiences, travel,
and events, rather than saving and planning for the future.
This contradiction is especially concerning when the following fact
pattern is laid out. First, millennials are also one of the most heavily indebted
generations in American history; the average person in the 25 to 34 age
bracket has over $37,000 in student loans. The implications of this student
loan burden are just beginning to be felt throughout the broader economy.
Ranging from a lower number of automobiles purchased, to an increased
preference to rent (think AirBnb and Uber) rather than purchase assets, the
ripple effects continue to grow. More importantly for our purposes the
increased debt burden means that there is less financial capacity (flexibility)
for individuals to work with.
 CHAPTER 3
Key Financial Junctures and How to
Plan for Them
Life is comprised of a wide variety and multitude of meetings, situations, and
events that can influence your personal finances, financial decision making,
and overall financial health. It is important to remember that even as life
events happen and occur the ramifications of such events can have substantial
ripple effects throughout your financial portfolio and financial wellness.
Understanding the events, how these events may affect your personal finances
and financial health, as well as how best to plan and account for these effects
is a critical step in constructing a well-thought-out personal finance plan.
Building a plan, establishing a budget, and updating this budget with current
information as it becomes available over time is partially a plan and planning
process as part mindset and headset. This mindset, which I call the personal
finance headset, is an important part of being able to develop and sustain a
well thought out financial strategy and budget plan.
Preparing an exact plan for every possible situation and occurrence is
impractical at best and can result in hamstringing your flexibility and
response time to changes in your personal life. That said, and to akin outlining
a paper, book, or any large project, establishing a framework with which to
approach situations, setting benchmarks that you can use to help track your
progress, and monitoring your progress over time are tactics that can certainly
be applied to building a personal financial wellness plan. Thankfully, and due
to advances in technology, it is now possible to monitor your spending,
savings, investments, and personal finances at large from your phone or
tablet. Even with these advances in technology, however, it is important to
remember that the best personal finance plan is one that is executed
consistently over time and is kept up to date to reflect changes in both the
market and your financial situation.
College
Chart after chart reinforces the quantitative fact that a college education
provides those that receive one increased financial earnings power and well-
being throughout their adult lives. Put simply, the more education that a
person has the better off that person does in terms of job security, stability,
and earning power over time. In addition to the purely financial benefits
associated with a college education, the networking benefits and critical
thinking skills acquired while earning a degree are substantial. Even as costs
continue to increase, the financial case for college continues to be made, and
made in both a quantitative and qualitative manner. Obviously not every
college degree is equal, and much has been written and said regarding the
differential between STEM/business degrees and other types of degrees not
currently as in-demand. That is not the point of this writing—if you want to
read more on such conversations and debates you will have no trouble finding
them online or on TV.
Saving for college, however, is one of the areas of focus of this writing,
and there are a few things to think about as you begin to plan your higher
education, or start saving for your children’s education. Increases in college
tuition versus wage growth, over the last several decades, have resulted in
decreasing affordability for college education for the most part. That said
there are several options that can, and should be considered, when preparing
the financial roadmap to successfully address the challenge of saving for
college. Savings plans such as the 529 plan mentioned earlier are an option
that is available to virtually every interested party. Taking full advantage of
the tax code for your financial benefit is one of the most basic, yet often
overlooked aspects of financial literacy.
In addition to setting up a 529 plan, it is also important to do some
research and take advantage of alternative sources of funding for college.
Colleges and universities offer scholarships, obviously, but there are
additional sources of financial assistance and funding that might be available
for use to take advantage of. Depending on whether the school you are
applying to is part of state-wide university system you might be able to attend
one of these institutions at a discounted rate. Additionally, and in addition to
any financial assistance available directly from the college or university there
might be other financial assistance and funding from cultural or other local
organizations. Submitting applications for such funds might cost a few hours
of your time—but the lower student loan balance that will result will be well
worth it indeed.
Also, and this is an important point to keep in mind when planning and
evaluating the options for college education and other higher learning, it is
essential that the skills you are paying for have a market demand. Mentioned
earlier, we will not dwell on this topic for very long, but strictly from a
financial point of view it makes sense that you will perform sufficient
research related to your area of study. That said, especially with the increased
availability of post-college educational opportunities you can always go back
and freshen up skills that have gotten rusty, or learn new ones entirely. The
choice, as I will continue to repeat throughout this book, is often entirely
yours and yours alone to make.
First Job (or Even Your Second or Third Job)
According to many media reports and industry analyses, the average
American will have between seven to eight jobs in their professional career,
and note the word “professional.” These are not jobs that are worked in
college, part-time jobs held down in grad school, or even those occasional
gigs you get to do tax returns, or be a bartender for catering company; these
are professional positions. With that in mind, it is still very important to be
aware of the following items when you are job-hunting, career planning, or
evening idly browsing job sites such as Monster.com or Indeed.
1. What industry would this role be in, that is, is the industry shrinking,
stagnant, or growing? To paraphrase Danny DeVito from Other People’s
Money you don’t be to be involved in the last business in an industry that is
shrinking or on its out of business altogether.
2. What is the culture like? Salaries can change in a few months, and fringe
benefits/perks can be added or taken away almost overnight. Companies
move, individuals come and go, but what is the mood/culture of the
company?
3. Are you going to learn something you do not already know? If you spend
the first 15 years of your career in one specific industry you will know a lot
about that specific industry but not much about anything else. Just like your
investments, it is very important to diversify your knowledge base so that
you have expertise and knowledge that can be applied across different
industries and different organizations.
Regardless of the field or specific job you choose to take there is one
specific tool that can and should be leveraged to help you maximize the
benefit you receive from your employer on a strictly financial basis, the 401k
option. Virtually every employer offers some type of retirement planning tool,
such a 403b or 401k plan, and many organizations match your contributions
to the plan up to a certain level; why not maximize the impact of this
matching? We are going to discuss the benefits of doing this throughout this
book, but there is one specific area that I would like to drill down into right
now. Think of this using the following information. Let’s say that you have
decided to contribute 3 percent of your income to your 401k plan, and that
your employer matches that contribution dollar-for-dollar up to the 3 percent
threshold. In essence, you are contributing 6 percent of your pre-tax income
into your 401k! Two additional benefits of doing this are the following:
 Since these deductions happen automatically you do not have to actively
1. think about it or make the decision every pay period. You never even notice
that the money is being taken out, since it happens even before the direct
deposit hits your account! Talk about putting your savings and financial
planning on auto-pilot. Also, the reduced activity on your end means that
you are more likely to stick with it, and keep saving.
2. Every dollar you contribute to your retirement in this fashion is contributed
pre-tax, meaning that for every dollar your sock away in your 401k plan
you are reducing your taxable income. Without diving too deep into the
specifics of tax law and tax applicability the high-level perspective is that
the more you contribute to your 401k the lower your taxable income will
be. Second, your contributions to your 401k fund will grow tax free over
time.
Just think about that for a second. First, your contributions to your 401k,
403b, or other qualifying retirement plan lower your taxable income in the
current period. Second, your earnings and gains that you accrue over time
grow tax free. That is a combination that many people would pay a lot of
money to get in the form of advice from a wealth manager.
Save and Earn
When it comes to building a successful financial future, too often the
emphasis is placed on earning more money, but the earnings side of the
financial equation is only half of the battle. If your expenses and lifestyle
keep increasing alongside your earnings you are going to have a very difficult
time advancing your long-term financial goals. Benjamin Franklin is
famously quoted as stating that a penny saved is a penny earned, and this is
correct. In order to really make progress toward your savings goals and
objectives you must be able to make progress in this area, that is, you have to
be able to actually put money away every month.
Like just stated in the paragraph above, our society is primarily concerned
with how much money a person can bring via a higher paying job, a bigger
bonus, or other additional income streams. While these aspects are certainly
important for building a financial nest egg and savings strategy they only
represent a piece of the overall puzzle. We have discussed and analyzed, and
will continue to do so, the importance of assembling a plan, strategy, or path
toward financial savings and financial flexibility but an equally important
aspect is how much you are actually saving each and every month. Let’s think
of it this way:
If you are able to save, on average, $20 a week by cutting out extra
expenses and items from your budget that means that for a given year you are
going to be saving an extra $1,040 dollars a year.
The encouraging thing is that this can be accomplished by even just
skipping takeout dinners one or two evenings a week, and making some meals
over the weekend to compensate instead. Additionally, eating home cooked
meals is almost always healthier for you since you know exactly what is
going in there! There is no bad time to start saving, and no amount is too
small. You wouldn’t expect to be able to do 100 pullups right away, and you
should have reasonable expectations for your savings at the beginning. The
most important thing, and this will be said time and again, is to start.
Let’s take this concept one step further, and really try and apply it to a
long-term goal of savings and establishing financial freedom. Doing this,
however, requires the acknowledgment and acceptance of a somewhat painful
reality, and that is that, for the most part, individuals are not going to obtain
wealth by working the 9–5 grind. In other words, you are not very likely to
establish your own financial freedom and path to financial flexibility simply
by going to work every day. You work hard for your money and it should
work equally as hard for you! While the specifics of the investment strategy
will differ depending on the individual risk tolerance of the individual in
question, there are a few key concepts that should be kept in mind as you start
thinking about putting your plan together.
1. Liquidity—this has nothing to do with water or keeping yourself well
hydrated, but those are both good things to do anyway. Rather, this idea
focuses on how easily you are able to access your investments and turn
them into cash if the need should arise; as you can imagine this is an
important aspect for many people. Having investments is not going to help
you very much if they are locked up entirely in long-term items, or you
have to take a discount (receive less than you should) to turn them into
cash.
2. Transparency—Piggybacking on the importance of liquidity is
transparency, that is, how easily can you monitor and track the performance
of your savings and investments. There are few things in life more
frustrating than being involved with something, or stuck with something
that you really do not understand or cannot follow clearly. Imagine how
frustrating this would be when it comes to your money! Being able to track
and easily monitor the performance of your investments and financial
assets is very important; it is your money after all!
3. Is it the correct risk profile for you—everyone has a certain tolerance for
risk and adventure, but this is not talking about how likely you are to go
sky-diving or ride a snowmobile to work. Rather, this discussion about risk
focuses on how willing you are to stomach volatility with your returns and
 investments. Volatility is a funny thing, and we will discuss what it means
in the definitional sense in a moment, but remember this. While volatility
can be an interesting concept to discuss in the abstract (I promise it’s
coming), the reality can be fairly gut wrenching. Especially if you monitor
your investments on a continuous basis, or even weekly, watching swings
of 10 to 20 percent occur with regularity can give even the calmest and
level-headed person butterflies.
So, what is volatility? Volatility, in its most accurate and true sense,
simply represents the change that can occur in the price of certain
assets of time, and this is how many traders and short-term investors
generate a larger percentage, if not all, of their investment returns. It is
important to remember, however, that it is not the recommendation of
this author that most people should follow such a strategy when
assembling a plan to improve their personal finances. Volatility, while
encouraging and sought out by actively managed investment funds,
large-scale fund managers, can be something that gives the average
person heartburn. You have worked hard enough for your money, it
should be able to work for you without giving you a headache.
To cut a long story short, it is readily apparent that if you are seeking to
build a financial portfolio and set yourself up on a long-term path to financial
success and independence then you must take into account the wide variety of
factors that can drive and impact your financial situation. Drilling down
specifically into the factors that, typically, are most important for individuals,
the areas to focus on include liquidity, transparency, and whether or not the
investment decisions you are making are well suited for your risk profile.
While buying a shirt or pair of pants that is the wrong size can be annoying
and cost you a few dollars, the ramifications of selecting the wrong
investment choice can have severe ripple effects throughout your life.
As I say over and again your personal finances are your responsibility—
no one else is going to be as interested or as proactive about your finances
and financial situation as you are. Your money is your responsibility, and the
more you know the more prepared you are to make the best financial situation
for your specific situation.
Buy versus Lease—Cars
After a residence, the purchase of a vehicle represents the most costly or
expensive asset that most individuals obtain during their life. It is imperative
that you do your homework and research the vehicle, the price range, and the
local market. With virtually unlimited information available for free online
there is no excuse for not conducting research and making sure that you get
the best deal for your situation. In addition to researching the vehicle itself, as
well as the price range that other people in your area have paid for similar
vehicles, you should also be on the lookout for items that might artificially
increase the cost of the vehicle or otherwise negatively impact your purchase
decision.
Items to Watch For
There are obviously a wide variety of factors that come into play when you
are purchasing or leasing a vehicle, the most important decision often being
whether to purchase or lease the vehicle to begin with. With modern financing
options available, the difference between paying for a vehicle or making lease
payments might not seem like a big difference, but there is a fundamental
difference that must be taken into account. Purchasing a vehicle, or any other
asset, means that after you have finished making payments means that you
own the asset, whereas with leasing you a vehicle, you are, in essence, renting
the vehicle for a certain period of time. Additionally, it is important to keep in
mind that there are virtually always restrictions and limitations on how much
you can use the vehicle. Ask anyone who has exceeded the mileage
restrictions on a lease just how painful the end result can be.
Assuming that you have made the decision to purchase a vehicle, there are
a few items that you must keep in mind. First, purchasing a brand new
vehicle, with all of the latest bells, whistles, and gadgets, might be appealing
at first, but there are other more affordable options that provide many of the
same benefits as new vehicles. The proliferation of certified pre-owned
programs, which usually include inspections and other checklists, can remove
many of the worries and doubts that used to accompany the purchase of a
used car. In the same train of thought as purchasing a new car when a used
one would do, it is also important to not purchase or pay for items that are not
necessary. Purchasing extras, such as premium sound systems, premium tires,
and sunroofs can add up to serious increases in how much you end up paying
over time.
One of the most common errors that people often make when purchasing
a vehicle is to not do a final check on the vehicle before finalizing the
purchase and driving off the lot. It is common for dealership and salespeople
to have several sources of vehicles, and so it is important that you confirm
and verify that the vehicle you are purchasing is the vehicle you agreed to test
drive and purchase. Consulting with family and friends throughout the
purchase, financing, and finalization of the purchase can provide you with a
broader perspective that might help you find errors in your judgment that you
might otherwise miss.
 Rent versus Buy—Housing
Despite what you may see on home improvement shows, flipping programs,
or other home renovation programs the reality of owning a residence is that it
is a complicated and expensive prospect. Making the decision to either rent or
buy a residence is arguably the most important financial decision most people
will ever make, or at the very least be the most expensive. Framed in that
light, it becomes a little easier to look at home buying, condo-hunting, and
home improvement projects with a more calculating eye. At the end of the
day you want to have a home that is nice, safe, and reflective of who you are
—that does not, however, require that you have to work until your 80 to pay
off the mortgage. Equally as important as the color of the carpet and type of
countertop you put into the kitchen are the decisions your make before you
move in that can either save, or cost you, serious money.
The first decision to be made with regards to looking for a place to live is
whether you want to buy or rent. Now of course there are a multitude of
options available to homebuyers in most markets that range from
condominiums, co-ops, apartments, townhomes, single-family homes, or
multi-unit buildings. This book does not dive into the different pros and cons
of different living arrangements. Rather, we are going to look at financing and
purchasing behaviors that apply to whatever type of residence you decide to
reside in at the end of the day.
One of the most oft-repeated phrases in real estate is location, location,
location, and this matters for a number of reasons from a financial as well as
aesthetic point of view. First, the closer you are to where you work and
socialize the less time you will have to spend commuting to work, or driving
around looking for things to do. As we all know, time really is money, and the
more of it you can spend doing productive things (which does not usually
involve commuting) the better off and more satisfied you are. Additionally,
and particularly true with regards to more densely populated urban areas, the
close properties are to the metropolitan center of the region the more valuable
and attractive they will be. Taxes, of course, are usually higher the closer you
are to more densely populated and metropolitan areas, but the higher taxes
can be offset by higher property values and more comprehensive public
services.
Another key point to factor into the decision making process is whether
you want to rent or purchase a property. Renting a property, whether it is via a
month-to-month lease arrangement or a longer-term lease is in essence the
same exact thing. You are continuously paying money to live somewhere,
unable to make significant changes to the property while you inhabit it, and at
the end of the lease/rental term you do not own the property. Of course, by not
purchasing the property you are relieved of the obligations associated with
home ownership, but it is important to keep in mind that there are factors that
impact your residency decision whether you decide to rent or buy.
1. Location—location is usually the top characteristic defined or outlined in a
real estate listing or promotion, and that is for good reason; location can
make or break whether or not a condo or residence fetches the price desired
by the seller. More importantly for our purposes and discussion, however,
is the impact that location can have on your financial quality of life. It is
important to keep in mind that the further your residence is from your
primary areas of work and socialization the more time you will spend
driving and commuting to where you want to go. While a 30-minute drive
to the supermarket might not seem so bad on a sunny Sunday afternoon,
making a 1-hour round trip every time you need a gallon of milk might be a
bit tiresome. Or not; home purchasing is an extremely personal decision.
2. Fees, taxes, and other expenses—particularly applicable if you decide to
purchase or lease a condo or other sort of co-op, the price of home owners
association fees, membership fees, and other costs can really add up over
time. In addition to the limitations that additional fees and costs have on
your personal finances the limitations that belonging to such an association
place on what you can do to your home can also be quite significant. The
limitations placed on you and your home renovation plans might not seem
severe at first, but over time it might limit the things you can do to your
home to increase its value in the marketplace.
3. Sell-ability—when homeowners purchase a residence of agree to leasing
plan they are almost only concerned with whether or not they personally
like the residence and would like to live there, but that is only half of the
battle. With the increased turbulence in the job market and other changes to
how people work and live it is logical to assume that people will move
more often in the present than they have in the past. With that framework,
especially for younger people entering the workforce, these factors must be
taken into account when the initial purchase price is decided.
In short, the purchase or lease of a residence is arguably the most
important asset decision that an individual may make during their personal
and financial life, and it is essential that individuals take into account the wide
variety of factors that impact the decision. In addition to being the place
where you come home and live at the end of the day it is also critical to keep
in mind that both the asset price and the length of investment in the asset are
both factors that can, and should, influence your decision making process.
With a typical mortgage running approximately 30 years in duration it makes
a difference, that is, your funds (in the form of mortgage debt and payments)
are otherwise occupied for the next 30 years. Additionally, the expense and
cash flow impact of monthly mortgage payments cannot be overstated;
renting and purchasing a residence is a decision that must be considered
seriously.
Let’s take a minute—many of the life decisions we have discussed so
far, whether it has to do with vehicles or homes, are emotional decisions that
are time-consuming, stressful, and full of surprises, but this does not mean
that you are in this alone—quite the contrary. There are a large amount of
resources available in the marketplace at your disposal at no cost. With such
large amounts of information out there, however, it is important to understand
which sources are the best fit for your situation and decision-making process.
For purchase decisions related to vehicle and homes the financial
ramifications can be significant, so it is certainly worth putting a little bit of
thought and research in what you are buying, where you are buying it from,
and how these decisions will impact your personal finances. Money might
make the world go “round,” as the saying goes, but even if you do not believe
that to be 100 percent accurate, money certainly has a powerful impact.
The Tools Are Out There
As mentioned throughout this text, there are many tools and resources that are
available to you in order to help improve your personal finances in order as
well as maintain a personal finance plan. Especially with the proliferation of
technology, including mobile apps for smartphones and tablets, it is now
possible for individuals to track and monitor their savings, investments, and
other financial matters on the go. Leveraging the advances in technology, it is
simpler and easier than ever before to monitor your finances, and put all of
your connectivity and technology to use. If you have the time to use your
mobile technology to play games and for entertainment than it’s logical to
guess that you might be able to squeeze in a few minutes during the day to
check your finances.
Make a Plan
That said, and despite all of the advances in technology that are available for
you to use to help better manage your personal finances, sometimes the best
financial tool is to simply start making a plan. One of the most common
reason why goals are not met and accomplished, whether it has to do with
physical fitness or financial well-being, is that a realistic plan with milestones
was not established. Setting up a plan for saving, investing, or even putting
aside money for a vacation or new car requires that you put together action
steps, ways of monitoring your progress, and that you hold yourself
accountable for your progress. In essence, putting a plan together, even if you
only do it for yourself, is a big step in the right direction. Even more to the
point, however, is the concept of making this a team process akin to a
workout group or workout buddy system. Sharing goals and aspirations
means that other people are aware of them, and even if they do so gently, they
are going to hold you accountable for what you had shared with them.
Sometimes the best app or tool to keep you moving is your friend calling you
out when are just about to blow your budget for the week or splurge on
something you said you were going to cut back on.
There are literally hundreds of apps available for both Google and
Android devices, so there is no shortage of tech tools to be used to help better
track and monitor your finances on the go, but there are other tools you can
use without diving right into the realm of high-tech and instant connectivity.
One tool in particular that might come in handy, especially if you are just
beginning to dip your toes into saving and financial planning, is the ability to
leverage your existing direct deposit setup to your advantage. Simply notify
your bank that you would like to redirect a certain percentage or dollar
amount from your regular account to a separate account. Doing it this way
means that once you have it up you do not have to think about it or take action
on it again—it’s set it and forget it. This might be a simple, and relatively
painless, way to start saving.
 CHAPTER 4
The Stock Market and You
One of the most frequently asked questions as it pertains to personal finance
and financial planning is whether or not the stock market matters, and the
answer is that it absolutely does! Whether most people realize it or not they
are investors in the stock and bond markets via retirement options; virtually
all 401(k) or otherwise constructed retirement funds are almost entirely
allocated toward different types of equity (stock) and debt (bond) options.
This has become even more true in a post financial crisis environment
dominated by low interest rates. In addition to this, many people are looking
for ways to put their money to work for them, and investing in the stock
market is often seen as a viable option to accomplish this goal. Especially
pertinent for the millennials entering the workforce, who are investing almost
a decade younger than Boomers did, is to fully understand what exactly they
are investing their money into.
Let’s dig a little deeper into what exactly is meant when people discuss
“the market,” and take a more in-depth look at what exactly that means for
you, your investments, and your finances overall. Two of the most commonly
cited and studied stock markets are in the United States, but I feel it is worth
mentioning what exactly the stock market represents. In general, the stock
market is a composite that is made up of the individual stocks that are traded
on these exchanges. Drilling a little deeper, the term exchanges summarizes
the primary purpose of these institutions and tools for investors and traders
alike; they provide a common market for buyers and sellers to collaborate and
determine a set price to exchange shares.
The Markets
The most often cited market that we hear about is “The Dow,” which is short
for The Dow Jones Industrial Average (DJIA). The name is actually a pretty
accurate description of what this market actually is, it is simply a weighted
average of 30 large, traditionally industrial, corporations. Believe it or not
there is not a definite formula for determining which 30 companies are
included in this average; the editors of The Wall Street Journal decide which
30 stocks should be included in the DJIA. While there are no strict rules, there
are some general guidelines that include the following. These firms must be
large, reputable enterprises that constitute a large portion of the economic
activity in the United States. Just to repeat, all that “The Dow” is, is a
weighted average of 30 large company stocks. That doesn’t really sound like
a metric of small business or consumer financial health, now does it?
In addition to the DJIA there are the: the S&P 500 containing the 500
largest, by market capitalization stocks, that are publicly traded in the United
States; the Nasdaq listing over 3,000 stocks (as of most current information),
focusing primarily on technology and growth stocks, but not limited to U.S.
companies, and the Russell 2000 that focuses primarily on smaller cap stocks.
Together these four stock market averages are the most closely tracked,
monitored, and fretted over indicators of economic activity in the United
States. These markets are also often times referred to as the “equity markets,”
and what that means is that these are the platforms where the equity shares of
corporations are traded. For our purposes the equity we will be discussing is
the common stock of the corporation, we will save the preferred stock and
bond conversations for their own areas.
Obviously if you are investing in either individual stocks, bonds, or index
funds you want to pay at least some attention to how the market is performing
over time. This holds true even if you are not a short-term investor; the
fluctuations in the marketplace will impact your returns and the value of your
holdings. Additionally, and this is an important point to remember is that
everyone with a retirement plan is invested in the stock market to a certain
extent. Even if you do not want to become a financial expert, and would
rather focus on other things, the simple fact remains that the changes in the
market impact your life.
But first…Before you go and start running around looking to day trade
and get your Wall Street fix in for the day, let’s take a step back and
remember that most of the “trading” is now done by computers that can move
faster than any human ever could dream of. Investment banks, hedge funds,
and wealthy individuals have access, on average, to technology and tools that
everyone else can only dream about. You cannot successfully trade against a
machine programmed by highly complicated algorithms and hope to come out
on top most of the time. With that said, and before any major depression kicks
in, the stock market has returned, on average, 8 percent over the last 75 years.
That means that over time, if you are patient and invest prudently in index
funds (more on those in a minute) then your money will grow quite a bit. Day
trading, however, is not something recommended in this book, nor is it
something that most people should realistically think about; the profitability
just really is not there for individual retail investors anymore.
Stocks and investment comes in a wide variety of different forms, and just
like you would want to know what types of beer are available at a certain
restaurant or bar, you should be equally as curious as to what type of
investment vehicles are at your disposal. Alright, maybe you can be a little bit
more interested in the beers, especially if you are a craft beer junkie, but you
should at least be a bit interested in what your money is doing. Let’s take a
look at some common types of investments, key terminology, and what it all
really means for you.
Equities—equities are a term that is bantered around in a many
publications and media outlets, but what does it actually mean for you and
your money? Equity, as it is referred to in the context of stock ownership and
shareholders means that the shareholders of the organization own that
particular organization. In essence, during the initial public offering (IPO),
which is the first time an organization offers shares for purchase, the
organization trades cash for ownership percentages of the company. The most
important aspect of corporate ownership, for most people, is that if you own
shares of an organization that pays cash dividends you are entitled to receive
these dividends merely because you own the shares as of the dividend date of
record (when the organization basically tallies up who owns their shares).
Now, unless you are actively trading stocks, which again is not a
recommendation, you really will not have to worry about paying too much
attention to these dates, so let’s take a look at an example of just what
dividends are:
Company ABC pays dividends quarterly of $0.50 per share of common
stock, which comes to an even $2 annually. If you own 1,000 shares of
Company ABC you are entitled to $2,000 of cash dividends—pretty neat huh?
Now, while you do owe taxes on this dividend income it is important to
note that this income is almost as passive as it can get; you receive cash
merely for owning shares! Even more interesting is if you reinvest your
dividends to purchase more shares, called a dividend reinvestment plan, DRIP
for short, automatically applies your dividends to purchase more shares of the
organization, which enables you to collect even more dividends when and if
you opt out of the program at a future date. Again, while there are taxes
associated with this income, it still is income; the more you know.
Index funds—index funds and their cousin, ETFs, have come to
dominate the investment environment for both individuals and larger
institutional investors, and the reasoning behind this shift is relatively straight
forward. Simply put, the more you pay in fees and active management
services the less money you have to actually save and invest; this explains the
rise of index funds. Index funds, by default, are comprised in such a manner
that they track the performance of a well-known index, such as the S&P 500
or the Dow Jones Industrial Average. What sets these types of funds apart,
however, is the low fees typically charged on the investments allocated to
these funds.
Every dollar or percentage point paid in fees is a dollar or percent of your
money that you are not gaining the use of—keep that in mind as you select
which investment option is best for you.
Dividends (again)—dividends are a very interesting phenomenon
amongst publicly traded corporations, because for every dollar that the
corporation spends on dividends it actually reduces the retained earnings and
negatively impacts the cash flow of the corporation. Looking at this strictly
from a dollars and cents point of view it makes no sense for a company to
ever pay out cash dividends. So why do they do so? In order to keep the
shareholders (owners) of the organization happy. Mentioned earlier, dividends
are cash payments that are made by the corporation to its shareholders, that is,
the people that own shares. Setting up a dividend friendly investment
portfolio might be the right path for you if you are seeking to build up a
passive income stream.
Bonds—bonds might be one of the most often misunderstood investment
options available in the marketplace today. In essence, bonds are corporate
debt that has been issued by the company to the marketplace—think of it as a
type of mortgage. The organization receives cash up-front, but has to pay it
back, with interest, over the life of the loan. Organizations of all types and
sizes can issue bonds; corporations, not-for-profit entities, and governmental
bodies all issue different types of debt instruments for a variety of reasons.
Whether used to fund capital expansion and facilities, share buybacks, or
other organizational purposes, these debt instruments represent another option
for investors and to build up your financial wellness.
Depending on the type of bonds you purchase, you might be able to earn
interest income tax free, especially on municipal types of debt. This subset of
bonds is usually issued to finance the construction of a toll road, and so are
usually backed by some sort of revenue stream. While it is always prudent to
consult a financial advisor familiar with your situation before investing in any
instrument, it is inarguable that these types of debt have grown more popular
in recent years.
Now, as stated above, while the stock market does matter it is important to
not get too wrapped up in the day-to-day gyrations of the stock market as you
build your financial wellness plan over time. It is important to keep in mind
that entire media companies exist solely because individuals and
organizations seek to follow the day-to-day movements of individual
companies and their share prices. That is fine, but you must keep in mind that
the information, and urgency with which that information is conveyed, is
more often than not oriented to make people trade more frequently. With
every trade and change in ownership, however, come fees and taxes which eat
into your overall return as well as the total amount you have saved.
Interest rates—interest rates are simultaneously very straight forward
while also being a tad complicated, and that is because changes in interest
rates have ripple effects that can be quite different depending on whether or
not they are viewed from an individual or organizational point of view. From
a personal finance point of view lower interest rates help if you are a
borrower, whether it be for a car, home, or education, but if you are trying to
save money lower rates will make your efforts that much more difficult.
Conversely, higher rates help you build up savings more rapidly, but if you
are on the other side of things (owing money to a third party) you will end up
paying more in interest than you otherwise might. This inherent contradiction
is one of the primary reasons why interest rates and interest rate policy have
become such hot button issues during the last several years. Depending on the
point of view you approach the issue from, you might be a fan of lower rates,
higher rates, or even change your mind over time. This brings us to our next
topic—the inherent wrinkle in these discussions.
The Wrinkle
It is important to keep in mind that the relationship and reaction to different
interest rate policies are not always consistent for individuals and
organizations, and that there always is the possibility of unintended
consequences. For example, if interest rates are low (which they have been
since the financial crisis), organizations are motivated to borrow funds
(increase their leverage) to take advantage of low interest rates, but not might
be as motivated to use those funds for capital projects, but why? In order to
undertake and profitably operate a project or series or projects the
organization must be able to earn a rate of return that is higher than the rate it
cost the company to fund it. If interest rates are very low, basically zero, the
organization does not have the ability to earn 5–6 percent on a project through
growth. Why would anyone pay that much over what it cost when interest
rates are so low?
This is a prime example of one of the primary themes of this book, and
that is that finance, economies, and business concepts in general are
multifaceted, complicated, and can (and should) always be analyzed from
multiple points of view. When you are building your personal financial plan,
and trying to construct a way that you can improve your financial situation it
is imperative that you realize this fact early. What is always good for a
business, large or small, and what is good for an individual might be very
different things. In fact, what is good for an individual in one situation might
not benefit someone else in a slightly different situation. As with many things,
the answer depends on a variety of factors; make sure you know your
situation and what you are hoping to accomplish.
Read Everything
Your parents were right in the fact that the more you read the more you know
about different things, places, topics, and people. While we are going to go
through a short list of online and print resources that are at your disposal, the
overall theme that I am trying to hammer home here is that you have to read
everything you possibly can about business and finance in order to understand
it. When I am teaching an introductory level course, or high level overview
course of accounting, the reaction is almost always the same from my
students. In nearly every class I have ever taught there is always someone
who asks “why do debits have to equal credits,” or why do assets have to
equal liabilities plus owner’s equity, or “why is the aggregate demand curve
drawn that way.” Regardless of the specific question or specific student the
underlying question, often unspoken, is almost always the same. In essence,
what my students are asking me is how they can relate to these accounting
and economic concepts so that they “just make sense.” The problem with a lot
of these ideas and concepts, however, is that they are not always intuitive and
you cannot just “pick them up” with occasional effort and interest.
The same thing applies to your personal finances, that is, the terms,
concepts, and ideas that we have been discussing and talking about are not
just going to click and make sense for you unless you put the time and effort
into learning them. Think of it like this—if you are putting together a fantasy
football team you need to do your homework, dig past the headline news, and
really find out what is important to you. Business and economic news is often
dominated by a few major headlines during the day, usually centered around
large corporate stories, interest/currency news, or something to do with
commodities. Earnings season, when organizations publish results for the
quarter or year most recently ended, can be even more distracting. This is why
it is so important for you to not only read from a variety of sources when you
are researching your ideas, but also to do so on a consistent basis. Like any
other skill learning how and what to read, from the perspective of your
personal finances, is something that you are going to have to practice and
work at. To be blunt about it, if you have time to check Instagram, Twitter,
Facebook, and Reddit throughout the day, and send some funny memes to
your friends (which I’m guilty of doing as well), then you can probably
allocate 15 to 20 min to serious business reading throughout the day. Carving
out even just a few minutes for serious and focused reading can make a big
difference when you are trying to make a decision that will impact your
finances and your financial future.
 CHAPTER 5
How to Start
Write it Down
In an age where it is not uncommon to go out to a restaurant or bar and see
everyone taking pictures of their food, texting, tweeting, and generally
ignoring the physical humans around them, you would think getting a plan
“on paper” would be easy. Despite the advances in technology, and our
collective embracing of them, the fact remains that making a definitive plan
and actually documenting that plan is easier said than done. Saving and
budgeting, as mentioned before, can be a difficult task that is not always
enjoyable or fun, but it is absolutely necessary in order to get you to the
financial place that you want to be. Laying out a comprehensive plan all at
once, or even attempting to, however, is a recipe for disaster. Most people
simply cannot accurately forecast financial and life events that will occur
down the road.
My best piece of advice, outside from establishing a plan in the first place,
would be to break that plan up into more manageable chunks and period of
time. Whether it is saving for a new car, a nice vacation, or even an Apple
Watch, the fact that you have a plan in place means that you have an idea of
where you want to end—all that you have to do is get there. This brings us to
another important crossroads, and point of emphasis, and that has to do with
the fact that depending on your perspective or ultimate goal you might
approach financial planning differently. Let’s take a look at some areas that
are routinely cited as areas for people to focus on when building or
developing a financial strategy and financial wellness plan.
Because after all, you need to embrace both physical and financial
wellness in order to have a pleasant and successful lifestyle.
Earnings—there is always a way to increase your earnings from where
they currently are, and while it will require work to get there and actually
accomplish this goal, it is well worth it in the long run. Again, while the
specifics do not matter as much as your motivation, one of the best ways to
increase your earnings either outside of your current job, or within your
current profession/employer is to increase the skill-set that you bring to the
table. Particularly in the current environment, coding, analytics, and web
design/implementation are areas growing in importance. In addition to
growing in the current marketplace it does not appear that these are short-
lived blips in the greater economic conversation, but fundamental changes to
how business and individuals react. Whether you obtain a certificate, and
subsequently use it to develop your own personal brand or persona, or
leverage it for promotion in the workforce the benefits flow to you.
Speaking of…
Build a brand—brands are incredibly powerful things, just think of the
assumptions and connotations associated with companies such as Coca-Cola,
Nike, and Apple. People are willing to pay top dollar for products that are, by
and large, the equivalent of lesser-known generic competitors. The power of a
brand is that it provides you with a market presence, pricing power, and the
ability to dictate at least a portion of the dialogue surrounding your product or
service. You can do the same thing for yourself, and this will help your
financial planning and professional development process. While brand
building and personal financial planning might seem like widely different
topics with different applications the core concepts are the same. Establishing
a goal, developing checkpoints along the way to monitor your progress, and
checking in to see if you are falling behind or on track are all tactics and ideas
that you can use for both brand building and personal financial planning.
Also, the stronger your brand is the more pricing power you will have, that is,
the higher salary you can command in the marketplace.
Take it one day at a time—I cannot stress this point enough, and it might
be the most important point of all when it comes to managing your personal
finance—it is not a sprint it’s a marathon. Treating your personal finances like
a marathon helps you build and maintain a long-term view that is essential for
sticking to your budgetary plan and goals during ups and downs. Realizing
that, over time, it is easier to be flexible and adaptable to change than
insisting on marching forward with a plan even if the realities of the situation
have changed makes achieving your goals more realistic. Life happens,
mistakes happen, and things happen to you that are outside of your control;
it’s important to realize that these things will happen, and that you must be
ready for things to not always happen according to plan.
That’s all well and good, but how exactly do we get from wherever we
are starting, which might be in a relatively strong positions or a less
than perfect situation, and get to where we want to be?
Let’s take a look at one of the most important pieces of your personal
financial plan and savings strategy: an emergency fund.
Emergency Fund
Remember when we were just talking about the fact that plans do not always
go according to plan, and that events happen that are outside of your control?
If you do not have the financial cushion to withstand those events, a simple
inconvenient event can turn into a financial disaster. It is not a lot of
imagination or creativity to imagine a scenario where you might need some
cash or financial flexibility to deal with an unexpected financial event.
Whether it is your cars transmission deciding to quit, your washing machine
breaking, or your water heater giving out during the winter, there is always
something that can go wrong at the worst time. In addition to the stress,
pressure, and inconvenience that any one of these events can and will have on
you psychologically and physically, there is also the matter of the financial
ramifications that go hand-in-hand with such events. Setting up an emergency
fund does not mean you are, all of a sudden, a doomsday prepper like you see
on TV. Rather, it simply means that you are prudently planning to give
yourself either cash reserves, financial flexibility on your credit cards, or both
so that you are able to deal with unexpected expenses as they arise.
Of course, setting up an emergency fund is something that is easier said
than done (which is almost the case with anything worth doing), but there are
steps that you can take, right now (like today) that can help get you started on
the path to setting up an emergency fund that will allow you to have a little
more peace of mind and financial security. Let’s take a look at three straight
forward things you can do, starting today, to start saving some money and
building up an emergency fund. It is also important to remember that this
fund should be the cornerstone of your financial savings plan. The tactics and
ideas that you use to start saving and building up this fund can and should be
used to help you save, plan, and financially deal with other obstacles in your
life.
1. Brown bag your lunch—especially in the NY Metro area that sheer number
of options available at lunch time are nearly ridiculous. Shake Shack, food
carts, to traditional staples like Subway and KFC are all alluring during the
daily grind as nice and tasty break from work. I like to eat as much as the
next person, but let’s take a look at the following example and see just how
much money you can save with one small tweak to your routine. That small
tweak is brown-bagging your lunch to work, which might be the hippest
thing you ever do, but hold off on judgment for just another minute.
Example: Let’s say it costs $10 a day for a nice sandwich, bag of chips,
and soda, so that’s $50 a week, and assuming you are off 3 weeks during
the year (vacation and holidays mixed together) that totals $2,350 a year in
lunch expense. Using myself as an example, I like my Turkey and Swiss
cheese sandwiches with some chips on the side it costs me $15 for turkey,
$5 for Swiss, $2 for a large bag of chips, and $4 for bread which lasts me a
 week. That means, comparatively I am saving $24 a week, or $1,128 a year
assuming prices stay consistent and I work the same number of days. Over
a grand in your pocket just because you decided to make a sandwich in the
morning—pretty cool, huh? I have no doubt you can find some good use
for that money throughout the year, but why not stash it in your vacation
jar?
2. Set your savings on auto-pilot—of course you cannot expect to have all of
your savings plans on auto-pilot, but there is absolutely no reason why you
cannot leverage this capability in order to help you save more money in a
relatively painless manner. Whether you set up a 401k contribution with
your employer-sponsored plan, or you redirect a certain percentage or
dollar amount to a separate savings account is less important than the fact
that you are doing it. Obviously, the 401k money is for the long-term, but
the important thing to keep in mind is that the consistency with which you
save is more important than the dollar amount. For example, if you saved
$20 a week, every week, for the entire year you will have saved over
$1,000 during the year. Assuming interest rates start to normalize, let’s say
to 2 percent on savings and certificates of deposit, that’s an additional $20
in interest income for the year. I know that might not sound like bags of
cash, but it’s a solid start, gets you in the habit of saving, and establishes a
path for you to use going forward. It is important to note, however, that a
401k plan should not be associated with savings that are immediately
accessible due to early withdrawal penalties associated with these funds.
Included with these penalties are tax implications—be sure to consult with
your CPA or certified financial professional before making decisions linked
to your 401k investments.
3. Be consistent—building on point #2, I cannot emphasize enough the
importance of being consistent with your savings and financial planning.
Just like you would not work out sporadically, or eat healthy sporadically
(ok, maybe I do go on a healthy eating craze once in a while, who
doesn’t?), you cannot save or plan for your financial future in a sporadic or
chaotic manner. Consistently accumulating information and dollars over
time is the best way to successfully set up and maintain a personal financial
plan. Regardless of where you are starting from, or how much you can put
away each week or month the fact that you are being consistent about your
saving and planning process will set you up for future success. Think of it
like this, when you are job-hunting, dating someone, or writing a book you
need to put time in toward that goal and objective every single day. There
are no off days, and it is imperative to keep that in mind as you are
planning out your financial strategy.
Where Do I Get My Information?
Again, depending on the specific savings goals you have in mind you might
be more likely to get your information from certain sources opposed to other,
but regardless of what your personal goals happen to be, there are several
concepts and traits that you should look out for. The key, in my experience, to
successfully building and maintaining a personal financial plan is to make
sure that you are taking everything into account. For example, the struggles
that Chipotle was having toward the end of 2015 with food sanitation and
supply chain sourcing might not have seemed to be of grave importance to
you and your personal finances. Digging deeper, however, a connection
quickly becomes clear; in a press release that accompanied earnings for the
last quarter of year the restaurant chain indicated that prices would be raised
in order to offset the increased costs of several measures taken to improve
over food sourcing practices. In essence, after sickening customers across the
country the chain responded to mounting criticism and health issues by
increasing prices; the more you know.
While not every corporate headline will impact your personal finances in
such a direct way it is always important to know what is happening in the
broader economy and business landscape. Like stone tossed into a pond, the
ripples of an event can have ramifications far from where the event itself took
place, and move in unexpected directions. Nobody ever likes being caught
unprepared for news or events, and this is doubly important for financial
matters; these news and stories matter and can have a direct impact on your
financial security and information. There are many resources available online
that provide information, and this list is by no means meant to be exhaustive,
but merely a short listing of some sights I have found to be useful for day-to-
day news tracking. Also, do not forget that while the setting might be
defaulted to U.S. news, that you can (and should) check news and stories
from across the globe, as there are issues happening overseas that impact not
only economy but also your personal finances.
One Thing to Always Keep in Mind
The reality of the situation, for virtually everybody, is that at one point or
another you are going to hit a bumpy patch in the road, and will need to
reassess where you are with regards to your spending, earnings, and income.
The critical, yet unspoken assumption that every financial planning book, or
expert, uses to base assumptions and advice on is that you are spending less
than you are earning, and that you could start saving. Reality, however, can
often be quite different for many people and it is critical to keep that in mind
as you develop and maintain your own personal financial plan. At certain
junctures, you might very well have to sacrifice some of the things you might
want to spend money on, or things you might want to do, in order to situate
yourself better for long-term financial success.
Let’s explain that a little more, and really dig into what I mean when I say
that. Money, at the end of the day, cannot buy happiness by itself but it can
certainly purchase a lot of experiences and items that can help you feel better
on a given day. Money is not the end in and of itself, it is a tool that can allow
you to do and experience things that give you and your loved ones happiness
—so it should be treated as such. Much like a chainsaw helps you do more
work faster, it can also be very dangerous if used by someone who does not
know what they are doing, money (capital) can certainly also get you into
trouble. Discussed previously, I am sure we all know someone who is
habitually late on credit card payments, or can only afford to make the
minimum payments every month. This is clearly not a viable way to building
wealth and will keep you running on the hamster wheel.
One of the most important ways to get to where you want to be is to
always remember that capital is a tool, and you should really think of your
earnings and capital as tools to help you achieve the kind of life you want to
have. Increasing your earnings potential in the short-term, whether by
changing jobs, starting a side business, or by developing online content, is a
great step toward improving your financial situation. Equally important,
however, is that you make sure that you maximize the long-term impact of
that extra money. In other words, if you blow all of your money on trips to
Atlantic City, Vegas, and $12 lattes then you really have not put yourself in a
better situation. Thinking of capital, and your earnings as a tool, and looking
at these items objectively is something that all great investors and
businesspeople have in common. Money, of course, is important and it is
important to treat yourself (as we have discussed), but it is also important to
remember that your money is the result of your hard work, and should be put
to work for you.
Information: Navigating Fake News and Finding the Real Deal
As this book was taking shape the terms fake news and alternative facts
entered the mainstream conversation, with individuals of almost every
affiliation accusing opponents of using such tactics. In such an environment,
where partisanship and discord exist at such pronounced levels, getting
objective information is more important than ever. Regardless of where you
sit on issues, and even if you do not care at all, your finances and financial
decisions should be governed by objective information and data. Opinions are
great, and emotions are what make us interesting (not to mention human), but
when it comes to your finances, use your head. If it seems too good to be true,
guess what? It probably is.
 CNBC.com—one the most well-known financial media stations, both on
TV and online, provides daily coverage of both domestic and
international news. The one downside that is their evening and weekend
coverage (on TV) is virtually nonexistent for anyone interested in
overseas markets, but the website is always live.
Bloomberg.com—probably the most well-known financial media
company, the website and TV coverage are very comparable to CNBC,
with an edge to Bloomberg on the weekends and evenings due to the
fact that they stream coverage of Asian and European markets even in
the United States. The biggest downside for our purposes is that there is
not as much coverage of personal finance stories.
Wall Street Journal—the original standard, and an excellent source of
information for people seeking news on financial markets, or news in
general.
Investopedia—this is a personal favorite of mine from my undergraduate
days, as this website, while not as focused on broader economic or
stock market moves, nor equipped with a TV or media component,
drills down almost exclusively into terminology and concepts integral
for understanding finance and economics. From short videos
demonstrating what terms to look out for, to easily understandable
definitions, this is a great resource for anyone looking to get started.
Business Insider—an amalgamation of stories, headlines, and interesting
articles about business, business dealings, and topics linked to personal
finance, this website is easy to read, updated constantly, and covers a
large breadth of topics.
Regardless of what particular source of information you utilize, I cannot
reiterate enough the importance of taking into account the bias of the source.
When I refer to bias I do not mean anything nefarious or evil, rather, I am
merely acknowledging the following reality. If your resources and
information have a specific point of view you have to be able to realize that
and take what you hear with a grain of salt. A good way to avoid being
swayed too much by one specific source of information is to obtain your
information from various sources and places. One strategy I try to use to great
effect is to obtain some of my information from domestic sources and some
from international sources such as the BBC. Even just watching coverage of
economic news and business stories from different parts of the globe, such as
offered on Bloomberg during evenings and Sunday nights, might give you a
different perspective or angle on a story or topic.
Going Mobile
Before drilling down into which apps to use, and which platform is the best,
Android vs. Apple, we need to have a conversation about cyber security,
identity theft, and how to best protect your information while you are online.
These are not merely academic issues that can remain the domain of
technology specialists or information technology specialists; this is real threat
and potential disaster for you and financial information moving forward. If
major corporations, with entire departments dedicated to technology and
cyber security can fall victim to hacking and data breaches, you can bet your
data can be hacked as well. As we continue to see occur, organizations
ranging from Ashley Madison to Target, to J.P. Morgan can be hacked and
suffer data integrity issues. You can be certain that data is an issue you should
be paying attention to as well. Now, before we start panicking and setting up
passwords that are 36 characters long, let’s take a step back and look at a few
straight forward ways to help you improve your data security. I promise, you
are not going to need a PhD in computer science for this next part.
First and foremost, let us remember that technology is comprised of two
equally important components: hardware and software. (Remember that even
the cloud is simply servers that are elsewhere and out of sight.) People bring
their laptops, tablets, and smartphones with them virtually everywhere they
go, so it is important to remember to either “lock” the device when you are
not using it and/or password protect it when you are not physically with your
device. Look around any major transit terminal, conference, college campus,
or event and you are virtually guaranteed to see unattended devices. How can
your information be secure and safe if you are not protecting it? An often-
unexamined aspect of data security and cyber security, you absolutely must be
sure to safeguard (and backup) your information continuously. It might not
sound as cool as building an algorithm to firewall your data, but keeping an
eye on, and locking your hardware, can save you a lot of aggravation.
Moving on to the software angle of personal financial security, which is
where most people focus their time and energy, there are a few straight
forward things you can do to make sure that your data is secure as it can be.
Before we dive in, however, I do have a basic sounding security suggestion
that is, unfortunately, all too often overlooked. Make sure to lock your
phones, tablets, and laptops at all times, and to make sure that your passwords
are strong—in my travels through airports and train stations I routinely see
this fundamental security tactic left undone. Our electronics have tremendous
amounts of individual and business information, and losing such items can
really have a negative impact on your financial and personal plans.
1. Set up alerts—most credit cards will allow you to set up alerts that will tell
you if an unusual transaction, transaction over a certain dollar amount, or a
 transaction that occurred without the card being present have happened.
Use these features! It may take a few extra minutes to set up, but now you
will know if your card is stolen or your information is comprised, before
the unpleasant surprise of a large and unexpected bill.
2. Use strong passwords—I know that this might seem like too basic, but
some of the most common passwords used by people are “password,”
“password1,” or the famous “123456.” Such simple passwords simply are
not going to be good enough in an era where cyber crime has become a
business with an international scale, and so much commerce and
information is conducted virtually. Again, you do not have to make your
passwords ridiculously long or complicated, but they should be something
that only you know, and please change them. Passwords, ideally, should be
changed every 90 days, but depending on the sensitivity of the information
you are handling, it might be prudent to change yours even more often;
only you know.
3. Be suspicious of free Wi-Fi. There is a saying in business that if you are
being given something for free, whether it is access, information, or
products, then the items you are receiving are not the product; you are.
Think of Facebook, Twitter, or any of the other social media organizations
that have arisen over the last decade; you provide them with information,
customer data, and large quantities of information to distribute to marketers
or for their own targeted ads. The same principle can, and should be,
applied to free Wi-Fi provided whether it be at a local bagel shop or
Starbucks. This is not to say anything nefarious is being done on purpose,
but the primary business of that business is not Internet access, that is, the
network you are on is probably not secure. If you are thinking about
conducting a financial transaction or access personal data on a freely
provided Wi-Fi network, you might want to wait until you can access your
carriers network, or your own Wi-Fi. The password you have on your own
network is hopefully stronger (see point #2), and the only person on the
network should be you!
4. Photocopy everything in your wallet—while this might seem like an old-
school and low-tech solution it’s an “oldie but a goodie.” Making a
photocopy, or even just taking pictures (in either case make sure to do both
front and back) of what’s in your wallet is a time-tested way of keeping
track of what you are actually carrying around on a day-to-day basis.
Additionally, and more importantly for our purposes, is that if you ever do
indeed lose your wallet you will know exactly what you have lost track of,
what cards you need to cancel, and what forms of ID you might need to
replace.
 A Few Things to Look Out for
As with any new endeavor it is important to keep in mind that not everyone
you meet along the way will be motivated to help you, and it is not always
because these people or organizations are inherently evil. Rather, you just are
not their top priority—you might be a customer, a potential client, or someone
they interact with on a continuous basis but their primary concern is
maximizing their own results. This is business after all, and personal financial
planning is all about the numbers and you have to be on top of your game at
all times. Now, with all of the niceties out of the way it is important to
acknowledge the fact that there are some red flags and potential pitfalls that
you should always keep your eyes peeled for when you are considering
investment or other personal finance opportunities. Regardless of what area
you are looking into, and whether you are looking into it yourself, with your
budget team, or with your family these red flags and potential areas of
concern hold constant.
1. Returns that are too good to be true—CNBC has a program titled American
Greed, which documents time and again the tales of individuals and
organizations that are swindled and conned out of their hard earned money.
How do so many people continue to fall for scams, con-artists, and out-
right lies? The simple fact of the matter is that most people hear what they
want to hear, and that if a lie is told in a convincing enough manner most
people will go with it. Now, let us take a step back and look at the big
picture again for just a minute. According to endless statistics and
documentation, some of the most successful, wealthy, and well-known
hedge fund managers and financiers in the world are able to correctly judge
and trade the markets moves about half of the time; that’s barely better than
flipping a coin! The returns and profits they make, however, are generally
due to the fact that the wins they score overshadowed by several times any
losses they also incur.
a. If someone is guaranteeing smooth, consistent, and high returns year
over year due to a proprietary trading strategy or technology, or refuses
to discuss the specifics of their trading platform/ideas this is usually a
good sign something fishy is going on. While the stock market averages
approximately 8 percent a year in returns, that is an average, not a year
over year rate of earnings without hiccups.
b. If there is an inordinate amount of pressure to invest today, or to hand
over your cash to this person or organization this should give you
pause. Why would there be such pressure or rush to invest in a
particular asset or investment at this particular time? Market returns,
and economics in general, tend to move in cycles gradually over time;
 there is no logical reason why you would not be able to think about or
consider an opportunity.
The Truth Is Out There
No, I’m not talking about the X-Files (cue the music), but the fact that there
are a multitude of resources out there that are provided by nonprofit
organizations and vetted by experts. One of best resources, in my opinion, is
the resources provided by the AICPA National Commission on Financial
Literacy—I do have to disclose that I am a member of the commission. That
said, and looking at the information provided from an unbiased and objective
point of view, it is readily apparent that the information provided on both
feedthepig.org and 306degreesoffinancialliterary.org are high-quality
materials. Perhaps most importantly for personal financial planning and
budgeting is the fact that the information provided by the Financial Literacy
Commission is maintained and continuously updated by CPAs from across the
country employed in a variety of fields. Such a broad perspective certainly
helps make sure that the information is current, relevant, and user friendly.
In addition to the AICPA and other resources we have discussed
throughout this book it is important to remember that there are, most likely,
local resources and information that are readily available to you and that are
at your disposal. Virtually every major city or population center has programs
and initiatives to help educate and inform residents about the importance of
financial literacy. In addition to initiatives and programs launched by local
governments and associations there are certainly sure to be educational
seminars, speeches, and programs hosted by local colleges and universities.
Usually free of charge, these are a great opportunity to get advice and
guidance from experts in the field for little or no cost. Put simply, there is no
excuse to not get the information you need in order to make the best decisions
for yourself and your finances. With virtually unlimited data and information
available to you for little or no charge it is up to you to go seek out the
information you need. Again, and the importance of this cannot be stated
often enough, one of my top pieces of advice to help you maintain and stick
to a budget plan is to get either a budget buddy or form a budget team. This
includes discussing resources and potential resources to obtain information.
Keeping each other honest, on track, and pushing each other to improve and
do better are all time tested methods to stick with a program for the long-haul.
Remember, financial planning and your personal finances are a marathon not
a sprint.
Probably the Most Important Thing
Personal finance and money management are simultaneously very
complicated endeavors but are driven by a handful of key concepts and ideas
that can be applied almost universally. The concepts and ideas of saving,
investing in a manner that matches your appetite for risk (possibility of
losses), and making sure that you can monitor and track your investments can,
and should be, applicable to everyone and anyone reading this book. That
said, there is perhaps one piece of advice or information that is more
important than the rest put together, and that is this; things change and you
must remain flexible. The New England Patriots of the NFL have put together
a string of dominance that has rarely been seen before in the sport, and should
not exist in the face of all the rules put in place to encourage parity and
competition. So how has this team managed to defy the probabilities year
after year? Some key ingredients are flexibility and adaptability.
Flexibility and adaptability do not, as it is sometimes interpreted, that you
must change direction and your ideas every time there is a bump in the road;
that is unproductive and will lead you off the track you had selected for
yourself. In essence, and particularly as it applies to your financial and
professional development, flexibility is a much more nuanced idea. Not every
idea you have is going to work out, sometimes you are going to fail, and
things are going to go sideways on you at the worst possible moment.
Whether it is a job that is not working out, or an investment opportunity that
is going from a dream to a nightmare, the two most important things you can
do are to (1) keep a level head about you and (2) remember what the ultimate
objective it. Improving your financial life and setting yourself up for future
financial success is not a straight-line from start to finish with no
interruptions. It is a bumpy road that can be filled with potholes and accidents
waiting to trip you up. This is why being flexible in how you approach things
is so important; you can still get to where you want to be but you just might
have to take a slightly different route to get there.
Adapting to changing conditions is a pre-requisite that all successful
individuals and organizations have; you must evolve and move with the
marketplace or risk being left behind. That said, and while you are tracking
the changes in both your career area and the financial landscape it is
imperative to stick to your principles. Whether you are focusing specifically
on your career or on your investment portfolio/financial path forward the
meaning is the same. Being able to evolve, adapt, and remain relevant in the
face of a changing market is not a simple task; which is why it pays to have a
team and/or group to help you through the rough patches. We are all in this
together, we can all do better, and we can help each other along the way—it’s
not rocket science it’s common sense.
Let’s Recap
We have been talking about personal financial planning, finances, economics,
and how to best plan out our financial future for a while now. Hopefully I’ve
been able to review topics such as interest rates, 401k savings plans, 529
savings plans, and data security in such a way that is understandable,
relatable, and useful. More important than that, however, is the purpose with
which I started writing this book and why I am so passionate about personal
finance, financial literacy, and financial education. People work hard for their
money, and do so in the effort to provide a stable environment for themselves
and their loved ones to live in. Shocks, whether from overseas, national
economic headlines, or local relocations of companies/industries, can have
devastating consequences for those impacted by these events. Just because
something is stable today, or everything seems fine at the present certainly
does not mean that it will be fine moving forward. The harsh lessons and
realities of the 2008 financial crisis truly hammered home these messages,
and reinforced the following truth. Your personal finances and financial
affairs are your responsibility and yours alone, and you must be able to
manage and understand what is necessary for you to succeed in this rapidly
changing economic landscape.
At the end of the day your personal finances should not scare or intimidate
you. Even if you have not always had the best spending and budgetary
discipline it is imperative that you at least take a look at your finances and see
where you are. Just like the house will not clean itself, and the laundry will
not wash itself, your personal finances will not miraculously get themselves
into shape without your help. You are not in this alone—there are virtually
unlimited resources and information out there for your disposal, and there is
no one saying you need to do everything at once. Set a monthly goal to
accomplish one thing, or focus on one area of your finances, and go from
there. For example, in one month you can dedicate your efforts to setting up
your 401k, talking to your plan sponsor, research investment options, and
deciding how much to contribute. Or maybe your first goal would be to get a
better handle on your credit cards, that is, how much do you owe on the cards,
are you behind on any payments, and what are the interest rates you are
paying? The place where you start is less important than the fact that you are
starting.
To put it simply, I am firm believer in the power of the individual and the
ability we all have to be in charge of our own lives. While you cannot always
control what happens to you, you can plan, be prepared, and educate yourself
about the options that are out there. Now all that is left for you to do is to hit
the ground running—get your squad on board, get a budget buddy, and get to
work. The tools are ready, all you have to do is pick them up.
 CHAPTER 6
Putting Pedal to the Metal
If you made it this far, good for you! But if you chose to skip ahead and get
right to this section of the book I can’t really blame you—everyone always
wants to get the ball rolling right away. That said, it is important that you have
a solid understanding of the concepts and ideas we discussed in the first part
of our book; these form the foundation of your personal financial plan. This
section of our book focuses on actual plans and action-oriented steps that will
enable you to effect the different types of change and progress that you both
want and need in your personal finances. While the ideas and concepts listed
here are no means proprietary in nature or the result of any sort of secret
sauce, these are real-world resources and tools that you can use to improve
your financial life starting today.
My goal, in writing this book, is to leverage my personal expertise and
experience as a CPA and advocate for financial literacy to help provide
guidelines, key points to keep in mind, and a roadmap for how you can start
improving your financial literacy. The first five chapters of this book focused
on introducing and discussing the topics essential to designing and putting
into practice a financial literacy and wellness plan that best suits your unique
circumstances. These ideas, including but not limited to the following, are the
items that must be incorporate into how you are planning your personal
finances:
1. Credit score
2. Planning for life events
3. Your career arc
4. Saving for retirement (yes, even if it is a long way off)
5. Understanding the tools and resources that are available to you
For the rest of Part I, however, we focus on action-oriented steps and tools
that you can put to work today in order to improve your financial well-being.
The best laid plans and idea, without action, will not get you the results you
desire and deserve.
Building Your Plan
The most important part of your personal financial plan is not any specific
tool, idea, or piece of information—it is you! I cannot stress this point
enough, and that is that you alone are responsible for your financial future,
but that is not a bad thing. If you truly think about it—who could possibly be
more concerned with your financial wellbeing and health than you?
Fortunately, it is easier than ever before to organize your finances, get your
financial inflows and outflows in order, and set yourself up for financial
success—that should be a long-term goal regardless of what specific field you
work within. What follows below should be viewed as a general overview of
the steps to take to build out a personal budget and financial plan, but
obviously every individual will approach personal finances slightly
differently.
1. Organize your inflows and outflows—What I mean by this is that you will
actually have to sit down and look at when your bills come in versus when
you are paid.
a. This exercise reinforces the difference between net income and cash
flow, which is critically important. Net income, for example, might be
thought of as how much you earn during the month based on your
paychecks. Cash flow, conversely, is focused on actually when you are
paid. A big difference!
2. Plan out the goal you are aiming to achieve, in the short-term, medium-
term, and long-term, and make sure that your savings plans are aligned
with your goals. Setting up a budget, and dividing out your budget into
these different buckets is a powerful way to help focus your actions. In
addition to dividing your budget (plan) into short-term and long-term goals,
there are several additional steps that should be taken in order to make sure
you accomplish your goals.
a. Leverage your resources—Whether it is your friend, roommate,
significant other, or a friend from work that you have discussed this
with, it is important that you make the most of the people and
information
b. Take advantage of technology—As we are going to cover in the
following section it is easier than ever before to make sure that your
saving and budgeting are staying on track. Think of it like this—if you
have time to check your Facebook and Instagram during the day then
you can probably carve out a few minutes to also monitor your personal
finances.
3. Leverage Technology—It is almost cliché to say that you should leverage
technology to help achieve your goals in the current environment, with
everyone and every media story talking up the virtues of social media. That
 is not what we are talking about with regards to your personal budgeting
and financial wellness. Technology is a great tool that provides large
amounts of flexibility with regards to monitoring and planning out your
finances, but it should be approached in two general ways.
a. It is mobile? With the proliferation of tablets and mobile devices,
regardless of operating system (Android vs iOS), there are almost an
unlimited number of apps and games available on mobile devices. With
Pokemon-Go, Mario, and other augmented reality games making their
presence felt on social media, the trend toward social information is
clear. Any tool that you choose to use, if it is indeed accessible on your
mobile devices, should also be just as good on your tablet and phone as
it is on a desktop.
b. Protection—We do not have to go over again the pitfalls involved with
putting your information online, as organizations continue to fall victim
to hacking and data breach events. Regardless of which tool you choose
to use it is imperative that you follow the following steps:
i. Only access information on a secure network (not at your
neighborhood Starbucks)
ii. Change your password regularly
iii. Ensure your physical privacy whenever you access this data
Use the Resources
The saying goes that no person is an island, and this should absolutely be
applied to the building and implementation of a personal financial plan,
especially when it comes to the information that is used to put your ideas into
practice. While there are a lot of websites and books out there extolling
different plans and strategies, there are several key ideas and themes that you
should always keep in mind when doing your own research. Especially since
this topic has to do with your hard-earned money, saving, and investing
strategies, it is especially important to use the best information available.
1. Is there a sales pitch involved with the information, and I don’t just mean a
book or lecture event? In a capitalist economy, it is perfectly reasonable to
expect individuals to deliver certain amounts of information up front, and
receive compensation for the remainder of this information. That said, if
there is an investing system or strategy that is linked to the advice, that is, if
the tips and suggestions are only attached to one system of product it might
be worth a second look.
2. Is the quality of this information verified by professionals and experts who
are knowledgeable about the subject area? Personal finance advice and
 information can, and is, offered by a wide ranging number of individuals,
but not all information is created equal. CPAs, certified financial planners,
financial planning specialists, and individuals who have received training
in the areas of personal finance and finance in general should be the go-to
sources of information. Think of it like this—would you take your car to a
mechanic that was not trained or certified in the field of fixing cars and
trucks?
3. What format is the information presented and updated with? Basically, and
this question is increasingly more and more important in an environment
where almost everything is available on tablet devices and smartphones, is
whether or not this information is updated as situations change. Changes in
the following areas happen at a head-spinning pace, and if your personal
finances, including insurance and budgeting, do not keep up with these
changes, it can be awfully difficult to keep your plan on track. Some of
these areas that change rapidly include, but are not limited to, the
following:
a. Insurance policies
b. Tax laws and regulations
c. Health care, including deductions and premium payments
d. Mobile options for payments
e. Password policies and best practices
4. Can you construct a template or a plan? The first step in improving your
personal finances and financial wellness is to put together a plan to do so,
but the format of your plan is less important than the fact that you have
one. It can be put together with a pen and paper, a tablet friendly program
such as Mint, or any one of the other numerous options out there. A listing
of resources and options will be provided toward the end of this book, but
do not let the technology overwhelm you—technology is just a tool and not
the end all be all of personal finance.
One of the best resources, created, monitored, and vetted by CPAs is the
360 degrees of financial literacy website. Supported the AICPA, this website
provides calculators, resources, and information that can be put to good use
right away. We will be taking a deep dive into the tools and resources
available on this site below, but before that I do want to once again emphasize
the importance of using objective information. Additionally, there are several
categories of tools that should be focused on as you review the different types
of information, regardless of whether they are from AICPA sources or other
sources of information.
1. Calculators—Obviously the most logical benefit of using calculator tools is
to actually see how your inflows and outflows work into a budget plan or
template. In addition to being able to input your actual information and see
how it plays out, the very process of building a budget and forecasting your
financial position helps you better understand just where you are.
2. Q&A forums—As I have stressed throughout this book, it is especially
important to seek out the advice of individuals that are qualified to give
advice about personal finance and financial literacy. Q&A forums provide
an opportunity to see what other people are asking (and give you the
answer without having to ask the question yourself), and the response from
experts! These forums are a treasure trove of information, and should
certainly be utilized.
3. Hot topic areas—Student loans, credit scores and ratings, saving (both for
retirement and for other short to medium term goals), deciding what to do
about taxes and health care, and information about credits and other
financing available are all extremely important. Hyperlinks in this text
provide you access to do pamphlets and brochures about tax credits, and
how to better offset the costs of college. Paying attention to developments
in these areas of importance form the foundation of any solid personal
financial plan.
While there are many other sources of financial information, specifically
personal finance data that are available in the marketplace such as Dave
Ramsey, Suze Orman, and even Tony Robbins, we are going to drill down
deep into two other resources. While these individuals and books contain a
large amount of quality advice and resources in these books, the resources I
am going to be discussing are provided by the AICPA. The information may,
in fact, by similar in nature, but again my goal is to provide you with high-
quality data that are freely available, and are also accessible online.
360 Degrees of Financial Literacy
As a member of the AICPA’s Commission on Financial Literacy you might
say that I am little bit subjective in my praise of both the initiative and the
resources available, but you can certainly review them and make your own
decision. An initiative that really began to pick up steam following the
financial crisis, the Commission on Financial Literacy focuses on delivering
high quality information to individuals so that they can make better decisions.
Information delivered both through the website, social media campaigns
(Facebook, Twitter, and Instagram), and by utilizing commission members as
experts to speak to press, the commission serves an important role. Drilling
down in both the 360 Degrees of Financial Literacy Website, and the
Benjamin Banks “Feed The Pig” campaign there are areas that can provide
foundational elements of any personal financial plan.
First, the websites themselves
360 Degrees of Financial Literacy http://360financialliteracy.org/
Benjamin Banks—Feed The Pig http://feedthepig.org/
360 Degrees of Financial Literacy
The 360 Financial Literacy website is a virtual treasure of information related
to personal finance, financial planning, and calculating how to better save for
goals throughout your personal life. Several of the most useful data points and
resources, in my opinion, link back to the areas listed before to look out for
when looking for high-quality resources. One additional resource and tool that
comes in handy, mirrors the convenience of other online platforms and
resources, and should definitely be used, is the ability of individuals to log-in
and create their own accounts. While this might seem like a relatively basic
feature or functionality for a website to have, the ability to customize your
preferences the data that you will get is customized for you and you alone.
Also, and on top of the ability to log-in and set up your preferences, the 360
Financial Literacy website also provides the opportunity for individuals to
sign up for e-mail alerts and information as you request it. On top of that, and
presented right on the home page, is one of the most versatile features of the
site itself—depending on what stage in life you are at, or planning for, there
are different resources available for you to use! This acknowledges something
that all of us already know—that depending on where you are in your
personal and financial life your goals and objectives will be different.
These are great features, and they are complemented by the fact that the
360 Financial Literacy resources also have a powerful presence on social
media platforms, especially Facebook and Twitter. To be honest, more and
more people, especially millennials and Generation-Z (the age bracket
following the millennials) are likely to get information and hear about things
either on Facebook (or via Instagram depending), or Twitter. Having a
presence on these platforms reinforces the accessibility of the information
presented on 360 Financial Literacy website. Again, and this point cannot be
stressed enough, is that the information provided on this website is sourced
and vetted by CPAs and certified financial planning professionals. In contrast
to other informational sources there are no sales pitches or pushing of a
specific product or service, which enhances the objectivity of the advice and
information provided.
Feed the Pig
The somewhat humorous name and icon bely a great resource of information
that plays particularly well, and is oriented toward younger professionals and
younger people seeking realistic advice specific to their situations. Again, one
of the best features available on this site includes different menu options that
focus on different areas of your personal financial life such as buying a car,
paying for college, or purchasing your first home. Breaking out these different
goals, which usually correspond to different stages in an individual’s life, is
an asset to the individuals seeking to leverage this information.
Customizing content, especially for millennials, young professionals, and
people looking for information relevant to their specific situation makes this
resource more appealing user friendly. In addition to these features, the Bank
On It game, created in coordination between the AICPA and the Ad Council,
creates an environment of gamification for learning about financial literacy.
As the trend toward gamification continues to become increasingly relevant in
education at large, the financial literacy subset of education is no exception.
With thousands of participants, including international participants, the
enthusiastic response to this feature will only drive further improvements.
 CHAPTER 7
Personal Finance—The Takeaway
Issues
Particularly when framed in the context of financial news and markets, the
fundamental issues that drive personal finance concerns and anxiety are too
often ignored. While not as flashy as corporate earnings, Federal Reserve
interest rate decisions, and mergers and acquisitions the building blocks of
personal finance are critical to understand. Purchasing an automobile, buying
a home, and financing education are the largest financial decisions that are
undertaken by individuals, and we are going to look at action-oriented steps
for individuals to put into practice. While the details of these decisions will
obviously be different for every individual the key concepts and steps that can
(and should) be taken are consistent.
Buying a Car
Now I know that this is titled “buying” a car, but these principles will also
apply for people seeking to lease a vehicle. If at any point there is a point that
I think is specific enough to call for leasing concerns, those items will be
bold-faced. Before that, however, it is important to remember what a vehicle
is, and what it is not. A vehicle is a tool that enables you to get to work, get to
school, pick up kids from soccer practice, and in general have the flexibility
that you need to live your life. Especially in the suburbs, or anywhere outside
of major urban areas really, a car is a necessity as opposed to an optional
purchase.
With that in mind, it is easy to get caught up in using a vehicle as a status
symbol, especially when it comes to technology and optional features. These
can be nice, but inevitably cost you more money—money that could be used
to save for your longer-term goals, or a treat like a birthday trip somewhere
you want to go. So, let’s take a look at some items to always keep in mind,
and be aware of, when you are looking at upgrading/purchasing a vehicle.
1. Do your homework—There is virtually endless information available
online, and it is free of charge, so it is really the responsibility of the
consumer (you and I), to take advantage of this information. Clearly the
decisions and information will be different, and include different specific
characteristics depending on the purchase in question, but there are a few
 data points that should be analyzed.
a. What is the total cost of ownership? And by that, I mean what is total
cost of both the monthly payments and associated fees that are included
within the cost of the lease or purchase option? Generally, the overall
cost of leasing is usually more expensive than a purchase decision
related to an automobile. Specifically, there are several fees and
conditions that should always be analyzed when deciding whether to
lease or purchase an automobile, and these factors apply regardless of
make of model.
b. First, you must examine the terms and conditions linked to the
lease agreement versus the options available if the vehicle is
purchased. Drilling down, there are two terms and conditions that must
be analyzed when evaluating the purchase versus lease decisions. What
is the mileage cap on the lease agreement? This is one of the most often
violated terms of a lease agreement, and can easily add up to thousands
in extra expenses. Second, the specific terms related to the condition of
the vehicle when it is returned must be taken into account. Put simply,
the dealership wants to be able to resell or release these vehicles, and
any dings/scratches, or stains will reduce the trade in value you receive
for the vehicle.
c. In short, when you are deciding to lease or purchase a vehicle, which is
the second largest purchase (after a home), in the financial life of most
individuals, it is imperative that you do your research. Understanding
both the costs and obligations that you face if you purchase the
automobile or lease the vehicle is important when you are assessing a
vehicle decision.
Home Ownership
So, after purchasing a car or truck, the most important financial decisions in a
person’s life are (1) saving for retirement, and (2) purchasing a residence
(whether it is condo, co-op, or single family home). While these decisions are
clearly personal and emotional in nature (all you have to do is watch the
shows on HGTV to see the emotional aspect of home purchases), the bottom
line is still the bottom line.
1. Are you going to rent or purchase this residence? This is an important
question and decision that is too often overlooked and overshadowed in the
midst of decisions linked to the details of the home purchase itself. In
essence, the decision to rent or buy the home in question boils down to
whether or not you are certain about the residence in question.
 Renting, is in the long run, paying money to live in a place that you are
a. not certain you want to remain (otherwise, why don’t you buy a place
there), or it is located in an environment that is unaffordable for
purchase.
b. Purchasing the residence, clearly, is a longer-term financial obligation
and should be evaluated as such. Perhaps the most important thing that
you can do in order to set yourself up for financial success is to be sure
to review the terms and conditions of whatever agreement you sign.
This cannot be focused on enough—being sure to read the terms
and details of what you sign is essential.
2. Make decisions based on what your career and financial goals are, and be
sure to keep these different items are closely aligned as possible. Imagine if
you started to train for a marathon, then decided to train for powerlifting,
and then wanted to do Cross Fit. You probably would not make much in the
way of progress on any goal—your financial decisions are not any
different!
a. Be realistic though, and make sure to incorporate other different trends
that are going to influence both your career and your real estate
decisions.
Saving
When the topic of saving or budgeting inevitably fails to bring out the eye
rolls and other signs that the people listening are not interested in whatever
follows. Saving and budgeting, far from being boring or topics not to be
interested, form the foundation of whatever financial plan or goal you are
ultimately planning on achieving. Building a budget and saving funds for
your different goals does, however, require several steps depending on what
your goals are, and your own personal financial objectives. While these steps
will obviously be different for everyone the core concepts remain the same.
1. Make a plan—Regardless of what you are planning or where you currently
are in your financial path, having a realistic plan is very important. That
said, making a plan that is not linked (really) to reality and your current
position is not going to do you any good. So, with that said, you really have
to make sure that the following elements are built into your plan.
a. Is your plan reasonable? Meaning can you actually follow your plan
with the tools (more on that later) and techniques that you have at your
disposal?
b. Do you have a budget buddy or other kind of support network? Just like
a training buddy or partner helps make going to the gym earlier, or
 waking up for that early morning run less painful, having a budget
buddy does the same thing for your personal finances.
c. Where are you currently? When you take a look at where you want to
end up, how close are you to your goals at this point in time? In
addition to being realistic for a path forward, your plans and budget
goals you need to have some connection to where you stand at the
present. This will also help you decide what to do with regards to the
next point.
d. Do you have short-, medium-, and long-term goals? Before drilling into
the tools and resources available you need to make sure that you have
your own personal milestones set up. Being able to treat yourself….
Tech Tools
As promised throughout this book we are going to take a look at some of the
tech tools and resources that are available for people (that means you) to use
who are interested in learning more about their personal finances and improve
them. With that said, it is important to remember that no matter how advanced
the tool is it is up to you to make the best use of these devices and tools.
Many of these tools are widely available for free, but it is imperative that you
remember what we discussed earlier in the book. Identity theft is not an
isolated matter, and should be something that you keep in mind whenever you
access any of these mobile tools on your phone or tablet. What that said, let’s
take a look at some of these tools. Obviously, these tools will change and
evolve over time, but as long as your stay current with your phone and tablet
updates you should always have access to the most current version of the tool.
1. Mint—Mint is a tool that you can personalize to your specific needs and
requirements that is widely available in the app store. In addition to being
able to personalize the information and functionality you see, it is also free
for initial sign up! Accessible from desktop, tablet, and smartphones, this is
a very popular tool that is rapidly gaining popularity.
2. PocketGuard—Pocket guard is an app that links directly to your bank
accounts, and allows you to see (in real time) your transactions and account
balances. In addition to this convenience the app also analyzes recurring
payments, recommends planning steps you can take, and summarizes these
data in graphical formats for ease of use.
3. You Need a Budget—You need a budget (YNAB) is a robust financial
planning tool that focuses on four basic concepts to help you build and
maintain a budget on the move. These rules are—give every dollar a job,
plan for infrequent expenses, roll with the punches, and learn to live on last
 month’s income. Following these rules can help you construct and maintain
a budget that is built for real life.
4. GoodBudget—Remember those envelopes that you or your parents might
have used to help split up which funds go where? Well this is the digital
version of that very same system! Additionally, and this is where it really
benefits you—this app syncs across all devices you have it installed on, so
there is never any confusion as to what is what.
5. Mvelopes—This is another great budgeting app and tool that also provides
you the flexibility to pay bills, and also manage your spending in real time.
The ability to monitor your spending habits in real time is a great tool that
can help you build spending plans and habits that help you establish a
budget that can withstand the ups and downs of everyday life.
Wrapping Up
We have talked about a large number of personal finance topics, financial
literacy resources, and specific tools that can be used to help you build the
best budget for your needs, but this is just the beginning. Equipped with this
information and knowledge you have all of the necessary knowledge and
skills you need to be empowered to succeed. Most importantly, by having
read through this book (and making it all the way to the end!) you have made
an active choice to improve your finance and your financial life. The tools are
in your possession, you have this guide (and access to other resources through
this book), and you obviously have the motivation to improve your financial
fitness.
 PART II
Finance for Entrepreneurs
Bootstrapping your startup, starting a new business, developing products and
services, and sustaining this business over the long term are already difficult
enough without having to stress about the financial state of your business.
That said, it is important that we remember that (1) most new and small
businesses fail within the first 3 to 5 year period, and that (2) most of these
business failures are due to a lack of capital or other financial issues.
Accounting and finance might not always be the most exciting or trendy
topics to discuss, and entrepreneurs are usually more focused on building the
business than crunching numbers, but these are critically important issues to
remember. Whether you are starting a business or brand with a laptop in your
living room, or running and managing an existing small business, there are
accounting and finance issues that put your business over the top.
You have a great idea, and hopefully this book will give you a little bit of
information you can use to turn that idea into a sustainable business.
 CHAPTER 8
Financial Literacy for Business
As we have been discussing during this first part of this book financial
literacy, understanding the tools and techniques available, and taking the steps
to implement savings strategies are essential to successfully construct a
financial roadmap and lifestyle. That said, it is also important to remember
that financial and economic literacy are equally as important for small to
medium size businesses as it is for the individuals running these
organizations. While many would agree that smaller businesses form the
backbone of the U.S. economy (and economies on a global level), the stark
reality of the situation is as follows. Depending on the study or data set
analyzed, between 75 and 90 percent of small businesses fail within the first
five years, and the primary cause of these failures is a lack of working capital
and financing. Regardless of whether the business in question is a service-
oriented business or a goods business that produces goods for resale, the
importance of financing is the same. In order to best execute and follow
through on the goals and objectives of the organization, the entrepreneur or
owners of the company must understand the financial and economic forces
that can influence the organization.
The topics and ideas of financial and economic literacy, clearly, do not
change in their entirety when the conversation shifts from individuals to
smaller organizations. More to the point it is especially important to
emphasize the following piece of information—financial and economic
literacy are integral to business success and economic development. Either
operating as standalone entities or as businesses embedded within the supply
chains of larger multinational organizations, businesses need to understand
financial terminology and information. In order to effectively accomplish
whatever business owners want to do, the following needs to be focused:
1. Growing the top line (revenue) of the business
2. Attracting new customers and clients
3. Improving the quality of products and services delivered to existing
customers
4. Developing new lines of business, either in existing markets or new areas
5. Keeping pace with changes both in the business landscape and customer
requirements
 Clearly, every business and industry is different, but there are several
concepts and themes that cut across industry lines that should be implemented
to help entrepreneurs and organizations make sure their finances are in order.
The most important part, as it pertains to our conversation here, and having it
linked to personal and business financial literacy, is that the tools,
information, and techniques to improve financial conditions are available in
forms that are affordable, scalable, and flexible. What this means, in essence,
is that on top of understanding some core concepts, that applying these
concepts to business tools is a relatively straight forward and logical process.
Before delving into specific concepts and examples of how a better
understanding of financial and economic literacy can help drive business
performance, however, the following point must be emphasized. Regardless
of how creative, innovative, or high quality the product or service idea is, if
the business management and individuals running the organization do not
have the money right, the organization will not succeed. There are three
distinct areas that although interrelated are slightly different from one another,
and must be firmly understood by the manager of the organization to fully
grasp the ramifications.
Financial literacy and business—Financial literacy, especially as it
pertains to business owners and management, is slightly different from
financial literacy as it pertains to individuals. It may be tempting to chalk up
financial literacy to saving money on expenses, or going paperless (both of
which are good ideas, by the way), but it is more than that when viewed from
the perspective of a business. Understanding the different types of financial
issues that can influence business management is important for the business to
successfully execute its business objectives. One simple example, for
instance, would be to have a firm understanding of the financing requirements
that match up with the goals and objectives of the business. Put simply, every
new idea that a business wants to launch, update, or expand requires capital
and sources of financing—business owners and entrepreneurs must be aware
of the various options accessible to them.
Economic literacy and business—Economics, taught in college, consists
of graphs illustrating the intersection of supply and demand, and are usually
linked to goods, services, or ideas that are abstract at best. That said, it is
important to keep in mind that economics is a very real and tangible force that
can influence and drive business decisions moving forward. One straight
forward, yet often misunderstood economic concept is the difference between
net income and cash flow. Net income and cash flow are both accounting
terms that virtually every business person is aware of, but they mean very
different things. Net income takes into account accruals and other non-core
business items, including accruals and deferrals, whereas cash flow only
focuses on the cash coming in and out of the organization. We will get into
the differences between net income and cash flow as we move forward, but it
is important to keep in mind the following—bills and employees cannot be
paid with net income—they have to be paid with the cash flows of the
business.
Literacy and strategy—Business is obviously must be more than simply
the numbers, but the numbers that are generated as a result of business
operations determine whether or not the management team and organization
can achieve future goals. Mentioned previously, the goals and objectives of
the business, regardless of industry or type of business, require financing.
This is where financing literacy, economic literacy, and the broader strategy
conversation happening at the organization converge. For example, what type
of financing options should the business pursue, and does the type of
financing selected by the organization change depending on the specific
goals? From a business development and business management perspective,
financial and economic literacy have a definitive effect on the overall strategy
undertaken by the individual business.
What You Need to Know
Finance and accounting for entrepreneurship encompass a broad range of
issues that can, and do, take up entire books and courses. For our purposes,
however, there are two broad categories of finance and financial literacy for
business that we will analyze: operational finance and tax-related accounting.
Clearly, developing, attracting, and retaining clients occupy top priority for a
business of any size, but getting the numbers right can help improve your
businesses performance and grow the business. Getting the numbers right is
the first step toward getting the money right for your new business, and that
will enable you to grow and develop your business in the ways you want.
Operational Finance
Operational finance is a technical way of saying that this is how organizations
can focus on the nuts and bolts of how money flows in and out of a new or
small business. I think that virtually all entrepreneurs, or anyone interested in
starting a new business idea, possess a basic understanding of revenues,
expenses, and (of course) profit and loss. That said, it is not sufficient for a
business owner to simply have a basic understanding of how funds and
money flows in and out of your business; you must be able to analyze and
understand how these funds impact your business both in the present and
moving forward. Some of the most important differences that I have seen trip
up entrepreneurs and small business owners are included in the short list
below. Clearly, this list is not an exhaustive or an all-encompassing checklist,
but merely some of the items that, as a CPA, I feel should be included as you
review the financials of your business:
1. Income is not cash flow—Income is great, and provides the life blood of
business in terms of financial statements, commercial loans, and
developing the business, but you cannot pay bills with income. Cash flow,
on the other hand, represents the actual cash flowing in and out of the
business, and also enables you to pay your employees, vendors, and utility
bills. Income might be akin to your annual income, but cash flow is your
direct deposit hitting your bank account.
2. Know your expenses—Growing the top line revenue of a business is the
goal of mostly every entrepreneur and business professional out there, but
that is only half the battle. Having a handle on, and managing your costs
can help you achieve higher levels of profitability and help you redirect
scarce funds to areas of growth. Tracking your costs, understanding what
you are paying for, how much you are paying, and whether or not you
should keep paying that much will only help improve your business
performance.
3. Technology for business—While it seems like the pinnacle of technology is
Snapchat, Facebook, Twitter, Instagram, and Uber, there are a whole host
of business tools and options out there to help you better manage your
business. From mobile-based payment applications, to property
management tools, and mobile first tools that can help streamline your
accounts payable, there are a host of options out there. Social media is
great, and can certainly help you promote your business, but that merely
scratches the surface of what technology can do for your business.
Tax Finance
Taxes are one of those things that nobody really likes to think about, talk
about, or even do much about during the routine business year. Then around
March the usual scramble begins to get a handle on what taxes are due, what
deductions and credits are available, and my fellow CPAs are deluged with
numerous questions and concerns. Taxes, however, are not just an issue that
should be thought about every spring, but rather is something that should be
analyzed, planned for, and discussed throughout the year. Depending on the
type of business you operate, where your business is located, and how you
manage your business during the year, you might actually be able to take
advantage of certain credits and deductions you might not even know about.
Let’s take a look at some of the tax areas and issues you might want to look
into; knowing is half the battle, and knowing if your business qualifies can
help you make the most of these tax opportunities.
1. Going green—Sustainability and environmentally friendly business
operations continue to gain traction, coverage, and importance in the
marketplace, but these are not merely academic issues for theoretical
discussion. Your small business might very well be able to take advantage
of tax incentives, such as the IRS hybrid vehicle credit and other local/state
environmental credits—don’t miss out!
2. Mileage—Driving for Uber has, I think we all know, increasingly become a
popular way to start or experiment with entrepreneurship, but in addition to
your 1099 (income), you also might be able to deduct some of the mileage
you rack up while driving people. Even if you do not drive for Uber or
Lyft, this also applies if you are using a personal vehicle for commuting
between any two places of business. Either way it is definitely something to
look into.
3. Home office—This deduction can be a little tricky, so before attempting to
take this deduction for your business it is important to make sure that you
have fulfilled the following. First, that the home office space is used
entirely for the business (separate entrance, etc.), and that second, you
consistently use this space for your business, and not personal activities.
Note of caution: before implementing any finance, tax, or accounting
strategy for your small business or startup please be sure to consult a
CPA or other qualified financial professional. Going to the experts might
cost you a few dollars upfront, but will certainly help your business in the
long run.
 CHAPTER 9
The Business of Strategy
Strategy, especially strategy for business, has proven to be a lucrative market
for those tasked with developing, writing about, and talking about strategy.
Disruptive innovation, blue ocean strategy, fast follower innovation, and
incremental innovation all represent terms and ideas that have champions,
critics, books, and large audiences. These different ideas and tactics clearly do
offer value to management teams across a wide variety of industries, but that
is not the particular focus of our conversation. These ideas and concepts are
mostly applicable for large corporations that have the resources, both
financial and human, to dedicate to the development and implementation of
multifaceted strategic initiatives. What ties these different strategic theories
and concepts together, however, is the requirement that all strategic ideas are
driven by quantitative information. Now, while we are not going to focus on
overly complex strategic ideas of concepts for our conversation, it is
important to recognize that these ideas can, and do, apply to businesses of all
sizes in all variety of industries. Before we dive into the specifics of strategic
planning or thinking, we need to understand the following reality—corporate
strategy requires that the leaders of the organization understand the
operational, financial, and customer facing implications of strategic decision
making.
While the acronym ESG, representing environmental, social, and
governance, continues to receive increased attention in the financial markets,
and attract investor dollars, the idea might seem to be a bit far-fetched for
most small to medium businesses. And at a certain level, the wholesale
overhaul of internal and external operations and performance is somewhat out
of reach, but that does not mean the entire conversation should be ignored.
Strategic planning, building the business, and attracting new clients and
business require that entrepreneurs acknowledge the entire business landscape
they operate within. While the debates and information around social effects,
governance issues, and environmental compliance are top-level issues and
information, these are arguably even more important for entrepreneurs and
small to medium size enterprises. Let’s take a look at how these (at first)
theoretical concepts apply to businesses of every size.
1. Environmental—while a small business might have, fortunately, not have
to deal with serious environment compliance issues, every entrepreneur
should always be on the lookout for opportunities. Look at Tesla, which has
 taken advantage of every opportunity in the form of tax credits, rebates,
and other sustainable energy types of credits.
2. Social—the importance of social engagement and interaction in the current
marketplace cannot be overstated, whether it is done on a local level with
the local chamber of commerce or on a more ambitious and national scale.
For example, the simple act of showing up at local commerce meetings can
create a business presence in the community and also lead to an increased
profile.
a. Don’t forget, obviously, which we will be discussing later on, that
developing an online profile (both on Twitter and Facebook for
example) is a cost effective way to engage with current and future
customers.
3. Governance—depending on the size of the business, small or medium size
businesses may not have the internal corporate structure to effectively
change and manage governance, but that does mean it does not apply to the
business.
a. Think of it as internal control, which we will dive into moving forward,
and this concept influences every business of every size. In essence, for
our conversation the following statement is true—business has to be
treated as business.
Finance Basics for Business
So, what exactly is internal control, and how does it really apply to you and
your business? We will be covering that and more as we review some of the
most important basic financial terms and concepts that every entrepreneur
should know. One key aspect to keep in mind is that your business will not
function appropriately without an appropriate internal control and governance
structure. Think about how your organization, small business, or other
enterprise functions with regards to cash payments, receipts, and extending
trade credit?
Trade credit: Taking a short break from the narrative, let’s talk about
trade credit for a minute. Usually categorized as accounts payable or accounts
receivable, trade credit represents the ability of an organization to function
without using cash to pay bills or receive cash payments from customers.
Trade credit represents the lifeblood of many organizations—think of it like
this—how often do you pay with credit versus paying with cash?
While large businesses and other organizations might have the financial
resources and personnel to implement large-scale internal control programs,
most small to medium size businesses simply do not have the resources to do
so. While that is true, it does not mean that your business is any less deserving
of internal controls, or that you should ignore the potential pitfalls and
opportunities around internal controls. This topic might not sound like a
particularly exciting topic, but if we take a step back and look at the big
picture we can identify the core mission of internal controls to your business.
Specifically, that core purpose and mission, as it relates to internal controls
and your business, is to successfully execute a few key items:
1. Improve operational efficiency of existing operations and assets
2. Safeguard assets, both physical and intangible, including an online
presence
3. Put into place controls over cash and other intangible assets
Now that we have identified the top three goals and objectives of internal
control as it pertains to business and your business goals, let’s drill in deeper
to analyze how these objectives apply to you and your business. Internal
controls should focus on streamlining internal performance and efficiency of
assets, specifically how to eliminate waste and find areas for improvement. It
is important to keep in mind that internal control does not have to just do with
compliance issues, but also items such as inventory turnover and
management. Linking back to economics and your business strategy we can
examine the following scenario and how it underpins how your business
planning and strategy will play out:
If your business is planning a new business objective, or even just
stocking up for a holiday sale or special you are going to have to purchase
inventory, manage inventory levels, and rotate the products as sales start
rolling in. Additionally, and on top of managing the inventory that you
already have in stock, you are going to have also predict and manage the
reordering process associated with new inventory to fulfill sales.
Economically speaking, the flow of inventory in and out of a business can
have a tremendous effect on how the enterprise will perform and on the
working capital on the business. What is working capital you ask? Let’s take a
look at a quick definition that we can use moving forward.
Working capital: For the purposes of our conversation and discussion of
economics and business, working capital is defined as just (current assets −
current liabilities), which is how an organization can pay its suppliers,
employees, and other bills. But what are current assets and current liabilities,
both of which are components of working capital? Drilling down briefly, we
have some short definitions that we can use moving forward:
a. Current assets—think of current assets as items like cash, accounts
receivable, and your inventory (which ties up cash)
 a. Remember that every dollar tied up in inventory is a dollar you cannot
use elsewhere.
b. Current liabilities—current liabilities can be thought of as accounts
payable, taxes payable, and other types of short-term debts
a. This represents the ability of an organization to use goods and
services without paying cash for these items.
Financing Strategy
Everything costs money, and this is equally as pertinent for business decision
making as it is for personal finances. Whether you are focusing on improving
your personal financial position, thinking of starting a business, or seeking to
improve the financial position of your startup, understanding finance will
always be a good thing. Finance can be intimidating on a personal level or
whether you are thinking of improving your business financing options, but it
does not have to be this way. With the availability of apps, online web
platforms, and other mobile first tools and technology, there is no shortage of
options available to the entrepreneur.
In an age of digital technology, business analytics, and virtual reality it
might be tempting to ignore the reality that all technology and improvements
to product or service offerings require financing. Let’s take a look at a simple
example of how a better understanding of how finances can help a business
management team make better decisions. Let’s assume that a medium size
business is trying to roll out a new online platform, complete with a robust
website, social media team, and several employees to manage and grow this
platform. Several options are available to help finance this initiative. The
ability to evaluate the best option for the business involves several factors,
and we are going to take a look at these items below.
1. What are the fees, expenses, interest, and other expenses associated with
the various financing options?
2. Is this source of finance renewable (think of a revolving line of credit), or a
one-time deal, such as trading ownership for capital?
3. Do the financing methods under consideration provide opportunities for
crowd funding or other forms of online/virtual engagement?
4. Are the terms of the financing dependent on the success of an individual
project, or the financial health of the business as a whole?
5. Does the financing, or revolving lines of credit, has any sort of key man
risk provision? In other words, is the deal linked to a certain individual
remaining at the organization?
 If you think that this sounds like a laundry list of items to worry about,
and to consider while also trying to grow the business, you are right! Securing
the appropriate source of financing is a complicated task that will be different
depending on the business in question, the projects under consideration, and
competitive forces within the industry. This also provides an opportunity for
financially oriented individuals, whether they are CPAs, CMAs, or other types
of financial professionals. Sharing insights, developing capital plans, and
building alternatives applicable to the business in question all represent areas
through which entrepreneurs and managers can better leverage existing
accounting relationships. The dollars and cents of business strategy, however,
only represent one component of the overall business-financial-strategy
landscape.
Finance provides the lifeblood of business, and provides the information
necessary for entrepreneurs to make better business decisions, and here is
where millennials provide an interesting case for discussion. Compared to
other generations, and when considering the issues of student debt and
lackluster job, millennials are widely considered to be more entrepreneurial
than other demographic groups. Having a fundamental understanding of how
to best finance different business goals provides an important leg up when
competing against other businesses. Think of it like this—if you have a better
play caller and offensive line than the other team then you will most likely
perform better than your competition. While better knowledge and personnel
does not guarantee victory on the field, simply knowing more about finance
will not definitely lead you to succeed in business, but it will help without a
doubt.
Economics, defined briefly on the previous pages, is not merely an
academic exercise reserved for the academic schedule of first year business
majors. Finance is not the only way to understand how businesses operate,
and economics provides a much needed compliment to the financial terms
influencing the business. Supply and demand, while the most high profile
examples of economics in most business classes, are merely the end result of
a variety of forces that drive a business forward. As we will drill into below,
pricing, traffic patterns, technology, and the competitive actions undertaken
by other organizations in your business will influence how well the business
does operationally and financially. Economics, and the forces that dominate
the economic conversation, can and do have real-world impacts on businesses
in a wide variety of industries.
Freakonomics and Business
Freakonomics was a bestselling book that nearly redefined how economics
and economic strategy was perceived by both business people and even non-
business minded people. In essence what this book, and the following
conversation briefly did, was make economic theory and economic concepts
mainstream conversation items. Far from remaining relegated to classrooms,
research papers, and financial models, economics was a dinner table topic.
While the somewhat halo-like effect from this book, and the follow-up book
has clearly faded with both time, and market shocks, there are several topics
and themes from this book and mindset that are still readily applicable.
Supply and demand, linked to price, obviously form the building blocks and
foundation of economics and economic theory. That said, there are many
factors and underlying currents that ultimately drive economic and financial
results that any business, regardless of size, should be aware of and take into
account when making decisions.
The management team of any business clearly wants to increase both top
line revenue and bottom line profits, but what are some of the non-obvious
factors that might drive this performance? Pricing is a function of several
factors—not just the supply and demand of your particular product or service
to the marketplace. Several other ideas and concepts to keep in mind when
considering the relation of economics to your business include what your
competition is doing. It is not simply enough to understand the pricing and
products that your competition is sending, but also taking a step back to
broader areas allows you to evaluate different types of forces driving business
performance.
For example, no business operates in a vacuum and so it is always
important to be aware of external economics that can, and do, impact your
business. Redevelopment initiatives, tax policies and proposals, small
business development initiatives and objectives, zoning regulations and codes
will all influence how your business performs. Arguably more importantly
than how the current situations are situated and constructed it is important to
remember that these forces can change and evolve over time. It is always
important to keep up to date on these types of factors and information,
especially how these forces can cause you to change business thinking.
Some other factors that influence the quantity sold and purchased in the
market (equilibrium) include, but are not limited to, the following:
1. Competitor prices—who is your competition, and what are they charging
for an equivalent product/service?
2. Substitute goods or services—what are the substitutes to your business
(think of taxi drivers and Uber drivers)?
3. Are there macroeconomic (big picture) forces that are changing your
business? Think the Affordable Care Act and Dodd-Frank for headline
 examples.
4. Does your business have barriers to entry? These barriers can be
geographic, or based on a piece of paper (like a CPA license, for an
example, close to home for the author).
5. How is technology changing your business? Notice I did not ask whether
technology is changing your business, but how technology is changing your
business.
Economics, from the perspective of an entrepreneur or small to medium
size business owner, involves several factors and pieces of information that
drive business performance. Drilling in specifically the forces that can affect
local businesses, technology is an essential aspect of implementing economics
and understanding the ramifications of economic changes at a small to
medium business. Taking a step back from the details of day-to-day
operations of your business, let’s take a look at how technology and
economics are intertwined. A local business, for example, can market to,
attract, and retain customers on a global basis simply by leveraging
technology to gather better information and developed superior products and
services. Gathering the best information available, from whatever source is
available to your business, forms the foundation for developing an economic
plan and strategy.
Enough to think about? I thought so, but let’s keep diving even deeper
with an example of how a somewhat mundane sounding topic, interest rates,
can dramatically impact the performance of your business over the short and
long term. While this might seem like time and effort that is not related to
core business requirements this is an investment that will certainly pay
dividends moving forward. This conversation, while vitally important to
understanding how to best manage your business affairs, is linked to an even
broader business question. If you are trying to run your business effectively,
from both an operational and financial perspective, there is a question that
you must answer—what business are you actually in?
What Business Are You In?
An old adage from case studies in business school is that the railroads that
once dominated the American transportation and industrial business
landscape failed and faltered due to one important question—not
understanding what business they were in. This is a double-sided question,
however, and involves incorporating customer and stakeholder expectations
into the value equation. Identifying the business that your organization
operates within is a critical question that you must understand in order to
effectively manage the finances, economics, and competitive forces on top of
the day-to-day requirements of the business. Let’s suppose that your business
is a local restaurant (capitalizing on the growth of gastro pubs and other
“foody” type businesses) located in the downtown area of a medium size
town that is centrally located to both local businesses and schools. What
business are you in?
Notice the question is not specific to the type of food, portion size, or
pricing of your food products—these are not relevant to the above question.
Your business, while specializing in food products for this discussion, really
focuses in fulfilling the following job or requirement—a convenient place to
eat during a busy business day. Whether they are running for a quick bite to
eat during their business day (local business owners), catching a quick meal
either while going to work or coming home from work, or getting their
children something to eat, the underlying job is the same. The customers that
you are attracting, hopefully retaining, and who are ideally spreading positive
word of mouth about your business are busy individuals who are looking for
affordable and convenient food products. In other words, the food must be
tasty, easy to carry, and appealing to a relatively large audience.
So, taking a step back for a minute, let’s see what types of food new
products would not work under this definition:
1. Anything with heavy sauces, either cream colored or red sauces
2. Messy food that do not hold temperature well such as yogurts or other
dairy-based products
3. Items that contain food byproducts that large segments of the population
are allergic to—peanut butter and shellfish are two high profile examples
After establishing which job that the business solves for local businesses,
commuters, and individuals, entrepreneurs and management professionals
have a better idea of what questions to ask to better outline and establish a
business strategy. In this example, for instance, some of the local stakeholders
and partners that should be consulted for information include local
transportation schedules, schools, and other small to medium size businesses.
For example, our food restaurant should work with the school board to work
with offering complementary food offerings to appeal to the student market.
The Job To Be Done
Additionally, and logically extending from the job that was previously
identified—convenient food that is easy to carry and eat while on the go—the
management now has a starting point from which they can develop plan. Put
simply, now our food restaurant can start testing and developing new
offerings, demo these products with customers, and see how they play in the
real world. In essence, now we have the information that we need to execute
effective strategy in a cost-efficient manner. Yes, that is right, it is possible to
execute strategy and develop new products and markets without always
breaking the bank on a technology upgrade. Let’s leave the food example, and
take a look at how any organization can, if managed properly, develop a
strategic plan in a timely and cost-effective manner.
Regardless of what business you actually operate within, the underlying
themes of economic theory and identifying the job fulfilled by the enterprise
represent an essential part of building a business plan and strategy. At the
heart of any business strategic plan, and strategy in general, is the information
that the management team can gather, and so it is important to keep in mind
the benefits of technology with economic and strategic planning. Information,
however, must be interpreted and analyzed in a cost-effect manner, and this
brings us to our next topic of conversation. The importance of literacy, even
for business owners, managers, and entrepreneurs, cannot be overstated. That
said, let’s take a look at why exactly it is important for business managers to
be business literate.
 CHAPTER 10
So Why Be Literate?
Financial literacy and economic literacy, as defined before, most certainly
sound like concepts and ideas that should form the cornerstone of any
management handbook or entrepreneurial mindset when founding,
developing, or growing a business. So, why then, are so many organizations
hamstrung by working capital shortages, or a lack of capital fundraising at the
founding of the organization? Money, as the saying goes, makes the world go
“round,” and this is certainly true when it comes to business, but many small
to medium size business owners seem to not invest the time and energy
necessary to develop true understanding. So, to put it simply, why should
entrepreneurs invest in developing financial and economic literacy? If we
have not explained it enough let’s take a second to recap some of the benefits
of developing financial and economic literacy, particularly as it pertains to
building a better business.
1. Financial literacy—understanding the ins and outs of financial literacy,
particularly how finance can influence business decision making, puts you
in a better position to make better choices moving forward.
2. Economic literacy—regulations, taxes, and other broader economic forces
will, without a doubt, have a powerful effect on your business, but do you
know what these forces are? More to the point, can you incorporate this
understanding into how you plan for your business moving forward?
3. Bring it together—these forces, equally as important as the products,
services, and marketing that you do for your business, will drive your
business forward.
Let’s take a step back and examine why exactly it is important to be
financially literate as you run and manage a business, and relate to something
a little more tangible and understandable. If you want to become a famous
musician, athlete, or artist you must not only practice, obviously, but also
understand the details and specific information that is important to your
selected craft. More to the point, if you would like to become a successful
entrepreneur in a particular business enterprise you have to understand the
nuts and bolts of operations. Whether it is a bakery, a web services
organization, or a professional services company you must understand how to
most effectively manage the business that you are operating. Now, in addition
to understanding how to manage and operate the business, any entrepreneur
or business manager must also understand how to finance these ambitions,
objectives, and trade goals. As has been stated previously, and as will be
emphasized throughout this text, understanding the financial effects and
driving forces of the broader economy will help make you a better business
manager and entrepreneur. So let’s drill down, before taking a bite of strategic
theory and management, on some examples and specific ways that financial
and economic literacy apply to business management, and making better
decisions.
Financial Literacy
Bringing the idea of financial literacy to the real world, let’s think about how
business is changing, and will without a doubt continue to change moving
forward. The very idea of crowd-funding, and seeking out alternative sources
of financing for projects and objectives, was a financing path that did not
exist several years ago! Why wouldn’t you try to understand and take
advantage of these options to help your business grow and succeed? While
simultaneously learning about financing options to help your business grow,
however, it is also important to remember to better utilize technology. Taking
a look at an excerpt from an article that I published in January 2017 by the
Commerce and Industry Association of New Jersey (CIANJ) Financial
Literacy For Business it is obvious that technology, although sometimes
derided as time wasting, can actually be a true value added tool for your
business:
As we roll into 2017, it appears that technology is entering a new
golden era, especially for individuals, entertainment, and better time
management. Facebook, with over 1 billion users, represents a larger
population than all but two countries, is the juggernaut of online
interaction, news, and engagement. Other high profile technology
companies include Twitter, Pinterest, and increasingly, Snapchat. That
said, even in the face of each of these continued advances and
innovations, successfully integrating technology into business
operations and processes remains a challenge for businesses large
and small. Whether the issue is simply that employees are on
Facebook while on company time, or more serious issues related to
cybersecurity, phishing, and data integrity, the underlying issue is the
same. Technology has the ability to significantly improve productivity,
efficiency, and increase the value delivered to internal and external
users. That said, it is also important to recognize the reality that
technology can detract from business productivity, employee
attentiveness, and accuracy of products and services delivered to the
customers and clients of the organization. A challenge, therefore, as
 we move into 2017 is the following: how can organizations and
management professionals make the best use of technology for their
businesses?
The debate around technology, customer privacy issues, and the ability of
an organization to make better decisions from increased amounts of customer
information is unable to decrease in tenacity moving forward. A more
important point to remember and to keep in mind is that by gathering more
information about your customers, a business is able to more effectively
allocate existing financial resources. Say that a business is trying to decide
what changes to make to a website to help increase the click-through rates,
but does not want to waste time and financial resources developing
unnecessary options. Put simply, how can the business turn a higher
percentage of visitors to a business website from mere visitors to paying
customers?
Better utilization of technology, and the analytics that are possible with
superior information, can be used in the following manner to help the
business grow:
1. Map out, whether graphically or statistically, current click through rates
and try to ascertain the path that leads to the click through.
a. In layman’s terms, use better technology to understand the path that
customers take who turn from visitors into paying shoppers
2. Logically and systemically test incremental changes to the design of either
a desktop oriented website or a mobile-first platform. Either way, small
changes can and should be rolled out over time, and the effects of these
changes should be monitored on a continuous basis.
a. For example, placing the “checkout” or “look at your cart” button at
different locations on the site can change the odds of customers clicking
through to purchase.
b. Another possible option would be to change the color scheme of certain
pieces of the website—does red make customers more likely to click
through—use analytics to find out!
3. Build the critical path! After doing the analysis of current shopping and
click through habits of existing customers, the management team has all of
the information they need to improve business performance.
a. If you want to make something better or improve current performance
you first have to know what the current situation actually is, and not
just what perception of the reality is by management.
 Financial Literacy and Technology
I think we all know that the dollars spent on technology, whether
technological services or technological gadgets, can easily exceed budgets
and expectations, but that does not mean this has to also apply to your
business or idea. Technology and the increased digitization of business at
large continue to certainly be a driving force in businesses of all sizes and in
all industries. Let’s think this through and talk about the ways in which
financially savvy managers can leverage technology to boost online presence,
attract new customers, and gather improved information on existing
customers.
1. Simple steps such as setting up a Facebook, Twitter, and (depending) an
Instagram of Pinterest account provide several benefits:
a. Setting up these accounts is free of charge
b. Doing so develops a mobile first online presence
c. For many customers, particularly millennials or Gen-Z consumers, if a
business does not exist online, it does not exist.
2. Building a website is simpler and more straight forward than ever before,
with services like Wix, Weebly, and Wordpress providing hosting, design
layout, and engagement statistics for free, or a nominal fee.
a. At this point you can, pretty much, teach yourself how to put together a
serviceable website over a weekend, and for very little financial outlay.
3. Becoming a more technologically sophisticated company is not an
inherently difficult proposition. Think out it, you already have organized a
business and have attracted customers for your products and services—how
hard can using a little bit of technology really be?
Analytics and Strategy
Technology gives a business the ability to expand into new markets, develop
new products and services, and the ability to do so in a cost effective manner.
When building a strategic plan for the organization, whether in terms of
operational efficiency or financial planning, getting access to information and
analyzing this data are essential aspects of the strategic planning process. It is
not only important, however, to gain access to the information generated by
the organization, but to also be able to extract trends and information from the
organizational data. For example, if you operate a seasonal business, it would
definitely benefit the success of the organization to be able to accurately
analyze, forecast, and project future business results based on organizational
data. The more information that you are able to gather, analyze, and report on
the more efficient and productive your business will be. Increased
competitiveness and success in the marketplace is a dual result of both
understanding the operations and forces driving business, and the financial
obligations of moving the business forward.
An article that I wrote for the CIANJ highlights some of the key aspects of
technology for business development and growth:
The first place to start, from a business perspective, is to evaluate the
online presence of the business – do you have a web presence? Even a
relatively fundamental presence will provide the business with
multiple opportunities to not only conduct analysis with current data,
but to develop additional platforms moving forward. Especially in
terms of attracting new business in general, and particularly important
for millennial and Gen-Z clientele, the importance of having a web
presence cannot be overstated. Without a quality online presence, the
business might, to a large subset of customers, not exist. While there is
clearly a technological aspect to building an online business profile, it
is important to not get overwhelmed or confused by the number of
options that are available out there. Like everything else, competition
and increased consumer demand have resulted in lower costs and
more variety of services that both individuals and businesses can use
to establish an online presence. A few of the options for webhosting
include, but are certainly not limited to, Wordpress.com, Wix, and
GoDaddy.com – by the time you are reading this, there are certainly
going to be other options available to you – always be sure to
comparison shop and make the decision that makes the most sense for
you and your business. Social media, of course, is an excellent
platform from which you can contact and engage with your customers,
but a high quality website forms the cornerstone of an online presence
and online strategy. Even as mobile shopping and monetization
increases, a solid place to start and build out the online skills of your
business is an easy-to-use, and easy-to-purchase from, website. The
other, mobile-first and socially-oriented platforms can always be
added later.
As I hope now is abundantly clear, there are concrete business reasons to
implement different types of technology, and it is possible to integrate
technology in a cost effective manner! Financial considerations impact every
aspect of business, management, and the choices made by entrepreneurs—this
includes technology. Fortunately, as we have identified above briefly, there
are various options to help an organization bootstrap its technology assets and
build an economic strategy. On top of being able to implement and use
technology without breaking the bank, there are quantifiable linkages between
technology and better business practices. Better data lead to better insights,
which will only help boost the performance of the organization moving.
It is easy, as many do, to get overwhelmed by the sheer number of options
when it comes to analytics, technology, and how these analytical tools can
help drive your business forward. That said, it is important to remember that
the true value of analytical information, and the analytic tools that help drive
these analytics are the insights they generate for the business. Making better
business decisions, and helping management create better products and
service for customers, both current and potential future, should be the core
driving force of any business decision making. That said, and before you go
to Google to figure out how to purchase the newest and snazziest technology
product, you can actually accomplish quite a bit of analytics and better
business planning by just making better use of Excel. I know, Excel might not
be the most exciting topic to read about ever, but let’s take a peek at some of
the top items business managers and end users typically want out of their
information.
1. Graphics—pictures are literally sometimes worth more than 1,000 words.
2. Understandability—what exactly is this information telling me about, and
why is that of any importance to me?
3. Flexibility—can this information, and the results derived from this
information, be updated and tweaked to reflect changing market conditions,
or is just static?
4. Share-ability—are the insights, data, and information contained within the
analytic presentation going to be able to be shared, or is it limited to small
group of users with access to proprietary software?
Excel has the ability to do all of these things! And this is not a sales pitch
for Excel—the real point that I want to hammer home here is the following—
analytics and getting really good data and information from your business
does not have to cost a fortune! To the contrary, and here is the key point, by
focusing on asking the right questions you can arrive at (1) quality answers in
a (2) cost-effective manner. That brings us to our next topic of conversation—
key performance questions.
Key Performance Questions
By this point I think that most everyone has heard of key performance
indicators, or KPIs, and understand the value that using such metrics adds to
the business. By focusing management attention, the human and financial
capital of the business, and the energy of the employees, on single areas and
items the business can truly drill down and hammer on what matters. That
said, and I think we can all relate to this on either a personal or professional
level, sometimes the real issue is not that we do not have the information, but
it is that we are not asking the appropriate questions. How can you build your
business, craft a successful strategic plan, and move yourself and your
business forward if you do not know what to ask? The short answer is that
you cannot. So, let’s take a look at how asking better (or even … key)
questions can help you make better, and most cost-efficient, decisions.
What Is the Goal of the Information?
In order to manage and run a business in cost-effective manner, you must
know where the organizational information of your business is going, and
who is interested in how your business is doing? Customers, local chambers
of commerce, other local business owners (including the competition), and
any investors who have committed funds to your business will without a
doubt be interested in the data produced and disseminated by your company.
Identifying which information is going to which external group is an essential
step in identifying the most cost efficient method of communicating this
information. A critical step in knowing which information to communicate to
which stakeholders is, obviously, making sure to ask these end users which
sets of data they are most interested in. While it might be tempting to deliver
large amounts of detailed information, demonstrating the analytic capabilities
of your business, it might actually provide a disservice to your business
moving forward. Think about, if you are only interested in one particular
aspect of an event or business, would you want to receive a whole host of
extraneous data? So, let’s take a look at what types of information might be of
most interest to certain sets of stakeholder groups:
1. Customers—pricing, product offerings, hours, and the ways that your
company can engage with them. As we have discussed, it is more
affordable and simpler than ever before to establish an online presence—
why not use this to provide information to your customer base?
2. Chambers of commerce—this important group of stakeholders will be most
interested in how engaged your business is within the community, that is,
are you providing economic and societal benefits to the area? Remaining
engaged and active with your local chambers of commerce is cost effective
way to maintain a much needed presence among other local business
owners.
3. Other business owners—depending on the specific type of business you are
in, you may have several local competitors that you may not want to share
too much information with. That said, there are undoubtedly other small to
medium size business owners that you could collaborate with to help
 achieve common goals. For example, a coalition of local business,
supported by the chamber of commerce (see how that works), could and
should advocate for pro-business activities.
After identifying which end users, or stakeholders, would happen to be
most interested in your organizational information it remains a relatively
simple matter to figure out how best to communicate with them. For instance,
while customers may be best engaged on social media the local chamber of
commerce might be best served by e-mail or face-to-face meetings, and other
local business owners might be best engaged by just walking up to them!
Drilling down specifically into how all of this relates to financial literacy, it is
relatively common knowledge that attracting new customers and engaging
with them can be an expensive and time-consuming endeavor. Picking out on
how to best engage and work with your various end users and stakeholders
provides you the ability to make better informed decision to help drive your
business forward.
 CHAPTER 11
Economic Literacy and Business
If accounting and taxes were not exciting enough, the issues related to
economic theory and economics might seem like concepts only tangentially
related to your small business or newest startup idea. Taking a step back,
however, reveals the following reality—economics and small business are
directly linked together, and this fact is even more important for small and
medium size enterprises. Everyone is familiar, especially entrepreneurs, with
the forces of supply and demand, not to mention the linkage between price
and quantity of products sold or services rendered. Economics is not limited
to these types of concepts thought, however, and the different types of
economic information and decisions include a broad range of items that can
impact your business. Additionally, and possibly more important for our
conversation here, is the relationship between economics, pricing decisions,
and your business. Before that, let’s do a quick review of some core economic
principles that should form the basis of any business, pricing, and business
development strategy.
Economic Basics
Economics, in addition to what you may have learned in a few college
courses as an undergraduate, is a field of study that attempts to quantify and
explain why prices, sales, and businesses work within the marketplace. The
connection and relationship between price and quantity is relatively logical
and straightforward to understand—if you price your product or service at a
premium level (like a Tesla) there will be a lower level of sales. Conversely, a
product or service that is priced more toward a mid-market customer will, all
other things being equal, generate high levels of sales. While this is a
relatively straight forward relationship, it also has an impact of how you
manage inventory, cash flows, and delivery options.
For example, if you are anticipating a higher level of sales for a certain
product or an increase in customer demand for a new service line, you will
have to ensure you have ordered sufficient inventory or obtained sufficient
server capacity to meet demand. In addition to these requirements,
entrepreneurs and managers also have to make sure they have enough cash on
hand to meet production and shipping requirements. Additionally, and this
applies for startups or small businesses specializing in both goods and
services, the managers of these organizations must also ensure that reordering
and restocking takes place in a prompt and timely manner. The concept
known as Economic Order Quantity (EOQ) deals with this issue, and forms
the core of many a supply management college course. For our purposes and
discussion here, however, we can leave this topic with the following
definition:
EOQ: Making sure that a reordering of product, or expansion of
bandwidth/server capabilities, takes place at an optimal time to ensure
that business operations can continue at optimal levels. Especially
important for small to medium size businesses, and here is the rub, it
is also to help ensure that you are able to keep operations up and
running, even in the face of changing customer demand, is essential to
growing and sustaining your startup.
Pricing
The next prominent area of economics and economic analysis that is
especially applicable for entrepreneurs is how you price your product and/or
service. This conversation used to mirror the framework mentioned
previously; higher price and lower quantity sold versus lower price and higher
quantity sold. As I think we all realize in the current market environment, the
decisions related to pricing, sales, customer attraction and engagement have
become much more complicated. Services such as Facebook and LinkedIn,
both major forces themselves in the social media and professional networking
space, offer services to their customers and end user for no charge. Twitter,
perhaps the most the impactful social media firm during the 2016 and 2017
time period, also provides services, influence, and access to its users for free.
Even services that do charge a fee for services and products, such as Netflix
and Amazon Prime, charge minimal rates and continue to operate at financial
losses.
Your pricing decision for your business, startup, or entrepreneurial
venture boils down to a few key factors. Unless you are starting a charity, or
can afford to operate the business or venture at a loss for extended periods of
time, you have to price your products and services at a level that at least break
even. Here is where things can get a little tricky, and this comes back to our
conversation around income and cash flow; you can operate with a positive
cash flow and negative income (losses) for years.
Fun fact: Amazon operated, for most of its lifetime as a publicly
traded company, at a net loss, but was able to continue operations due
to consistently positive cash flows, debt financing, and by earning the
confidence of the market via innovative products and services.
Let’s take a look at a few of things that entrepreneurs and business
managers should always keep in mind when deciding on pricing. Every
business is, of course, unique, and any external advice should be taken with a
proverbial grain of salt—you are almost always in the best position to make
decisions for your business.
1. Product versus service—Products and physical items are almost always
more expensive than virtual items, since the item has to be manufactured,
shipped, and maintained throughout the manufacturing process.
a. If you offer a blended package, such as a book and online service
option, this increases some additional flexibility for both pricing and
customer items.
2. Type of product—Which type of product are you developing, marketing,
and selling to the marketplace? Educational, food services, retail,
wholesale, or online based platforms require a different attitude toward
pricing and customer engagement.
a. This might change over time, like most products and companies do, but
this at least gives you a good place to start.
3. Who is your customer—Narrowing down the customer you are attempting
to appeal to, and market your product or service toward, will help inform
just how you price out your product and service. For example, a business
model oriented toward Baby Boomers will have to be presented, marketed,
and priced differently than an item whose target market includes
millennials.
a. Think of Snapchat, clearly targeted toward millennial and Gen-Z users
and consumers, and not toward their parents (Boomers and Gen-Xers).
Financing Options
Every startup requires capital, both in terms of upfront capital and continuous
cash flow funding requirements; this is something that you must keep in mind
as you develop, grow, and sustain your business in a competitive
environment. While there, clearly, traditional financing options that are
available to businesses that include debt and equity financing, the current
market environment also provides alternative financing streams to
organizations of any size. Specifically, the growth and further development of
crowdfunding and equity funding provide creative opportunities for
entrepreneurs to bootstrap businesses, develop new products and services, and
expand the business as the market changes. While there are downsides to
equity and crowdfunding different types of businesses, it also provides a
unique way that a small business can raise capital, attract new customers and
clients, and also give existing customers another point of contact with the
business.
Crowdfunding
Before diving into the financial benefits and operational ramifications of
crowdfunding or other types of equity linked fundraising, let’s take a step
back and look at just what crowdfunding actually means for the business. In
essence, crowdfunding, regardless of the specific platform utilized, is when a
business raises capital from a large set of equity investors, and is increasingly
popular with smaller to medium size businesses. Due to the fact that the
investment requirements are small, or in many cases nonexistent, using such
an equity fundraising enables the organization to tap into a much larger
potential pool of customers. So, now that we have reviewed, in general, what
crowdfunding is we can examine just how a crowdfunding strategy, like those
involved with Kickstarter, have to do with economics and your business.
Crowdfunding and Economics
Economics, as we have discussed throughout this book, relates to how
broader business and economic forces such as interest rates, consumer
sentiment, and other big picture items influence business decision making at
the level that you care about; your business. Framed through this perspective,
and taking a fresh look at the underlying principles of crowdfunding certain
projects, let’s analyze from the perspective of how it can help your startup or
small business. Some of the distinguishing criteria include:
1. Smaller required investments, or no required minimum at all, that
encourage a much larger pool of potential investors to apply and
demonstrate interest
2. An online, usually, community or portal that allows investors to interact
with each other
3. Interaction with the founder, entrepreneur, or angel investor that is leading
the project forward, or at least the public face of the initiative
4. Credits, a free demo product or beta version, or some sort of thank you in
the final product or service that recognizes the fact that investors have
contributed time or money
5. The ability to track the progress of the project from start to finish, and share
in the excitement and celebration when the project is ultimately completed
and distributed to the public at large
After looking at some of these criteria at a high level the following trends
are clear. First, it appears that the growing interest and utilization of
fundraising mirrors the growing sentiment, especially among millennials, to
satisfy the entrepreneurial spirit that is common among early to midcareer
professionals. Second, the very nature of crowdfunding, which establishes a
low monetary threshold for participation, appeals to individuals and
entrepreneurs (other entrepreneurs might be interested in investing in your
business) who want to dip their toes into a venture without having to commit
significant chunks of capital. Third, and lastly, by engaging with investors
throughout the development and implementation process, whether it is
through an online community or by shipping beta versions or “thank you”
trinkets you are able to keep investors and potential customers engaged
throughout the entire process.
Crowdfunding Takeaway
In other words, the very phenomena that is crowdfunding is a result of
broader economic and business forces that have, and continue to, change how
investors and other entrepreneurs view investing in general. By providing a
platform and venue for ongoing interaction, your business can fulfill one of
the key needs that anybody investing or taking an interest in a new business
has—the desire to feel involved and up to date. Especially if you are able to
set up a social community on Facebook, LinkedIn, or even through Twitter
engagement, in addition to whatever e-mail or website interactions you feel
are appropriate, you can differentiate yourself in the marketplace.
Additionally, and perhaps the most important aspect of crowdfunding
from a business development perspective is that you are able to interact
directly with potential customers during the entire development and
engagement process. Especially since your customers have the ability to
comparison shop your products and services versus the competition, this can
provide you with invaluable customer data from the beginning. To wrap up
this topic, let’s summarize some of the key benefits and upsides of engaging
in crowdfunding for your business:
1. Crowdfunding provides you access to capital from a wide array of potential
future customers, other entrepreneurs, and stakeholders.
2. Continuous feedback—by engaging with investors and customers during
the various stages of product or service development you are able to
improve and tweak your offering to the market before the go-live date.
3. Engagement—the very essence of crowdfunding, and raising capital in an
online format and venue, in essence, forces you to develop and build out a
robust online presence.
a. Especially in the current marketplace, if your customers cannot find
you or your business online, you do not even really exist.
 Now the real question or takeaway is as follows—how can your
business not take advantage of the opportunities of crowdfunding?
This chapter served as a brief overview and review of economic concepts,
theory, and how these concepts link to you and your business. Economics
might not seem like a field of study and analysis that is particularly relevant
to your business, especially as you are just starting out and developing certain
new products and services, but that could not be further from the truth.
Economics, and applying economics to business, is really the ability to
interpret and analyze how broader business forces and economic trends are
influencing how you manage your business. We highlighted the distinct trend
of crowdfunding at the abstract and theoretical level, and also how this trend
can be maximized for your business, but that is only part of the picture.
Developing a crowdfunding plan, building up an engagement process, and
possibly providing free beta versions to your early investors represent
different tactical steps you can, and should, take to build up your business
network, but you also need a strategy. The real question is as follows: how do
you build out and develop a strategy and strategic planning process that is
also cost effective?
 CHAPTER 12
Cost-Effective Strategic Planning
So, we have spoken about the importance of understanding financial literacy,
economic literacy, and the importance of these ideas to business management.
Wrapping these topics up in a concise bundle to actually develop strategy,
however, requires an adjustment of mindset and being open to new ideas.
Thinking of developing strategy and executing it in a time-effective manner
can be thought of like a sprint, where managing the business should be
thought of as a marathon, requiring constant training and maintenance.
Bringing together the ideas of financial literacy, economic literacy, and the
importance of technology to properly develop and manage a business in a
competitive environment. The idea of a sprint is not a new concept by any
stretch of imagination, but implementing it at a small to medium size
enterprise provides a valuable opportunity to learn, experiment, and gain
market share moving forward.
In essence, a sprint requires resources that are available at any
organization regardless of size. First, a separate room for the sprint team to
meet, brainstorm, and work out ideas and concepts. Second, white boards, dry
erase markers, and post it notes. While it might seem simple, these supplies
are essential for successfully implementing a sprint, and embedding it within
the strategic planning process. Third, and the most important resource, is a
consecutive 5-day period (one full work week) that can be dedicated
specifically to working out the sprint. Identifying a consecutive 5-day period
that is available for sprint might seem challenging at first, it might be easier
than you think. I know that we all try to sound, and be, as busy and productive
as possible, but the reality is that everyone has certain periods of time that are
quieter than others. Whether it is seasonally related, client related, or driven
by some other factor I can guarantee that you can find a week to focus on
strategy and future-oriented business development.
Why You Need Strategy
The very concepts of strategy, strategic planning, and executing an
organizational vision over a long period of time might seem like an antiquated
or outdated notion in the current environment. After all, with the pace of
business changing at an increasing pace and influenced by trends in social
media, artificial learning, and machine learning, a traditional strategic
planning process clearly is insufficient. While that much may very well be
clear to managers and entrepreneurs, even the idea and concept of a modified
strategic planning process that takes less time might seem like an unusual use
of organizational time and money. Put simply, spending time, energy, and
money on a strategic planning process, regardless of how it sounds, might
seem like something you could live without. Simply competing on the day-to-
day, hustling new clients, and trying to bring new business to the firm
probably gives you more than enough to keep busy—so why do you need
strategy?
Why Strategy Matters
Strategy matters, and it arguably matters even more in a business environment
and landscape that continues to experience disruption on an almost
unprecedented scale across industry lines. While it might be tempting to focus
purely on tactical responses to changes in the market place, customer
preferences, and product development life cycles it is important that you do so
with an eye toward where you want you and your company to be in the next
3- to 5-year cycle. Think of it this way—would you take out a mortgage on
property or relocate across the country without a medium- to long-term plan
in place to make the best of that situation? Why should your business and
startup be treated any differently? In order to effectively execute and position
your firm where you want it to eventually end, you need to know what your
goals are, how you wish to achieve them, and specific action steps you would
like to take. I am not going to reiterate, for the nth time, the SMART (smart,
measurable, attainable, realistic, and time constrained) acronym, and expound
of the benefits of having SMART goals—there are entire books dedicated to
this subject that do a wonderful job at just that. Instead, let’s take a look at a
few of the more practical questions any entrepreneur should ask themselves
when developing goals and a strategic plan.
1. Where are we—I do not mean physically, or even the geographic market
for your product, but rather where are you in market? Service, goods,
wholesaler, retailer, and online distributor are just a few of possible
answers to this question.
2. Where are we going—Based on where your organization currently is in the
marketplace, what is the current trajectory and path for your organization?
Only you are able to honestly answer this question, but here are a few
keywords and hints to keep in mind as to where you are going:
a. High end provider
b. Mass market provider
c. Online based and digitally integrated
 d. Hands on and customizable
e. Commodity/Utility
Note: unless you have tremendous scale, which by default most small
business do not, operating and marketing yourself as a commodity or
utility is most likely not an optimal path for sustainable profitability.
3. How are we getting there—After you have done a little homework or
research, and figured out just where you are and where you are going, how
exactly are you executing on your current trajectory? This can include but
is not limited to the following:
a. New product development
b. Expanding current service offerings
c. Engaging more proactively with customers
d. Creating a joint venture or reinvigorating an existing partnership
4. Are we operating in alignment—This has nothing to do with whether or not
you have seen a chiropractor recently, but it does have everything to do
with your business! Every action taken by your business, larger and small,
should be done in alignment with the broader organizational objectives.
a. If the tactical decisions, made day to day by the organization, are not
aligned with the longer term strategic plan and goals of the firm, the
probability of achieving sustainability success will decrease over the
medium to long term.
In short, it should be relatively clear to see that strategy and a good
strategic plan form the foundation for how your business will operate,
compete, and succeed in the marketplace moving forward. Tactical decision
making is naturally a part of business life, and that will never change
regardless of how large your organization is, but it is imperative that these
tactical and operational decisions are made within a strategic framework.
Think of it like this; if your day-to-day operational decisions are how you will
paint a certain room, your strategy is how you know which room to paint,
what color to paint it, and which tools to use.
Into Action
This book, as I have promised throughout, is a book that is focused on topics
that can be somewhat abstract to understand, and difficult to insert into
regular conversation; economics, finance, accounting, and the effect of
financial literacy on entrepreneurship. One of the key goals and objectives
that I had for myself while writing this book was to not only discuss these
concepts and ideas, but also provide alternative and options for just how
entrepreneurs and small business owners can place these concepts into action.
What follows next is an outline and overview of an innovation concept that I
have researched, written about, and seen used in a variety of situations with
varying degrees of success. That last bit is important to remember; just
because an idea sounds good and has been used before with great success
does not mean it will always work for you and your business. Always do your
homework before investing time, money, and energy into a new idea.
The Sprint
So, you have the space designated for the sprint project, your sprint team
(which might just be you and your core employees), and some time to tackle
these issues. The first step in this process that you are going to identify is
what areas you wish to tackle. The options are as varied as they are important,
so it is critical to have an open and frank discussion. It might be producing a
new product or service for existing customers, developing items to attract and
retain new business, or simply facilitating a conversation with customers and
stakeholders. The first step in the sprint, after identifying the target market
and objective, is the development of a prototype that can be pilot tested with
customers and other stakeholders. A critical part of this conversation is that
the product or service need not be ready for actual customer experience and
implementation, it merely has to look and provide the impression that your
final product wishes to convey.
After developing a demo product or service the next step in the sprint is to
engage with customers and other stakeholders to gather feedback. Since the
ultimate goal of the sprint is to develop a product and/or service that is
appealing to customers at large, seeking and gathering the commentary and
feedback from customers is an important aspect of the sprint process. This
demo test can be online (for a service), or with a focus group (for a new
product), and both options are readily available to be done in a cost-effective
manner. Management and entrepreneurs are clearly oriented toward pursuing
innovation and strategic innovation in a cost-effective manner, and the sprint
methodology of innovation provides a platform that management can use to
develop and implement these types of changes. After receiving feedback from
customers, the next step is the most important aspect of the entire process—
building a product to roll for out for beta testing.
For a small to medium size business, this process can be as simple and as
logical as rolling out a new product to test over a weekend, such as a holiday
weekend or a quiet time of the year anyway. The specific period of time
selected for demo testing does not matter so much as the fact that there is a
specified time to measure the effects of the new product. For example, if the
website is updated over a weekend, or that is done in conjunction with the
development of a mobile application the company can track the number of
hits, followers, likes, views, or other examples of online engagement. Based
on the iterations, feedback, and information from the customers the
management team can make the following critical decision:
1. Move forward with the product or service itself, eventually rolling the
product out to full-scale implementation, or
2. Cancel the individual service or product rolled out, and realign resources to
develop a new product idea
Internal Benefits to the Sprint
We have walked through how an organization of any size can implement and
develop a sprint-oriented strategic planning initiative, and the benefits that
can be accrued in terms of rolling out a new product or service. These ideas
and concepts, in and of themselves, should be enough to at least make you
partially curious and interested in pursuing this strategic planning theory, but
there are some other benefits that you should keep in mind. Think about it in
the following way—if you reorganize a closet, your garage, or a room in your
house, it is never quite the same afterward is it? This exact same idea and
concept applies to how your organization and management thinking (should
be) after you complete, or at least start, to use the sprint innovation
framework. After bootstrapping innovation, and creating an entire business
objective and strategic plan in a relatively cost-effective and time-efficient
manner, the way your business operates and how you view your business is,
most likely, changed in a permanent way. Innovation and new business ideas
do not have to cost an arm and a leg, and since that fact has been established,
why would ever go back? Saving money, operating efficiently (without
cutting corners or being cheap where it counts—with your customers) is
always something that every business should pursue. That said, there are
some internal and psychological changes that also result from embracing this
sprint that we should take the time to discuss at this time.
Imagine you run a business with 40 employees, all of whom operate
within a 10-mile radius of each other—just big enough to cause you
headaches if people are not getting along or working well together. In addition
to the day-to-day operations and headaches that inevitably come with running
a business, the sheer number of opinions can make coming to a consensus
about anything very difficult. That said, the fact that accomplishing certain
tasks is difficult does not mean that you should give up or not pursue these
objectives. The sprint innovation framework provides you with a method to
effect change in a cost-effective manner. Dividing up different types of
projects, objectives, and product offerings for different groups of employees
to consider makes the best use of organizational time. Instead of focusing the
time of all employees on specific projects, or trying to get employees from
different locations to work on the same project (both of which are inefficient),
the sprint focuses managerial time and energy.
After the project is over, however, does not mean that the organizational
and employee oriented benefits are going to end. Breaking up employees into
teams, providing them the time to focus on real and challenging problems,
and allowing them the flexibility to tackle complex issues will only improve
employee engagement. Especially in a smaller environment it is essential that
all employees remain engaged and invested in the success of the enterprise.
While this might sound like a fanciful idea, there are tangible costs to not
keeping employees engaged and interested in the work. There are costs, but
with every cost or problem there is the flip side—opportunity. Think about it
in the following manner—if you have a highly motivated and engaged
workforce that provides you a sustainable competitive advantage in the
market. Let’s take a deeper dive below.
Keeping Employees Engaged
Depending on what survey you review, or which pieces of data are analyzed
the specific dollars and cents will be different, but the underlying trend is the
same. Disengaged employees, which can take the form of Internet surfing,
passively avoiding responsibility, or actively seeking new employment, are a
tangible drain on the business. This effect regardless of which data set is
consulted, can be measured in terms of billions of dollars, and this is not just
an issue for large businesses. Small to medium size businesses are actually
even more susceptible to disengaged employees, and here is why. If an
organization has 1,000 employees and 5 percent of these employees are
disengaged that represents 50 people working for the company are not
engaged in improving the performance of the organization. Applying that
same 5 percent ratio to a smaller business, let’s say 50 people, this means that
(rounding up) 3 people working for the organization are not engaged. The
number might be smaller at the small to medium size business, but the effect
and ripple effect at this business can even be more pronounced at a smaller
business than a larger enterprise.
So, how does the sprint methodology of innovation help keep employees
engaged, motivated, and productive for the business owners, founders, and
managers? From the perspective of an individual employee the logic
embedded within this thought is relatively straight forward. The simple
question is—who does not want to work on projects and initiatives that are
interesting, forward looking, and taking place in new areas? Clearly, this is
not a foolproof method to keeping employees engaged, interested, and happy,
but it certainly cannot hurt as you are trying to grow, develop, and expand
your business. Employee engagement and motivation are essential to any
business that is seeking to grow, and every entrepreneur is always looking to
grow their business. As wonderful as these managerial and employee-oriented
benefits are, however, financial benefits and advantages of embracing the
sprint methodology also exist. Let’s take a look and see what exactly those
benefits are!
Financial Benefits of the Sprint
Now the whole concept of sprint innovation certainly presents an opportunity
for entrepreneurs and management teams to develop new products and
services, but there are also several financially oriented benefits to adopting
the sprint innovation platform. Innovation and new business ideas all require
capital, continuous funding, and an ability to take into account changes in the
marketplace that mean the organization will have to change. Unfortunately,
and as a result of the industry that has sprung up around various theories of
innovation and management creativity, innovation and developing new
products and services, innovation can be expensive. In addition to the costs
involved with simply buying innovation (whether by acquiring startups for
employees or patents), and contrasted with the sprint methodology, innovation
can often put other projects and initiatives under extreme pressure.
Summarizing the financial benefits of the sprint theory of innovation include,
but are not limited to the following:
1. Cost effective product development, which provides new opportunities to
expand market share and attract new customers
2. Utilizing technology to expand and develop the business. Technology is
sometimes intimidating to entrepreneurs, and can be perceived as a time
wasting tool instead of improving productivity
3. The time compression and pressure that the sprint puts on the organization
requires focused effort and energy, which will at least require focusing
entirely on the product and service objective at hand.
There are other benefits to engaging in a sprint innovation methodology,
but the overall theme of the sprint concept, as it relates to financial and
economic literacy, is that adopting the sprint requires an increased
understanding of financial and economic literacy. These forces, financial and
economic drive the small to medium size business, converge to help
management drive strategic planning in a cost-effective manner. Especially in
a business environment that, whether on a local or global scale, continues to
accelerate and be influenced by a broader scope of forces. Building a new
business plan, complete with logical objectives, will help keep the business at
the forefront of product or service development. Strategic planning,
specifically the sprint methodology, is an important tool that must be
embraced, or at the very least analyzed by the managers of the business.
What This Means for You
If you are reading this book, and specifically if you are reading this section of
this book, then you are most likely an entrepreneur, someone who is
interested in launching a startup, side hustle, or just someone interested in
learning a little bit more about this area. Developing new products and
services, clearly, can very quickly become an expensive time-consuming
activity. All that is required is a brief online search of research gone bad, or
development projects that have gone awry—even the most successful and
high profile organizations are not immune from stumbles along the way.
Amazon, for example, had to deal with the fallout and mal-investment of
resources and personnel into the rollout of the Fire phone. While Amazon
usually is closely attuned to customer demands and expectations, this
smartphone was a market failure in virtually every sense of the word. So if
even a highly successful organization that routinely produces hits and market
leading products and services, can suffer failures, what strategic planning
process can you put to use in your startup?
Fail Fast and Often
The old adage related to failing fast and failing often is almost an analogy to
how any small to medium size business or startup—you must be willing to
experiment, try out new ideas, and learn from mistakes in order to develop
and sustain a pipeline of products and services for your organization. If you
are running and managing a startup, for example, you might be well served by
rolling out various iterations and versions of your website or mobile platform,
and tracking which versions do better with customers. This is a simplified
version of an A-B test, where an organization offers different options to
different customers, and then tracks the performance of various options versus
each other. Extending this example, and linking back to the idea of sprint
innovation, is that this is also an opportunity for entrepreneurs to
quantitatively track the changes as they are made. As a quantitatively oriented
professional myself, the benefits of quantitative data and data tracking cannot
be overstated—this actually tells you what the changes you make to your
business are generating for your business.
Big Investments Not Required
Innovation, especially for smaller to medium organizations, is something that
might frighten away would-be participants, simply because the idea of
innovation sounds expensive. Let’s take a deeper dive, however, and really
examine just what you can accomplish from an innovation perspective with a
shoestring budget.
1. Build out a new website, or modify your existing one—you are already
paying for the hosting and editing service, why not take full advantage of
the services?
2. Develop a social media presence—the last time I checked, building out and
developing a following and platform on Facebook and Twitter requires no
financial investment
3. Engaging with customers—engaging and interacting with customers,
current and prospective, only requires that entrepreneurs exert effort and
energy, but does not require the spending of finance.
4. Make a video campaign—YouTube costs nothing to join, costs nothing to
upload videos to, and provides you with an excellent way to engage with
customers and consumers of the millennial and Gen-Z generation. These
consumers will only grow more financially important in the coming years;
engaging them is essential for future profitable success.
It is, literally possible in the current environment to bootstrap an entire
business over a weekend, with a laptop and smartphone, for under $100. You
can build a website, develop a social media presence, upload video segments,
and start engaging with customers with only having to pay for a phone stand,
and possibly some website hosting fees. Whether you are developing a
product or a service is less important than the fact that you are starting to
promote your business, your brand, and your market position. Services,
especially those that can be completed remotely, can actually start generating
revenue as soon as customers realize they exist; your startup can be profitable
in a manner of weeks instead of months. Even products that must be
manufactured and shipped to customers can be advertised, marketed, and
promoted from the very beginning. Video advertisements and product
reviews, in particular, are very popular with younger demographics—why not
create a few short demos and see what the customer reaction is?
 CHAPTER 13
Getting the Money Right
Getting the money right is a concept and idea that sounds relatively straight
forward and is, in fact, a concept that every entrepreneur intuitively realizes to
be true. This entire book, actually, focuses on the intersection of
entrepreneurship and finance and the implications that these connections have
to business owners, founders, and managers. That said, we have not truly
conducted a deep dive into some of the specific steps that you can take as a
managers and entrepreneur to ensure that your business enjoys consistent and
profitable growth. Obviously, the topics of accounting, finance, and tax might
not be the most interesting or engaging topics for budding and actual
entrepreneurs to focus on, but they are of critical importance. Without
understanding and quantifying the flows of finance in and out of the business,
the best ideas and strategies will not come to fruition. On top of this, and this
is where the proverbial rubber hits the road, is that every business is different,
and every entrepreneur is different. Additionally, this list is not meant to
represent an exhaustive listing of all possible areas that you should analyze
when it comes to your business and its profitability—this is merely a starting
place for you to begin understanding what is going on with both your business
and your business finances.
Before we dive right into financial statements, the components of these
statements, and what they actually mean for your business, there is one
definition I want to toss out there. The idea of an opportunity cost again might
sound like something taught in an economics course, and quickly forgotten
soon after. As an entrepreneur, or anyone seeking to expand and grow
themselves outside of current roles and responsibilities, however, means that
you are already taking into account the idea of opportunity costs whether you
realize it or not. For our purposes, here is a quick definition:
Opportunity costs are the price you pay for undertaking a certain
course of action, and will absolutely have a strong effect on your
performance as an entrepreneur and as business manager. For
example, if you decide to start a new business instead of remaining
employed, the salary that you are giving up is your opportunity cost.
The idea of an opportunity costs represents the benefits you sacrifice
from one option to go ahead and start another opportunity or option.
With all of that said, let’s take a look and see what you can do, starting
today, to help improve your understanding of business finances and the items
you should know about to get your money right. Getting the money right,
from both an income and cash flow perspective, provides you the resources
and expertise to help grow your business—let’s take a look at some of them
below.
The Basics
Every entrepreneur knows a little something about accounting and finance,
otherwise they would not have ever had the idea to start the business in the
first place. Before we start analyzing, in too much detail, the techniques and
tactics for entrepreneurs to help jump-start business finances, we should
review some of the basics. Even if you are familiar with these items, I suggest
you at least give them a brief review to make sure that we are all working off
of the same thing moving forward. A few minutes of reading and thinking is
well worth the financial benefits a better understanding of these terms will
provide.
Balance sheet—this is the document that shows and lists the assets,
liabilities, and equity of the business, and does so for a specific date in time.
Remember that, the balance sheet is only accurate for the specific date that is
listed on the document, nothing else. For that reason, this financial statement
is often described as a snapshot of financial performance, as opposed to a
short film or running commentary.
Assets—The best definition of an asset that I have come across is that an
asset is a future economic benefit. Some books and academics will say that it
is something a business owns or controls, and that can also work, but in a
business environment where so much of business is digital and cloud based, I
think the concept of future economic benefit provides much needed
flexibility.
Liabilities—Mirroring the definition of assets that we are working with
above, a liability can be thought of as a future economic detriment to the
business. Put another way, liabilities are any funds that the company owes to
an outside party, or funds that will have to be paid back at a certain point. If
you have a business credit card, a small business loan from the SBA, or have
borrowed money from individuals or banks your business has liabilities.
Equity—Equity, in strictly accounting terms, is the residual equity that
you have in your business, and represents the difference between your assets
and liabilities. So if you have to liquidate your business tomorrow (hopefully
that will never happen), whatever (hopefully) positive difference is generated
by paying off your liabilities with assets would be your equity.
 Depending on how complicated your business eventually gets, you might
1. come across, and probably have heard of the concepts of common stock,
equity investments, and retained earnings. Common stock and equity
investments can be thought of as equivalents for our purposes here—these
are funds that have been invested into the business by external parties and
do not have to be paid back, unless that was a condition of the investment
in the first place.
2. Retained earnings, as opposed to common stock or equity investments,
usually does not get the same type of coverage or analysis, but is arguably
more important for a small to medium size business and entrepreneurs.
Retained earnings simply represent, and are, income that has been
generated by the company that have not been paid out to external parties in
the form of dividends. Note: Retained earnings are only increased by
income that is generated by the organization and not external investment.
Income statement—the income statement is where all of the action for a
business takes place, in the form of revenues, expenses, and hopefully a tidy
profit at the end of the day. An important distinction between the income
statement and balance sheet is that the income statement covers and illustrates
the performance of an organization for a period of time, and not just one
specific date in time. A critically important part of the income statement is a
concept known as the matching principle that states all revenues and
expenses for a certain period of time—month, quarter, or year—must be
recorded in the appropriate period. A failure to follow the matching principle
is a failure of GAAP accounting, which are the rules and regulations for how
U.S. organizations should track their financial performance.
Revenues—revenues are called and labeled slightly differently depending
on the specific company in question, but are the sales of the organization, and
are recorded at the price that the goods and services of the organization are
purchased by clients and customers. Thinking of it in a straightforward
manner, your revenues are the sales that you are making to clients and
customers. Counted at the price that you sell your products and service at,
revenue figures represent the top-line of the income statement, and play a
large role in the financial performance of the firm. While revenues are, of
course, critically important to the organization and the entrepreneurs who
manage and run them, they are only half of the profit equation. As every first
year business student knows, the net profit of an organization is calculated by
subtracting expenses from revenues. Let’s take a look at what expenses
actually mean for you and your business.
Expenses—similar to how you think about expenses for personal finances
and financial literacy, expenses are costs that you pay in exchange for goods
and services. Again, every first year business student is aware of the
importance of acknowledging expenses, tracking expenses, and monitoring
the changes in expenses over time, but it is also important to know that there
are different types of expenses that might influence both your business
operations and financial performance.
1. Selling expenses—while this might seem like a simple idea to talk about, it
is important for every entrepreneur to know just how much it is costing you
to market and sell your products and services. If you, for example, are
spending too much on your selling expenses (either in advertisements or
revenue sharing) you might be actually be losing money on every sale.
2. Cost of goods sold—I cannot stress enough how important this
classification of costs and your cost structure is for your profitability. This
bucket and classification of costs, labeled with the acronym COGS, has to
do directly with how profitable your business will be. If it costs you, for
example, $30 to assemble your product of service (either in the form of raw
materials or software licensing fees) and you sell it for $35 you are not
giving yourself a lot of margin for error. We have already talked about
selling expenses, and we still have some to go—do not exclusively pursue
revenue at the expense of profitability.
3. General and administrative—paper for the copy machine, new themed
supplies to hand out to potential customers, the charges for your website,
phone, and data, and everything else you can think of are lumped into this
general and administrative category. The individual items in this category
might not be tremendously expensive on an individual basis, but in total
this may represent a hole in your budget that is sapping your profitability.
4. Yourself—As an entrepreneur, small business owner, or an entrepreneur
that has bootstrapped a startup into a self-sustaining business also need to
have level of salary or earnings to survive on an individual basis. Now it is
true that you might be living off of savings or previous investments for the
time being, but at a certain point you must be able to pay yourself. This is
often forgotten and not discussed by entrepreneurs, and represents an area
that can trip up and derail the best and most thorough of plans.
Profit—we have finally reached the bottom of the income statement, and
are at the point that every entrepreneur and business person wants to end up at
the end of business operations for the period. Profit, income, or earnings
(whichever label you like better), is the difference between revenues and
expenses during a specific of time. Congratulations! Now that you have
earned a profit, you have some decisions to make as to what you actually
want to do with these profits. We have analyzed the balance sheet and income
statement, but now let’s take a look at the statement that bridges the gap
between the two—the Statement of Retained Earnings.
Statement of Retained Earnings—One of the important accounting
technicalities to keep in mind as you are running your business and churning
out profits is that you have some options with what you actually end up doing
with it.
Reinvest—reinvesting your profits back into the business has several
benefits that are worth starting. First, by reinvesting earnings into your
business you are providing your business with the capital and resources it
needs to continue growing, expanding, and attracting new business. Second,
by reinvesting your earnings into the business and enterprise you are able to
also provide a cushion for the business in case of market turmoil and
uncertainty. Most small to medium size businesses I have seen choose to
retain most of their earnings, and use current period profits to improve the
prospects for future performance.
Pay out—this is a technique and idea that is most often found in more
well-established businesses, or a business that has multiple internal and
external partners. Paying out a portion of the profits and income that have
been generated by the organization to some of the other owners and partners
has the effect of keeping partners, who are also part owners of the company,
satisfied with performance. Additionally, by keeping owners and partners
satisfied and happy with current business performance, they are more likely to
contribute their time, energy, and finances to help the business grow.
Now that we covered what your options are when you have generated a
profit from your startup or small business this is a good time to briefly
analyze the different sections of the statement of retained earnings. Just like
the balance sheet and income statement there are different sections of this
statement, and those are retained earnings and common stock. It may sound a
little abstract, but as we will see shortly, it really does make quite a bit of
sense. These might not be terribly important for you or your business at the
present, but might very well become important as your business becomes
larger, more profitable, and well established.
Retained earnings—fortunately this is a relatively straightforward topic
and area for our discussion and analysis, although it might sound a little more
abstract than most entrepreneurs and businesspeople would like. As discussed
above, an organization has two choices with what to do with their earnings;
pay them out in the form of dividends and returns to owners or reinvest them
in the business. Retained earnings, to put it simply, account for net income
that has been generated by the organization, but has not been distributed to
any owners.
 Common stock (invested capital)—I know that most businesses will not
have something as esoteric and high level as common stock and stockholders,
but you might very well have investors. We will not dive into the intricacies
of accounting for partnership capital, accounting for investments of different
types of capital (time, money, property), or any of those accounting topics—
you could, and there are, entire books on those very topics. For our purposes
here, the primary point to keep in mind is that if your external investments of
capital, resources, and time you must be able to keep track of these different
investments. Accurately tracking and accounting for these different types of
external investments is important, but here is the important point. Investment
accounts, regardless of their initial source, are only influenced by the capital
invested, and not the operations of the enterprise.
Statement of cash flow—we are almost done with this review and
analysis of the financial statements, and I know that this might not have been
the most exciting section of this book. That said, having a solid understanding
of finance, and the finances of your business, is a critically important skill that
cannot be overlooked. Developing a new product or service idea is fantastic,
and the course passion of many entrepreneurs and business owners, but an
idea is just a start—it requires financing to fully develop and execute on these
different ideas. To this point, we have been analyzing the financial statements
as they relate to net income and the various iterations of financial
performance that originate from this accounting version of net income.
Income, as fantastic and easily understood as the idea is, does not represent
something that an entrepreneur can pay bills with. Cash flows, which are the
cash inflows and outflows of your business, represent what you are actually
able to pay bills, employees, and vendors with—so let’s take a quick tour of
the statement of cash flows. This financial statement is also presented over a
period of time, but focuses on the changes in cash that occur during the
period, and does so by breaking down cash flows into three broad-based
categories.
Operating—cash flows from operations represent the most intuitive
portion of the statement of cash flows, and this is because this section is
directly linked to the actual operations of the business. Operations, regardless
of the specific industry or field that your business operates in, are where you
would like to generate the majority of profits and positive cash flows.
Building on this sentiment, cash flows from operations represent the actual
cash flows that you and your business are able to generate from your
core/primary business operations. In general, this section of cash flows should
be positive, as it links directly back to the actual business that you are doing.
Investing—the middle section of the statement of cash flows can be one
that trips up even the savviest entrepreneur, and that is because it requires
stepping out of owner shoes, and truly analyzing a business from the
perspective of the business. Investments, from the perspective of the
individual, are cash flows (going in or out) linked to actions undertaken
regarding fixed assets—plant, property, and equipment. Framed in this
context, a negative or positive cash flow from investing activities is not
necessarily a good or bad thing. For example, a negative cash flow from
operations might indicate that a firm is investing heavily in expanding fixed
assets and infrastructure, and this might be done for a host of valid and
progressive business reasons. A positive cash flow might, conversely, indicate
and illustrate that a firm is divesting certain fixed assets, which can either
indicate a retrenchment of business activities or simply divesting certain fully
depreciated assets. In short, this is an area that requires additional analysis.
Financing—cash flows from financing activities are not usually cash
flows related to either core business activities or investments made on behalf
of the business. Financing cash flows are cash flow activities linked to equity
and debt instruments, and this can include items including stock issuance,
stock buybacks, cash dividends, debt issuance, and the retirement of certain
debt items. It is also important to understand that, similar to cash flows from
investing activities, that the financing cash flow section cannot be broken
down into a simple negative versus positive analysis. For example, issuing
new debt will show up as a positive cash flow figure on the statement of cash
flows, but might not actually link to positive developments for the business
(more debt is always something to watch). Conversely, negative cash flows
might simply implicate a paying down of debt (good for business operations),
or paying out cash dividends, which will help satisfy common stock holders.
So now that we have conducted a brief review of financial statement
basics, including concepts, the actual statements themselves, and what you
need to know about them, we can pivot to action oriented tips that
entrepreneurs need to know. In order to most effectively put these steps into
action, however, a basic understanding of what external users are expecting
(financial statements) is essential. Now that we are all working off of the
same basis, we can start talking about some of the specific items you should
try to keep in mind as you analyze the financial performance of your business.
 CHAPTER 14
The Checklist
Not every topic and item introduced, analyzed, and discussed in Chapter 13
will have an effect on your business, and the reality is that most of those items
and concepts discussed will never intrude on your day-to-day management of
the business from an operational perspective. To simply ignore these topics
and dismiss them as the worries for someone else would be a mistake,
however, and leave you vulnerable to surprises and shocks later on down the
line. As any entrepreneur or businessperson will tell you, the last thing they
want or like is a surprise. Distilling and analyzing further some of the
concepts and topics we discussed in Chapter 13, I have assembled this
Chapter 14 to help take some of these concepts from abstract talking points to
real world concerns and topics that should be worried about. This list, and
chapter, are not meant to represent an all-encompassing list of all possible
items for entrepreneurs to keep on their radar, but should rather give you a
basis to analyze from a real world perspective just what are some of the hot
issues to focus on.
The Money Checklist for Entrepreneurs
Net income does not equal cash—this is a concept that might seem like
something every businessperson would know, but I cannot overstate just how
important this concept is for a budding business or entrepreneur. Net income
is what you show on your income statement, and is the (hopefully) positive
difference between revenues and expenses. It is important to remember that
income, although it is something we are intuitively familiar with, is
influenced by numerous accounting principles and topics. These accounting
techniques and items definitely serve a business purpose, but might not really
have anything to do with your business—some of the common items might
include:
1. Accruals
2. Deferrals
3. Warranty expenses
4. Depreciation
5. Amortization
If you are not familiar with all of these terms that are perfectly okay—
most people, except CPAs, really have no reason to know what these terms
even mean. For our purposes, the terms accruals and deferrals can represent
different sides of the same coin, and are both estimates for future items. Since
the costs (accruals) or revenues (deferrals) have not actually been billed or
received as of yet, management has to make some estimates to make sure
everything that happened during a month is actually reported in a certain
month. Warranty expenses are pretty much what they sound like, except we
are examining the idea of a warranty from the perspective of a business and
not an individual.
Warranties work, in general, as follows. Customers purchase warranties,
and pay upfront, to help offset potential future costs if a product breaks down.
Companies have to recognize this as liability in case they owe these payouts
at a future date, but this is only one specific type of liability. Liabilities can be
thought of, and this is a relatively simple way to think about this topic, as any
money that will be owed to an external party at a future date in time. Before
we dive specifically into the topic of depreciation, I do want to take a moment
just to make sure you are able to connect what we are talking about here with
what we already spoken about.
Depreciation and You
While it might sound like a bad name for an accounting themed drama or
play, the concept of depreciation can, and does, have real world implications
for you and your business on an ongoing basis. Taking a step back to actually
see and analyze what depreciation is, and represents, will help us better
understand just what exactly is going on when we talk about depreciation.
Before we can do that, however, the first thing we have to discuss is how we
even get to this item called depreciation. That, in turn, leads us back to
something we have already discussed—the balance sheet.
As analyzed before, the balance sheet is comprised of three primary
sections: assets, liabilities, and owner’s equity. Assets are resources that will
produce a future economic benefit for the organization, and this obviously
includes any investments that are made to purchase or acquire long-lived
capital assets. Specifically, for the purposes of our conversation on
depreciation, any dollars that are spent in order to acquire, or put into service,
assets linked to the plant, property, and equipment of the company are
counted toward assets that may be depreciated later on. Reviewing this again,
I do want to highlight the two categories of costs that are eligible to be used
for depreciation purposes:
1. Costs incurred to acquire a long-lived assets
2. Any costs incurred to place this asset into service
 In practice, what this means is that any of the costs that you spend to
purchase a building or heavy equipment for your business, and get these items
ready to actually be used in your business are costs that are, in turn, eligible
for depreciation treatment. This might sound nice, but like something that is
an abstract concept more than something that you should truly be spending
too much analyzing or discussing. That opinion, however, could not be further
from the truth, especially as it relates to how your business performs and what
future financial decisions you might make with regards to your business.
What Is Depreciation
So we know that depreciation is something related to the fixed assets of a
business that are usually costly, long lived, and used in the operation of your
business. What depreciation does, through some accounting machinations, is
it allows you to spread the usually significant costs of these assets over the
useful life of the particular asset. This bit of accounting magic is directly
linked back to what we had discussed when we talked about the matching
principle, the accounting principle that states all revenues and expenses must
be recorded in the same period. For example, let’s analyze the following
scenario, but keep in mind that useful lives (for tax purposes) are specified by
the IRS so you do not have total flexibility over the useful life you are able to
use for depreciation purposes.
Company ABC purchases a new building as part of an expansion process,
and plans to use this building to help manufacture and produce new lines of
products and services for new and existing customers. The building itself was
appraised as $300,000, the land separately appraised at $500,000, and the
various commissions, fees, and licenses required to complete the purchase
totaled $50,000. Additionally, to set up and get the building ready for use for
the business, a total of $75,000 was spent on renovations. The building has
been assigned a financial accounting life (different from tax) of 20 years.
What is the total asset value worth to the business on a cost basis, and what is
the annual depreciation expense?
First, let’s take a look at the total costs that have to be incurred to actually
purchase this asset and get it into business shape for our business identified in
this problem. The actual asset itself costs $800,000 (for both the building and
land), various fees and other payments cost $50,000, and the company had to
pay for $75,000 worth of upgrades to the building. This brings our total cost
of $925,000 in order to both purchase this asset, and get it into the appropriate
condition to be used for business operations. The next step we need to figure
out is just how much depreciation we are able to take on this building on an
annual basis, and fortunately that is a relatively simple calculation that is
(total costs/useful life), or in our ($925,000/20) to arrive at an annual
depreciation expense of $46,250 annually.
If you think this sounds like a nice chunk of change you are right! It is
certainly not an insignificant amount of money, but the dollar amount alone
should not cause you any heartburn, and here is why. Although you are
booking this annual expense every single year no matter what, the actual cash
that had to be paid to acquire these assets had to be spent out front. In other
words, although the organization will be booking this expense every year
there is absolutely no additional cash leaving the business during these time
periods. Without getting too much into tax policy and details, this provides an
important benefit for management teams and organizations to remember.
From a business management perspective, it is important to remember
that, although depreciation might show up as an expense on your balance
sheet, it has no impact on your business cash flows. This results in the
following reality—although your income is reduced by the annual
depreciation expense, there is no money actually leaving the firm. As a
result of this lower reported income, which is completely correct and ethical,
the organization will end paying less in taxes than if the company had not
invested in these long-lived assets. This is what is known as the depreciation
tax shield. The cash flowing in and out of the business is how you, the
entrepreneur, can pay bills, manage your vendor payments, and reinvest
money back into the business. Depreciation, on the contrary, is merely an
accounting entry on your income statement and has no impact on the
profitability of your business, the cash flows generated by the business, or
how the business actually is performing.
Key takeaway for entrepreneurs—depreciation is an expense but is a
non-cash expense not related to business operations or performance.
Other Tips
Depreciation might be a high-level item that shows us a big ticket expense on
your income statement, but that does not mean that this is the only financial
item you should keep on your short list as an entrepreneur. Business is
influenced and changed by a whole host of factors outside of depreciation and
continuing operating, and these items can have a dramatic effect on how your
business performs presently and in the future. As an entrepreneur or small to
medium size business owner it is even more important for you to keep an eye
on these financially oriented factors and themes in order to maximize business
performance. Framed in the context of take away information that you can act
on beginning today, this list might be viewed as a short cut to help you better
manage business finances.
1. Expenses—It is never fun to talk about expenses, profits are just more
 fun. But do you really know what your small business or startup is
spending money on? For example, are you paying too much for
webhosting? When was the last time you checked the effectiveness of
your advertisements? Getting a handle on costs is half the battle toward a
profitable new business.
2. Taxes—The fun continues! All kidding aside, taxes are a part of life for
individuals and small businesses—it is on you to know what your tax
obligation is for the year. While you are keeping track of your taxes, be
sure to check and make sure you are taking advantage of every credit and
deduction your business is eligible for. From hybrid vehicles to solar
panels, your business might qualify for more than you think.
3. Credit—Two quick things about credit. First, do not mix and match your
personal credit cards and business credit—it can get messy very quickly.
Second, credit (debt) is not always a bad thing—it is a tool like any other,
and can give a millennial entrepreneur the breathing room they need to get
things and running. Like any tool, however, debt must be used properly—
millennials are acutely aware of the damage runaway debt can cause.
4. Technology—Social media, although fun, is literally just the tip of the
iceberg when it comes to technology. From payment management apps,
property management apps and programs, and the numerous (and mainly
free) tools to video chat and do business with anyone at any time, why not
make technology work for you? For instance, every food service should
always have new pictures of their menu—bon appétit!
5. Get organized—Being organized and keeping track of the information
related to your business, both operationally and financially, is the first step
toward improving your current performance, and generating improved
future performance. You do not have to invest in sophisticated software or
tracking tools to track your information however, you can begin tracking
and organizing yourself with something as simple as pen and paper.
6. Your network—Everyone has a network, and it is up to you to maximize
the value of your network for your business activities. Your network
provides you with potential customers, connections to other local
businesses, and an audience to bounce ideas off. Do not underestimate the
value of maximizing your network, or the importance of making the most
of your connections.
7. Acquisition costs—Revenues and expenses are items that we have talked
about throughout this text, and should be items that we are relatively
comfortable with, but what about the idea of acquisition costs? Acquiring
customers and developing new business costs money, and you must be
 able to acquire and gather business leads in a cost efficient manner. Think
of it this way—if you are paying $5 to acquire every new customer, and
these customers are only generating $4 of revenue for the operations, you
are not acquiring customers in a cost-efficient manner.
8. Customer profitability—generating new business and acquiring new
customers is primary concern for every entrepreneur and small business
owner, but you have to be sure that you are actually attracting profitable
customers. Expanded in the next section, the very concept and idea of
customer profitability is one that too many entrepreneurs and business
owners do not spend enough time focusing on.
9. Marketing—Not everyone is a born marketer, but that is no excuse to not
engage in marketing behavior and to try to expand your market presence.
Whether you market by using word of mouth, focus on pictorial
marketing, or leverage social media to help build your business the
emphasis is the same. In order to attract business, generate new
customers, and grow your client book you need to reach out and engage
with your customer base.
10. Use the experts—Taxes and legal advice can be some of the most
confusing topics and concepts for anyone, least of all a busy entrepreneur
that is trying to bootstrap a business from the ground up. Fortunately, a
multitude of online services are available, many of which are very
affordable and, increasingly, intuitive to use.
Customer Profitability
Acquiring new customers and building out your book of business is
something that every entrepreneur and business owner should spend quite a
bit of time thinking about. Revenue is the starting point for profitability, cash
flow, and provides you the platform and opportunity to advance your business
agenda in the marketplace. There are entire books, seminar lecture series, and
endless YouTube/audio podcasts that focus on how to sell more goods and
services to the marketplace. Professional sellers, experts in the art of selling,
and entire industries have sprung up around how to help entrepreneurs and
smaller to midsize businesses attract new business, but one aspect of this
industry is often overlooked. More customers, generally, means good news
for the business, both in the current and long term—but how profitable are
these customers?
Let me explain a little bit about what exactly I am asking in that question,
and this builds on something that we had introduced before in our checklist.
This is truly a core question for any business owner as they seek to expand,
grow, and develop new lines of business regardless of whether they operate in
a product or service market. It will always, 100 percent of the time, cost
money, energy, and time to attract new customers to your business.
Additionally, and especially if you are operating in a services industry, it very
well might cost even more to onboard these new customers into your system
and deal with switching costs.
Switching costs represent the costs and inconvenience you experience
when changing from one service provider to another. Think of it like
when you try to change cable companies, or learn how to use an
Apple device after using Samsung products—there is always friction.
Customer Profits
As a business owner, your gut instinct is to assume that every customer or
client you bring into the business will generate positive results for your
business, and this might very well be the reality of the situation. That said,
there are two costs, or cost buckets, that must be integrated into any analysis
of customer profitability, both for current customers and prospective
customers. Clearly this is not going to be an all-encompassing list of costs to
be considered when prospective for new customers and business, but this
should give you some food for thought. The key takeaway to keep in mind
during this conversation and analysis is that hustling for new customers and
business is always important, but you have to pay attention to the profits of
these customers.
1. Acquisition costs—bringing new customers and clients into your business
environment always costs you money, even if you are not directly
dedicating funds to these efforts. Advertising costs, expanding an online
presence, developing and augmenting current product and service offerings
all require funding, management time, and take place at the expense of
other options. How much are you spending on advertising and other
engagement/reach out initiatives, and how much is being generated by
these efforts in the form of new customers?
2. Unprofitable customers—once you have brought new customers and
business into the fold, you must always check and make sure that these
customers are profitable for you in the short and long term. For example, if
you are offering discounts to get customers in the door, and these discounts
are generating losses for the business, that is not a sustainable strategy. One
metric to check, in this case, might be to watch and see whether new
customers leave once introductory discounts expire or are not kept on.
The whole concept of profitability, on a customer by customer basis, is a
relatively new concept that is now possible due to the increased use of
analytics and information in the marketplace. As we have been discussing
throughout this book, for individuals and entrepreneurs, the sheer number of
technology options and data gathering tools now available is nearly
overwhelming. In addition to letting you know which customers are
profitable, and what trends and factors seem to drive customer profitability
are items that you also use to decide how to interact with customers. For
example, if based on reviewing your books, records, and other business data
you come across a group of customers that seems to be more profitable than
average, it might be worth investing some extra effort to remain engaged with
them. On the other hand, if you notice a certain group of customers are break-
even, or even unprofitable, you might want to reconsider how you are
marketing your product. A takeaway from this insight, might possibly, be a
reduction in introductory discounts and free trials as techniques to attract new
business. Why invest the time and energy in attracting these new customers if
they are, in fact, only sticking around because you are offering discounts to
help get them in the proverbial door? The key to any of these actions is
having access to the necessary data to help you make better decisions, so let’s
take a look at how any business, large or small, can leverage data and
analytics to make better business decisions.
Analytics
Analytics and big data are terms and ideas that certainly have been receiving
quite a bit of attention in the last several years, and this is for good reason.
The proliferation of technology, integration of Wi-Fi into virtually every
device imaginable, and the nearly limitless amounts of information available
via social media have transformed what it means to be in business. Whereas
in the past some business decisions might have had to rely purely on gut,
intuition, and experience now entrepreneurs have the ability (and
responsibility) to make decisions using the best available information
available. That said, the sheer quantity and number of different options out
there for entrepreneurs to use technology have the potential to overwhelm
even the savviest small business owners. Compounding this possibility is the
stark reality that technology can be expensive, and using technology for
business purposes can quickly generate quite a large bill. In essence,
technology can become a destroyer of profits and business success instead of
a multiplier, but it does not have to be that way.
By thinking about analytics, big data, and technology in general from a
business management perspective, any entrepreneur can effectively use
technology without breaking the bank. To start this conversation off it is
important that we boil down the different ways in which an entrepreneur and
small business owner can and should use technology to help maximize
business success. Your business might be different, but I guarantee that
thinking about these areas will help improve your decision making, and help
you stretch those technology dollars.
1. Customer analytics—building on our previous conversation regarding
customer profitability I think it is a logical next step to start analyzing your
customers. You already have quite a bit of information on the people that
do business with you (shopping habits, purchases, dates, times, locations,
etc.) so why not make the most of this information? Better yet, once you
start to really analyze and critically examine just how your customers are
shopping with and doing business with you, you might even uncover a few
traits and characteristics you had not previously thought of.
2. Experimenting—every good businessperson knows that stagnation and not
changing are twin recipes to decline and failure, so constant
experimentation and tweaking of your business, products, and services is
absolutely required. Even a simple change as a basic redesign of your
online web page, virtual shopping cart, or posting routines on social media
can have a dramatic effect on how your business performs. Since all of
your changes, and subsequent customers interactions with them, take place
in an online environment there is no reason not to measure the changes that
your tweaks cause.
3. Potential customers—obviously, the best types of customers are the
customers you already have or are drawing into your business, but there is
a whole pool of potential customers that might not even know are
considering your business. How do you measure these potential customers?
Using a physical store as a point of reference for this example, it might go
something like this. Hooking a motion sensor to your CCTV, monitor and
watch what type of potential customers stop and look at your storefront
during a given period of time. What is the traffic like on weekdays versus
the weekend? Is there a specific time of day that foot traffic (potential
customers) seems to be at its highest point consistently?
a. Then, and here is where the true potential of data analytics for business
shines. Based on this information that you have gathered, specifically
when the foot traffic and activity outside your store front is at its zenith,
you might be able to construct and rollout changes to your business
model that generate additional sales.
b. If traffic is highest outside your store around lunchtime during the
week, for example, why not put out a little stand, some balloons, and be
sure to make yourself available? This works especially well if people
are already window shopping—why not turn that into actual shopping?
Analytics and big data have the potential to tell you a lot about your
business, how your business is operating, and can also help you identify room
and areas for future improvement—all good things. That said, we would be
remiss in our discussion of analytics and business insights if we did not also
touch on the reality that of all these analytical tools require technology tools
and techniques to implement. Technology, especially in the current
environment, has a connotation with social media, which can have a more or
less positive connection to you and your business, and might have dissuaded
you from thinking too much about this topic. Not thinking about technology,
however, will only leave you with a partial picture of how exactly to
implement business improvements while also making the best use of
analytics.
Technology for Business
From any analysis of media headlines or business magazines it is almost
impossible to overestimate the importance of technology on business
operations and performance in the current marketplace. Facebook, Twitter,
WeWork, Uber, and Lyft are all examples of how integrated technology
companies are revolutionizing how business is done, and how organizations
interact with each other and their customers. That said, I have far too many
examples of how technology is seen as the be all and end all of business
solutions that causes entrepreneurs to spend far too much on technology
without putting together a technology plan. Charting out a technology plan
and strategy might not seem like the most enjoyable activity to undertake, but
it is critically important to you and your business. Technology is a powerful
tool, but it can very quickly become an expensive tool—let’s take a look at a
few of things to keep in mind and to plan to help you maximize your
technology dollars.
Focus on your goal—It is easy to be overwhelmed by the sheer number
of technology options, and with the pace of technology integration only
increasing this risk is especially important for entrepreneurs and small
business owners. Taking into account Facebook, Instagram, Snapchat,
Pinterest, YouTube, and do not forget that customers can use Yelp to review
your services, it is relatively easy to see how you can invest quite a bit of time
and money in technology without accomplishing any significant. What is,
perhaps, a better strategy for using technology effectively for your business is
to link your technology strategy and ideas to your overall business goal.
a. If you approach technology with a scattershot or disorganized mentality
how can you honestly expect to obtain a reasonable return on your
technology strategy? Using technology for business purposes requires
that you have an overall framework and/or strategy that you use
technology to amplify. Once you have your business strategy outlined
 and organize then you start to look at what technology options give you
the most bang for your buck.
b. For example, if you own a food services restaurant or are a budding
fashionista you might be very served to utilize photo friendly tools like
Instragram, Pinterest, and Snapchat to engage with customers.
Add value—This is an important point that is critically important to
business, is a concept that every entrepreneur intuitively realizes, but is an
idea that can be completely overlooked when it comes to technology. In order
to attract, retain, and develop new and existing customers you must be able to
meet their needs and requirements, and do so in a way that adds value to what
they are looking for. Every business should fulfill a need that is either going
unmet in the current marketplace, or do so in a way that is innovative and
adds value in a meaningful way. Linking back to this discussion around
technology there are two items that must be firmly identified and established
before a technology plan or strategy can really be put into place.
a. What are you good at? In your analysis of the marketplace, and this
should be done even if you are already in business and looking to
develop new products. Which aspects of the market allow you to add
value for your clients and customers, do so in a way that is profitable to
you, and that can be done in a sustainable manner? If you cannot
articulate and identify what you and your business do better than
alternatives, how can you expect your customers to do so?
b. Adding value—It is important to draw a fine line on this point before
we continue down this path, and that is reality that not everything you
are good at will be equally as valued by the marketplace. Competitive
juggler training, as an example, might be something that you have
expertise in, can address in a sustainable manner, and do so in a value
additive way. That said, the addressable market for this skill and
training is not incredibly large, and might render this business idea
unviable. The key takeaway is to make sure that the new product or
service you are developing both adds value and addresses a market
large enough to make the idea financially viable.
Definition: Addressable market—what this term means, and is thrown
around quite a bit in the recent technology driven market, is just how
big your total market can actually be. Mass market products, such as
automobiles and sneakers, have a much larger total addressable
market than a niche market such as high end luxury automobiles. It is
important to note, however, that just because a potential market is
smaller than comparable firms might have does not mean that the
market is doomed. Take a look at Apple as an example; even though
 Apple does not have leading market share for smartphones and tablets
it consistently generates the highest profit margins. Sometimes quality
is more important than quantity.
Technology strategy—As an entrepreneur focusing on building a
business, establishing a brand strategy, generating new business, and
generating more from existing business lines, having a technology strategy
can sometimes be relegated lower down on the proverbial to do list. As you
experiment, tweak, and roll out different platforms and strategies as they link
to your technology strategy you absolutely must do so with an overall plan in
mind. Linking back to our earlier conversation around the importance of
different platforms for different business models, your strategy may change
and evolve over time, but it is important that you have one to work with.
a. This can be as simple as laying out a timeline for what you are going to
be doing with technology, what tactics you will use to promote your
efforts on technology platforms, and how long you will experiment
with these different platforms. It is important to have a framework
within which you be experimenting with in order to get the best value
for your technology dollars.
b. It is also important that, as you are launching your products and
services into the technology market, you have some sort of benchmarks
and metrics that you can use to measure the effectiveness of what you
are actually doing. Page views, engagements, interactions, and
(ultimately) purchases are just a handful of the metrics and data points
you can, and should, gather in order to obtain a better handle on how
your technology strategy is performing.
Leverage free—With so much technology out in the marketplace, and
highlighted as absolutely critical for business, it is tempting to start spending
money on technology options, tools, and hardware that you might not actually
have to spend money for. Think about it for a second, especially the
technology platforms and options that we discuss on an almost daily basis,
and you will see quickly how much technology is actually available for free in
the marketplace. Facebook, Twitter, YouTube, and Instagram, for example,
are available for free, so why not take advantage of these free product and
service offerings to help bootstrap your business?
a. For example, you can build out a YouTube channel, Facebook page,
Twitter handle and profile, and start posting various pictures, videos,
and information for absolutely no charge. The only thing that it will
cost you to build out your technology presence and strategy is some
time and proverbial elbow grease.
 Use social media—speaking of, and building on the whole idea of
leveraging free technology and tools for your business, it is absolutely
imperative that you make an effective use of social media to help build your
brand and your business. Social media is something that, I think as we all
know, can occupy and take up a large amount of time without generating too
much in terms of business returns, but that is no excuse to not develop and
effectively use social media for your business.
a. Design metrics—whether you want to track the number of views your
videos are getting, or simply want to track how many people come to
your website, social media and virtual platforms provide you endless
information with which to better engage customers. If you want your
post, video, or product to go viral you are going to have to track how
your current efforts are performing.
b. Tweak and redesign—when engaging in a social media strategy, or
even just dabbling in various social media ideas and concepts you will
inevitably have to update, tweak, and redesign what exactly you are
doing. Posting content at different times of day, different types of
content, developing and using different SEO strategies, and tagging
(engaging) with different social media users might very well result in a
different performance for your posted content.
c. Engage—social media is, almost by definition, a platform and way for
individuals and businesses to engage with each other, work together,
and collaborate to find better solutions. That said, it always surprises
me how often individuals and businesses will simply upload content
onto a platform one time and do nothing else to help promote or spread
this content.
Keep current—technology changes, and will have changed by the time
this book is published, so it is virtually impossible to design too far in
advance what technology platforms and tools will form the foundation of your
technology strategy. Watching Fox Business, Bloomberg, and CNBC it is easy
to feel overwhelmed and a tremendous pressure to suddenly enroll in a coding
academy or start an app course. Now, it is important to keep your technical
skills current, but that is no reason to suddenly pivot and invest money and
energy into learning skills and competencies that will not add value to your
business.
a. Enroll in a MOOC—the proliferation and spread of massively open
online course, many of which are available for free or at a deeply
discounted price point. You can enroll and take courses from
prestigious institutions including Wharton, Harvard, and many others
that introduce, focus, and develop different skills in a variety of areas.
 What Entrepreneurs Need to Know About Debt
Debt, especially in the aftermath of the financial crisis, has taken on a
negative connotation that seems to have grouped the word debt into the
categories of the other 4-letter words that are not to be spoken in front of
polite company. Alternatively referred to as credit, which has a nicer ring to it
than simply debt, this is an important tool that every entrepreneur and small
business owners must know how to use, leverage, and get the most out of. I
know we had discussed the ideas surrounding, and the importance of, debt
management and credit repayment for individuals, but this concept is arguable
as important for entrepreneurs and small business owners. Debt and credit is
an incredibly powerful tool, but it is like a jackhammer—you can use it to
help jump-start and assist with what you are doing, but if you do not know
what you are doing you can cause a lot of collateral damage to you and your
surroundings (business finances). Let’s take a look at a few of the things you
should keep an eye on when thinking about debt/credit and your business.
Interest—the idea of interest is one that generates quite a bit of headline
attention, is the focus of numerous commercials, and drives a lot of
conversations amongst individuals and business owners. What interest
represents for our discussion and purposes are funds and dollars that you are
paying on your debt that does nothing to reduce the overall level of money
you are to pay back to your lenders. Interest payments are how the lenders
and creditors are compensated for the risk of lending your business money, on
top of the actual principal that they lent out in the first place. On top of the
less than pleasant prospect of paying money to a creditor, credit card
company, or commercial lenders, there are a few other prospects that you
should keep an eye when analyzing credit and your business.
a. Introductory rates—the rates that you first pay on your credit card,
loan, or other type of financing tool are commonly known as the
introductory rates that will increase over time. It is important to not be
lulled into a false sense of security, running up larger than average
debts and debt burdens, only to have to pay higher rates on these higher
levels once the introductory rates expire.
b. Credit utilization ratio—while this term might seem a complicated
term that is beyond the purview of this book and discussion it is
something that is arguably more important for a small business than it
is even for your individual credit rating. Credit utilization, especially
for a small business or entrepreneur, can be explained and rationalized
in the following way. If your business has total available credit of
$200,000, spread around various different tools and financing options,
and you have $100,000 of it currently outstanding, that means that you
 are at 50 percent credit utilization. Why does that matter? It matters
because the higher your utilization ratio is, the higher risk you are for
future lenders and creditors, which in turn means you will end up
paying higher interest rates than you would have otherwise.
Fees—I could write an entire book about fees, what types of fees to look
out for, and tactics to help you minimize the fees that you actually end up
paying, but there are other books already out there that do a better job than I
would be able to. Instead, what I really want to focus on here is the business
case for why fees are charged for, and associated with, credit, and what you
can look for in order to minimize their impact on your business.
a. Why—Lenders and creditors need to charge fees on certain products or
services for the simple reason that in order to provide these products
and services to you they must be able to do so in a profitable manner.
Especially in the lower interest rate environment that has dominated the
commercial and individual lending space since 2009, sometimes the
only real profit driver for a lender is their fee structure.
b. Fun fact—Some airlines actually make the majority of their profits
from selling airline miles to banks, and not from actually operating
their business! Also, think of all of those extra surcharges and fees you
pay when you fly—it is the exact same idea for airlines as it is for
commercial lenders.
c. Where—Fees can appear virtually anywhere, and at any time, so as an
entrepreneur you must always be on the lookout for them as you are
assembling your financing options. Loan origination fees, various
account fees, access fees, ATM fees, and the like can sap your earnings
and profitability over time—don’t let that happen to you.
d. The takeaway—Sometimes there is no avoiding the reality that you
will have to pay fees for certain items or services, but the responsibility
is yours to make sure that the fees you pay are minimized to the extent
possible. Check the fine print, double check your contracts and
agreements, and make sure to keep an eye for any unannounced
changes that might increase you free structure.
Good debt—As someone who has been bitten by the entrepreneurship
bug myself I fully understand and appreciate the trepidation that many people
feel about taking on new debt for any reason, least of all something as risky as
starting a new business, experimenting with a new idea, or launching a new
service offering. That said, let me ask you a very simple question—where are
you going to obtain the funding to get your business or idea off the ground?
Everything costs money, and sometimes it is not realistic or plausible to raise
money using some of the crowdfunding options we had spoken about earlier.
Debt is a powerful tool, and can give your business the jump-start of capital
that it needs to spur some.
Like every tool, however, there are some jobs that debt is better for than
others, so let’s take a look at a few examples of when it might be a good time
to take out some more business debt, draw down on that line of credit, and use
it for your business.
a. New business—I know, I know, taking out debt to start a new business
sounds like the riskiest thing an entrepreneur could possibly every do, but
let me explain. If you, let’s say, set up your startup as its own independent
entity, borrow some money to help get that business started, and it does
bust, what happens to your personal finances? As long as you have kept
your business debt separate from your personal finances, your personal
finances will be left intact. The various form of business for you might
vary, but could possibly include an LLC or partnership. Check with a
legal expert familiar with you and your situation before making a final
decision on this.
b. Launching something new—Developing and rolling out a new product
or service will always end up costing money, and this is a good time to
experiment with borrowing some funds to test out this new idea.
Especially with interest rates at the low levels they are, it is actually less
expensive to borrow money than it is to try and raise some capital from
potential shareholders.
c. Think long term—If you are building a business model and a business
that you are expanding and growing, it might be worth tapping your
credit lines from time to time instead of always raising money from
individuals or other organizations in exchange for equity. Equity is a great
thing, brings partners with some skin in the game to the table, and does
not have to be paid back, but there are some reasons why it might be
preferable to raise debt even if you could possibly raise equity.
a. You retain complete ownership of your company
b. No new partners to onboard and have to convince of your strategy
To conclude and wrap up our discussion about debt and your business it
seems appropriate to revisit some of the key concepts and important facts
about debt, and how debt can and should relate to your business. Debt is a
tool that can provide with the necessary flexibility to try new things and
improve your business without sacrificing any control or oversight over your
business. Second, if you are able to isolate your business finances from your
personal finances (which you always should), even if you are unsuccessful
with a particular product launch, your personal finances are intact and you
live to fight another day. Lastly, and interestingly, is the fact that sometimes
potential investors (equity) will ask if you have been able to raise debt or
borrow money. If the answer is yes, this lets your investors, or potential
investors know, that you have been able to get out there and sell the market
enough on the merits of your idea to get external backing. Debt can be a scary
4-letter word, but it does not have to be if you understand how to use it
effectively.
 CHAPTER 15
The Takeaways
This book has covered a lot of information and materials so it might be easy
to skip through, skip ahead, and skim through a lot of the information, links,
and other materials we have covered. Like any book, whether it be a text
book, a practitioner-oriented book like this one, or a shorter one that you are
reading for fun, it is important to keep in mind what the key takeaways should
be after you are done reading. Reading is an essential skill that has to
constantly be developed, tweaked, and improved, but it would not be realistic
to expect you to remember all of the wide ranging amounts of information
that we have covered and discussed within this text.
Personal Finance Takeaways
Since this book was divided into two separate components, the first of which
focused on personal finance and financial literacy, I thought it best to start
identifying the takeaways items for this first section of the book. It is also
important to remember that although the information contained in the first
part of this book is labeled as important for personal finance, it is linked to the
topics and information we later discussed for business, entrepreneurs, and
how to bootstrap your startup. With that in mind, let’s review some of the core
topics and concepts that, I believe, are some of the most important take-away
items for you to remember and keep in mind as you put this book down.
Why Financial Literacy Matters
Financial literacy, financial wellness, and other related topics might seem like
abstract ideas and concepts that are not truly important for the day-to-day
management and analysis of your life. This mindset cannot be further from
the truth, and will leave you with a financial mindset and situation that is not
ideal, or even one that is anything close to what you would like. An important
way to obtain the information and knowledge that you need in order to
improve your financial life is to have a firm understanding of what the basics
of personal finance and financial literacy actually are. We are not going to
rehash and reexamine the entirety of what was discussed in the first part of
the book, but what we can do is highlight some of the most important aspects
of what was covered in this section.
1. Know the basics—having a firm understanding of the basics, as they relate
to your personal finances and financial literacy, is critically important to
 getting your personal finances into the shape that you want. Now it is
important to remember that while very individual is different, there are
some basic concepts and terminology that form the basis for better decision
making. Akin to building a house or any kind of building, building a strong
foundation is the first, and arguably the most important, step in getting this
financial ball rolling. Some of the important fundamentals and concepts to
keep in mind include the following.
a. Your personal balance sheet, including what your assets and liabilities,
and how to classify what these items actually means for your personal
finances.
b. Basic financial terms and concepts that include, but are not limited to,
items and terms like 401k, dividends, Roth IRAs, and what all of these
different topics and ideas mean for you.
c. Credit cards, debt, and how these sometimes opaque issues can
influence your financial decision making.
2. The different phases of your financial life—just like we all change and
evolve as we move through different phases of our life, our finances and
financial outlook must also evolve as we move through different phases of
our life. The different junctures of your financial life require different
financial planning and budgeting, and will be different for every person.
That said, there are several key items and junctures that almost everyone
should plan for as they put a financial roadmap together:
a. Higher education, especially how to budget, save, and afford whatever
options are correct for you.
b. Managing the transition between jobs, focusing in on making sure you
are not leaving 401k dollars on the table as you move from job to job.
c. The old out argument between renting and buying, and this
conversation can take place for both autos and housing, both of which
are tremendously important for you and your financial life.
d. Being knowledgeable of the tools and various resources out there to
help you better manage your finances, financial planning, and how your
plan might change as events change.
3. What the stock market actually means—the stock market, especially
with the constant coverage and analysis it receives from the likes of
Bloomberg, CNBC, Fox Business, and other various networks, might seem
to have an outsize importance in how your personal finances are influenced
by broader economic trends.
 a. One thing to always keep in mind, as you try to synthesize the market
headlines you see on a daily basis, is that you are invested in the stock
market whether you are actively investing in individual stocks or not.
i. If you are retirement plan of any kind, you are invested in the stock
market!
4. How to get started—it can be intimidating to try to jump-start of overhaul
your personal finances, but it is important to get started as soon as
reasonably possible. My recommendations to help you jump-start your
personal finances include, but are not limited to, the following:
a. Use technology to help jump-start your savings and investment plans—
it is important to remember that just because it is technology does not
mean it is social media. Social media is the tip of the iceberg; the true
value of technology to personal finance is the ability it gives you to
automate some of your savings or investments.
b. Make a plan for your shorter-term and longer-term financial goals, and
then write those goals down. Numerous studies, and our collective
experience I am sure, tell us that once a goal is written down we are
more likely to commit to it, and actually see it through to completion.
c. Get a budget buddy to help you outline your plan, decide how to
specifically execute on that plan, and stick to your plan when the going
gets tough. Every journey, be it finance or exercise related, will
inevitably have some ups and downs during the process. Having that
budget buddy will only help you remain committed and motivated to
see your goals through to the end.
d. Celebrate the little wins and victories, short-term milestones, and when
you are hitting the ball out of the park. The entire point of improving
your personal finances, don’t forget, is to help you live more of the life
you would like to live anyway, so do not lose track of that along the
way.
Finance for Business and Entrepreneurs
Without a solid foundation and understanding of what personal finance means
for you and your financial goals it can be very difficult to lay the foundation
to start or to grow a business. This connection and linkage between personal
finance and financial literacy, and the ability of you to actually launch and
successfully sustain a business idea is something that hopefully was strongly
emphasized throughout this book. That said, there are differences between the
concepts and terminology that you should understand for business finance
that are slightly different from the ideas and concepts important for personal
finance. My checklist of items that every entrepreneur should know includes,
but is not limited to, the following:
1. Understand the financials—This is something I cannot stress enough, and
that is how critically important it is for every small business owners or
entrepreneur to understand how exactly their business looks in financial
terms. Understanding that accounting and finance terminology and
information might not be the interesting topics, or topics that most people
are truly that interested in using on a day-to-day basis, I still must
emphasize the importance of understanding the ins and outs of business
finance. The most logical place to begin this analysis is with the four
financial statements.
a. The balance sheet—where the action for the month or year ended
eventually ends up being reported, and where the assets, liabilities, and
owners’ equity of the firm are listed out. Remember that assets
represent future economic benefits to the corporation, liabilities
represent future economic detriments to the business, and equity is
comprised of (1) earnings that have been retained, and (2) funds that
have been invested into the business.
b. The income statement tracks and communicates how much the business
actually earned during the period. This is where all of the usual
favorites, including items such as revenues and profits, will appear and
are analyzed by internal and external users. For most business owners,
this is the statement that receives the most attention, as it communicates
just how well the company is performing in terms of profitability.
c. Statement of the retained earnings—this is the bridge between the
income statement and the balance sheet, and basically allows you the
business owner to see how much in the way of profits you have been
able to retain over time. While this is a relatively simple and
straightforward financial statement, be sure to keep an eye on it—this
also lets you see how much you are able to reinvest into the business
over a period of several years.
d. Cash flow statement—this is the statement that I believe many business
owners and entrepreneurs overlook in a quest to obtain profitability.
Constructed in a similar manner to the income statement, but focusing
only on the cash inflows and outflows related to the business, this
statement truly identifies and illustrates just how much cash your
business is actually generating. One important fact to remember is that
while income looks good, and is good, in order to actually pay bills and
purchase raw materials, cash flow is king.
2. Technology for business—With all of the technology focused information
out there, I know that it can be a bit overwhelming to actually select on
type of technology to use in your business, and doubly difficult if you are
trying to stay within a shoestring budget. That said, just because it may be
difficult does not mean it is impossible, or even anywhere close to it. When
factoring in what types of technology tools you might use for your business
there are a variety of factors to consider and take into account:
a. Is it compatible with your existing technology tools and platforms?
Buying the most sophisticated customer relationship manager program
will not do your business any good if it cannot speak to your shipping
records. Additionally, it might be worth purchasing an entire suite
upfront rather than assembling a technology piecemeal over the years.
b. Are you social—yes, the infamous social media finally makes an
appearance in the context of finance for business! As much as it may
irritate you, or strike you as a colossal waste of time in most situations,
social media is a powerful tool that can (and should) be used to develop
and expand your business. The best part of all is that, for the vast
majority of social media tools, it is completely free! Nothing really ever
beats free marketing, so definitely look into having some sort of social
media presence.
3. Debt for business—The concept of debt, otherwise known as credit, is
something that every entrepreneur has to know how to use, understand, and
make good use of in order to help grow and expand their business. Debt is
a topic and conversation point that is covered extensively for issues related
to personal finance and financial literacy, but is often overlooked when it
comes to business literacy and entrepreneurship. This, however, only gives
you the entrepreneur, an incomplete picture of the full effect that debt can
have on you and your business. Let’s take a look at a few of the ways in
which debt (credit) can have an impact on how you run your business.
a. Interest—this word might have a negative connotation, but the idea and
concept of interest is something fundamental to how the commercial
credit and debt cycles operate throughout the economy. Interest
represents dollars that you have to pay back to the lender or creditor
who has extended your business financing in return for the utilization of
that money for a certain period of time. It is important to remember,
however, that every dollar paid in interest does nothing to reduce the
overall amount you will have to eventually pay back.
i. Introductory or special rates are nice while they last, but do not get
lured into a false sense of security by these lower rates and run up
higher than optimal balances on your credit cards. You will have to pay
 these amounts back, and it will most likely be at a higher interest rate
than you acquired them at.
b. Credit utilization—if you have ever wondered why a firm might set up
extra credit cards, or borrow slightly more than it needs at the time for
current operations, it may be that they are trying to improve their
credit utilization. Put simply, the credit utilization ratio demonstrates
to the market place how much available you have in total versus how
much you have actually upon. The higher this utilization gets the
higher risk you will be for new potential lenders—higher risk means
higher interest for you.
c. Good debt versus bad debt—do not let debt become a 4-letter word that
keeps you from expanding or growing your business due to some
irrational fear of taking on more debt. Virtually every successful firm
has had to, at a certain point, take on business debt to expand and grow
business operations. Using debt to grow your business, develop new
products or services, and make your business run better all represent
good times to take on debt.
 How to Start
So after reading this book and reviewing some of the key takeaways and
concepts included in this last chapter you might be wondering just how the
best way to start improving your personal and business finances involve.
Well, I have some good news and bad news for you. The bad news is that
making improvements to any aspect of your life, including personal and
business finances, will require an investment of time, energy, and quite
possible money on your end. The good news is that with all of the free or
affordable options out there in the marketplace you can accomplish quite a bit
with a minimum of financial investment on your end. That said, and this is
important to remember, that any self-improvement initiative will require
effort and change on the part of the person trying to enact this change, but you
can definitely handle it.
From the perspective of either personal finances, starting a new business,
or improving the business performance of an existing business, there are a
few key elements that should be kept in mind as you move forward.
Obviously this list is not meant to be exhaustive, nor is it all inclusive, but it
should serve as a decent starting point for you to start assessing where you
stand, and where you want to end up. With that mind, let’s take a look at a
few of the suggestions and recommendations that I would make to anyone
looking to get this process under way.
1. Where are you compared to your goals? This is arguably the most
important step in this process, as it really lets you identify and outline both
where you are currently are, and how far this current position is from your
ultimate goals. It does not matter if the goal in question is to improve your
credit score, or to increase cash flows from operation by 10 percent; the
first step in achieving this goal is to understand where you are in relation to
it in the present.
2. Make a plan, and then stick to the execution of your plan. Successfully
completing a goal and accomplish what you initially set out to do
ultimately requires you to have some kind of plan of attack for how you
would like to accomplish these goals. While setting this plan, however,
don’t forget to build in some room to reward yourself and track your
progress along the way.
3. Use the tools that are already out there because there is no need to reinvent
the wheel. From financial literacy tools produced and distributed by the
AICPA for individuals to business plan templates that are available online
 the potential for individual to access information is nearly limitless.
Build your team, and make it worth their while. Every firm of any
significant size has an upper management team, a board of directors, and
usually an advisory board or two to boot. Have you ever wondered why this
might be the case—it has to do with generating new and better ideas for a
business. A diversity of ideas and opinions, on any issue, is bound to result in
a more robust and well thought-out solution that will simply have everyone
agree with others. Make sure that you have a group of people you can bounce
ideas off, but make sure it is not just a one way street.
 In Conclusion
Ending a publication, or a book for that matter, with an “in conclusion”
sounds so terribly cliché that I did hesitate to include in this publication, but I
did include it for a specific purpose. This book is meant to be both a roadmap
for individuals and entrepreneurs that presents certain concepts at a high
level, and a practical guide for implementing such changes into your personal
financial strategy or your small business. The topic of personal finance,
financial literacy, and how to implement such concepts into everyday practice
are not usually topics that receive prime billing during casual conversation.
Such an approach, however, leaves you as both an individual and
entrepreneur unprepared and only partially informed about the critically
important issues that can, and will, have an influence on both your personal
life and your entrepreneurial activities. Finance and understanding the impact
that finance can have are skills and information that you cannot afford to miss
or ignore for any extended period of time.
Finance and accounting are not usually subjects that are associated with
innovation, progress, or developing new and fresh ideas, but they do provide a
fertile ground for you to differentiate yourself in the marketplace. More
importantly, and especially in an age where technology continues to become
increasingly important to business decision making, understanding how
technology and finance drive business forward sets you apart from your
competition. This book has hopefully provided you with pertinent information
to make effective changes to your personal and business finances. It is
important to remember, however, that regardless of how thorough a job a
specific book does, you must be proactive and take charge of your continuous
learning.
Arguably more important than any individual tactic, tool, or source of
information that was covered in this book is just how important strategy is for
building a successful personal financial plan. Regardless of whether these
techniques are used for business or personal decision making is less important
than understanding that having a strategy is just as important for your
finances as it is for every other aspect of your life. Whether you are
embarking on a project to improve your credit score, motivated to start a new
business, or simply looking to get a better handle on your credit and debt-
related issues there is nothing that a good plan can’t help you with. Strategy
and strategic planning may seem like the domain of talking heads on TV, or
high-powered corporate executives, but the reality is that having a well
thought out strategy is important for every business person and entrepreneur.
Making the most of your resources, taking advantage of opportunities that
come your way, and having the ability to adjust your plan along the way form
the foundation of any worthwhile strategy or strategic plan. What this text has
hopefully demonstrated to you, throughout our analysis of both personal and
business financial matters, is just how important strategy can be.
This book has hopefully provided you with the tools to advance, make
productive changes, and meet the demands on an ever-changing world and
business landscape. The most important thing to remember is that there are
resources available to help you, that you can access these resources, and you
have the potential to make whatever changes you set your mind to. The only
remaining question is, what is stopping you?
Let’s get to work.
 Concluding Thoughts
I had just finished working on the first draft of this manuscript in the summer
of 2017, and when I had finished reading through my concluding thoughts
and action steps I knew something was missing. It did not have anything to do
with the subject matter of this book, since I think we have pretty much
covered all of our bases both on the personal finance and business finance
side of things. Nor did it have to do with my recommendations for
technological resources. You know as well as I do that, if I had recommended
one specific platform or tool, by the time this book had reached your hands
that tool might very well be out of date. No, what I felt missing was some
concluding thoughts about what I see with regards to the broader economic
landscape, and how it might impact your finances and financial decision
making.
The business community has rarely seen the levels of political and
economic uncertainty as it faces in the current era. Flash points include U.S.
politics, EU politics, how China is adjusting to its role as an emerging
superpower, North Korea, and the fragile relations between Middle East
nations. Such an environment would be bad enough, but on top of these
headline level issues there are several fundamental issues changing the
business and employment landscape in front of our very eyes. Automation,
digitization, outsourcing, resourcing, and the evolving role of the gig
economy are just a handful of the powerful forces reshaping these
marketplaces. It is a lot to handle, and doubly so when you are attempting to
think logically and with a clear head about your financial situation.
Depending on your local situation, the reality may be better or worse, or
the perception of it might be better or worse, as you read this than it was
previously, but that is just perception. Regardless of where you are in the
global economy, where you are geographically, and what your opinions are of
various headline issues, the fundamental reality remains unchanged. This is
arguably one of the most challenging periods, from a political and economic
perspective, in history, and we are all experiencing it together. The economic
and political forces that are dominating the airwaves and Internet as of this
writing might not last forever, or they may change their names, but rest
assured that they will remain a powerful influence on your life for the
foreseeable future.
What are we supposed to do when faced with such obstacles? Many,
rightly so, feel overwhelmed and powerless when trying to integrate these
larger than life issues into their lives while improving their financial situation.
That, however, is not an acceptable solution for you, me, or anyone. You have
the discipline and internal fortitude to improve your personal finances, start a
business, and improve your situation to as high level as you can imagine. As
has been hopefully reiterated throughout this book, improving your personal
finances, upgrading your business finances, or starting a new business are not
endeavors for the light hearted, or a project that you can start and finish on a
Saturday afternoon. These ideas are as much as lifestyle decision and choice
as a singular decision about money. Being proactive, seeking out new sources
of information and competitive advantage, and never stopping your own
improvement are skills that never go out of style, never get outsourced, and
are always in high demand. Additionally, and arguably more important than
simply improving your finances over time, continuously learning new
information and skills makes you a more intelligent person. If you ask me,
that sounds like a good deal.
 About the Author
Sean Stein Smith is an assistant professor at Lehman College (CUNY), and
international public speaker with expertise in the areas of financial reporting
and strategic management accounting. Sean is the author of five books on
financial reporting, as well as numerous scholarly and practitioner articles
focusing on accounting, technology, and strategy. He is a member of the 2017
AICPA Leadership Academy, and was named a 40 under 40 in the accounting
profession by CPA Practice Advisor. As a member of the AICPA Commission
on Financial Literacy, NJCPA Content Advisory Board, and NJCPA Emerging
Leaders Council, Sean has published dozens of articles on technology,
finance, and personal finance issues. Sean has published multiple books on
corporate finance, and several personal finance books, and is an avid user of
technology and social media for educational purposes. He holds a Doctorate
in Business Administration from Capella University, and an MBA, MS, and
BS from Fairleigh Dickinson University (Metropolitan Campus). Sean holds
the CPA license, the CMA certification, the CGMA certification, and is a
Certified Fraud Examiner (CFE).
 Index
Accruals, 136
Acquisition costs, 140–143
Adaptability, 60–61
Analytics, 144–146
Assets, 9–12, 126–127
Balance sheet, 126, 158–159
Bonds, 11, 42–43
Brands, building, 48
Business
debt for, 160–161
economic literacy and, 81
finance basics for, 86–88
finance for, 158–161
financial literacy, 79–84
freakonomics and, 90–92
technology for, 159–160
Buy vs. Lease, 32
Calculators, 67
Career development, 18
Cash flow statement, 131, 159
Chambers of commerce, 103
CIANJ. See Commerce and Industry Association of New Jersey
College, 26–27
Commerce and Industry Association of New Jersey (CIANJ), 96, 99
Common stock, 127, 131
Continuous feedback, 110
Corporate ownership, 41
Cost-effective strategic planning
failing fast and often, 122
investments, 122–123
needs of, 114–116
overview of, 113
Cost of goods sold, 129
Credit, 140
Credit card debt, 13
Credit cards, 13
Credit score, 5–6
Credit utilization, 161
Credit utilization ratio, 151–152
Crowdfunding
definition of, 110
description of, 108–109
economics and, 109–110
Current assets, 88
Current liabilities, 88
Customer analytics, 144
Customer profitability, 141–142
Customer profits, 142–143
Day trading, 41
Debt for business, 160–161
Decision making process, 34
Deferrals, 136
Depreciation
definition of, 137–139
description of, 136–137
purpose of, 137
Depreciation tax shield, 139
Design metrics, 149–150
Disengaged employees, 119
Dividends, 10–11, 42
DJIA. See Dow Jones Industrial Average
Dow Jones Industrial Average (DJIA), 39–40, 42
Earnings, 47–48
Economic literacy, 95
Emergency fund, 49–57
Engagement, 111
Entrepreneurs
debt and, 150–151
fees, 152–153
finance for, 77, 158–161
interest, 151–152
Environmental, social, and governance (ESG), 85–86
Environment compliance, 86
Equity, 41–42, 127
Equity investments, 127
Equity markets, 40
ESG. See Environmental, social, and governance
Expenses, 128–129, 139
Experts, 141
Fees, 12, 152–153
Financial health, 1–2
Financial literacy, 69, 95–98
for business, 79–84
definition of, 1
importance of, 155–158
technology and, 98–99
Financial planning
buy vs. lease, 32
college, 26–27
first job, 27–29
making, 36–37
rent vs. buy, 33–36
save and earn, 29–31
tools, 36
Financing options, 108–111
Financing strategy, 88–90
First job, 27–29
529 savings plan, 11
Flexibility, 60–61, 101
401k system, 11–12
Freakonomics, 90–92
GoodBudget tool, 75
Governance, 86
Graphics, 101
Home ownership, 72–73
Income statement, 127–128
Index funds, 42
Inflation, 8
Initial public offering (IPO), 41
Interest, 7
Interest rates, 43–44
Introductory rates, 151
Invested capital, 131
Investing, 132
IPO. See Initial public offering
Key performance questions, 102–103
Leverage free, 149
Leverage technology, 65
Liabilities, 9–12, 127
Liquidity, 30
Literacy, 1
Marketing, 141
Matching principle, 128
Mint tool, 75
Money management, 60
Monthly payments vs. total cost, 7
Mvelopes tool, 76
Net income, 135–136
Operating, 131–132
Operational finance, 82–83
Opportunity costs, 126
Pay out, 130
Personal finance, 15, 60
buying car, 71–72
home ownership, 72–73
planning, 63
saving/budgeting, 73–74
takeaways, 155
tech tools, 74–76
Personal financial plan, 64–65
Piggybacking, 30
Planning, 36–37
PocketGuard tool, 75
Professional development, 18–19
Profit, 129
Q&A forums, 67
Reinvest, 130
Rent vs. Buy, 33–36
Retained earnings
definition of, 130–131
statement, 129–130, 159
Revenues, 128
Risk profile, 30–31
Saving/budgeting, 73–74
Sell-ability, 35
Selling expenses, 128
Share-ability, 101
Social engagement and interaction, 86
Social media, 149
S&P 500, 40, 42
Sprint project
financial benefits, 120–121
internal benefits, 118–119
overview of, 116–118
Statement of cash flow, 131, 159
Statement of retained earnings, 129–130, 159
Stocks (Equities), 9–10
Taxes, 139–140
Tax finance, 83–84
Team building, 16–19, 21
Technology
for business, 159–160
financial literacy and, 98–99
strategy, 148–149
Tools, 21–22, 36, 74–76
Trade credit, 87–88
Transparency, 30
Understandability, 101
Unprofitable customers, 143
Volatility, 30–31
Warranty expenses, 136
Working capital, 88
You need a budget (YNAB) tool, 75
 OTHER TITLES IN OUR FINANCE AND FINANCIAL
MANAGEMENT COLLECTION
John A. Doukas, Old Dominion University, Editor
• Rethinking Risk Management: Critically Examining Old Ideas and New Concepts by Rick Nason
• Towards a Safer World of Banking: Bank Regulation After the Subprime Crisis by T.T. Ram Mohan
• Escape from the Central Bank Trap: How to Escape From the $20 Trillion Monetary Expansion
Unharmed by Daniel Lacalle
• Tips & Tricks for Excel-Based Financial Modeling: A Must for Engineers & Financial Analysts,
Volume I by M. A. Mian
• Tips & Tricks for Excel-Based Financial Modeling: A Must for Engineers & Financial Analysts,
Volume II by M. A. Mian
• The Anti-Bubbles: Opportunities Heading into Lehman Squared and Gold’s Perfect Storm by Diego
Parrilla
• Welcome to My Trading Room: Basics to Trading Global Shares, Futures, and Forex, Volume I:
Foundation of Trading by Jacques Magliolo
• Welcome to My Trading Room: Basics to Trading Global Shares, Futures, and Forex, Volume II:
Create Your Own Brokerage by Jacques Magliolo
• Welcome to My Trading Room: Basics to Trading Global Shares, Futures, and Forex, Volume III:
Advanced Methodologies and Strategies by Jacques Magliolo

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