May 5 2015

Smart Ways to Finance Your Failing Business

By |May 5th, 2015|General Personal Finance|Comments Off on Smart Ways to Finance Your Failing Business|

Are you scrambling to find cash to keep your business afloat? The stress of managing an inadequate cash flow, combined with worries about the future, can leave you feeling defeated. You may think that no lender or investor would want to join your struggling operation, but that’s not necessarily true. A second round of funding is common when your seed funding runs out and the revenues aren’t enough to sustain operations yet. Here’s some very practical advice on finding funding for your operation, even if it’s running in the red.

Analyze Your Situation

analyze your situation

Image via Flickr by 401(k)2013

Be certain, first, that your business is worth saving. Make sure you aren’t deluding yourself. Entrepreneurs are, by nature, optimistic. It’s typical for a business owner to look at lousy projections and then tweak the revenue and expense figures to force a better outcome, with the idea that “we’ll just have to make this happen.” Make sure your projections are realistic.

Prepare Your Spin

Present the current cash flow problem as a minor speed bump on the road to success. Scour your books for evidence that your business model is solid. Present your profit margins, encouraging initial sales figures, or the media attention you’ve received. Briefly address your financial concerns, taking responsibility for your part in the problem (i.e. “Our initial funding estimates were inadequate” or “We used an inaccurate pricing model for our earliest sales, and that hurt profitability”). Then use current contracts or other solid criteria to present your rosy vision of the future.

Approach Lenders

If your first round of funding dinged your credit score and you’ve maxed out your credit line at your regular bank, find a lender who specializes in alternative funding, such as Bad Credit Business Loans. These lenders are willing to overlook common credit issues in exchange for a slightly higher interest rate. If you believe in your business, you might happily pay that higher rate to avoid parceling out profit shares to investors.

Negotiate With Vendors

Vendors don’t want to see you go bankrupt, and your sales rep has a fiscal interest in going to bat for you. Discuss your current situation honestly and see if your vendors would be willing to grant you more lenient terms or finance a past-due balance so you can pay it off over time. Vendors will usually ask you to pay off this kind of debt even if your LLC or corporation declares bankruptcy, so be prepared to sign a personal guarantee.

Offer Prepayment Discounts

Would some of your bigger customers be interested in prepaying their contracts if you approached them with a generous discount? It’s common to offer a 10 to 20 percent discount for prepayment.

Seek Investors

Maybe you didn’t raise enough seed capital because you were unwilling to bring in investors. If that’s the case, reconsider. Start with your friends, family, and acquaintances. You might also invite your biggest customers to invest since they already like what you do.

Your business may be struggling, but you don’t have to give up. Prepare a proposal and go find some second-tier funding.

May 4 2015

Why we all need financial advice

By |May 4th, 2015|Blog, Life, Personal Finance Tips|1 Comment|

Generally speaking, most of us fall squarely into one camp or another when it comes to the question of whether to hire a financial advisor. This isn’t that debate. What I’m talking about today is financial advice – and we all need it.

Let me be clear about what I mean when I say advice. I’m not talking about reading blog posts, or researching investments, or keeping up on current trends. These things fall under the heading of financial education, which is certainly a worthwhile endeavor, but they are general. Financial advice, on the other hand, needs to be specific. It requires knowledge of the particulars of your situation, as well as your sophistication level, risk tolerance, time horizon, and investment goals.

Too much of a good thing

I read today that a recent survey indicates that 59% of Americans would give themselves an A or a B when it comes to their personal financial knowledge. While I think that confidence is generally a good thing, misplaced confidence is somewhat less so. While I certainly think there are a fair number of people who are capable of competent financial management, giving oneself an A or a B is more suggestive of mastery. And I find it highly unlikely that nearly 60% of the American population possesses that level of financial acumen.

target date funds

Of course, anyone who would have given him or herself an A or a B is probably feeling a bit defensive right about now, which I can certainly understand. Had I been a survey respondent, I would probably have given myself a high B or a low A without even thinking about it. But I’m not sure I would have deserved it. Certainly I would score high on financial topics – I enjoy discussing finances and I think investing is interesting, ergo I am motivated to be informed about them. But there is a vast gulf between understanding financial and investing concepts and making good financial decisions, and failing to understand that may keep us from asking for advice when we need it.

The elusive standard of rationality

It is important to be wary of overconfidence, certainly, but there is a second, more insidious reason that we need to seek advice. Humans are not, by nature, rational beings. This one is difficult for me to admit. I put great value on logical behavior, and like to think of myself as more rational than most. The fact that I think this way proves it isn’t true – behavior is either rational or it isn’t. It is not “more” or “less” rational. But neither that fact nor the sheer number of examples available to me of my own illogical behavior stops me from thinking this way.

Our own lack of rationality is a concept so accepted that there is a branch of study that seeks to reconcile financial and economic theory with the behavior of real humans. I’m talking, of course, about behavioral finance, and since it is one of those things I find so interesting, this won’t be the last time I talk about it. The field of behavioral finance holds that we all have biases, whether or not we are aware of them. And simply being aware of them isn’t enough to combat their influence.

Consider the source

There are many ways to go about seeking advice if the traditional advisor route isn’t for you. It isn’t necessary to find the most knowledgeable person on earth, though a foundation of financial knowledge will certainly help the process. The important thing is to find someone who understands you and your goals, but is not so similar to you that he or she will simply confirm your own bias.


May 1 2015

401(k) loans can make a bad situation worse

By |May 1st, 2015|Blog|Comments Off on 401(k) loans can make a bad situation worse|

For many investors who are still in their working years, the largest single account balance in their portfolios is a 401(k) plan, especially for those who have worked at one company for a long period of time. When times get tough, borrowing a portion of that balance to ease the strain can be a tempting proposition.

The good news first

There are upsides to borrowing from a 401(k). It’s an easy loan to get, relatively speaking. Since you’re borrowing your own money, there is no credit check required. Add to that the fact that interest rates are generally lower on 401(k) loans, which may lead to lower payments. And that interest ultimately goes right back into the borrower’s account, rather than to a credit card or banking institution.

The obvious argument against taking money from any sort of retirement account is that the money won’t be there when you need it. But there are counter arguments, specific to 401(k)s, since the money lost on investment earnings may be less than the additional costs of a loan acquired elsewhere. However, if you are in financial straits, it is important to consider all of the ways a 401(k) loan may cost you before you make the decision to move forward.

Default could spell disaster

If you fail to make your payments on a 401(k) loan, the amount you “borrowed” now becomes an early distribution. And that carries significant costs. Since the money was taken out of your paycheck pre-tax, you will now owe ordinary income tax on the outstanding amount and accrued interest, plus an additional 10% penalty. For an investor in the 28% tax bracket with $20,000 outstanding, this would mean a $7,600 tax liability. And it would be due next April 15th. Consider that failing to pay a credit card debt damages your credit; failing to pay the IRS is another matter altogether.

401k loan

You may be stuck at your job until the loan is repaid

Even if you keep up with your payments, the entire balance will become due 60 days after you leave your current job. You don’t want the prospect of a big bill to derail a career opportunity. And if the separation is involuntary, you may find yourself with no income at all. If you fail to pay the balance within the allotted 60 days, you’re in the same situation as you are if you fail to make payments – the outstanding balance will be considered an early distribution, with taxes and penalties attached.

Paying taxes once is enough

Although paying taxes on an early distribution is painful, it at least represents a cost you would have incurred at some point, albeit at a much later date. Payments on a 401(k) loan are another matter, since they will be taxed twice in the long run. That’s because although the payments are made with after-tax dollars, distributions from your 401(k) remain fully taxable. In figuring the total cost of at 401(k) loan, it is important to include the double tax hit.

Making the right decision

There is nothing inherently evil about 401(k) loans. In fact, there are situations where they may even be advisable. But easing financial difficulties is not one of them. The consequences attached to 401(k) loans can make a bad financial situation much, much worse. You would be well advised to look elsewhere for a solution.


Apr 29 2015

Beyond Six-Months’ Cash: Alternatives for your emergency fund

By |April 29th, 2015|Blog, Personal Finance Tips|4 Comments|

The concept of an emergency fund is simple. Ideally, we should all have 6 months of expenses put aside in a savings account, just for emergencies. There are generally two objections to this school of thought.

Objection 1: Inflation risk and opportunity cost

From an investment perspective, emergency funds held in cash represent significant opportunity cost. In fact, some experts will tell you that six months’ of expenses is way too much to subject to the inflation risk and opportunity cost of a traditional savings account. In certain circumstances, I would agree with that. As with most things financial, the answer comes down to an individual’s personal situation.

Cash is king when it comes to emergency funds for two reasons: first, it is liquid, and liquidity needs should always be an investor’s first consideration. Second, it is virtually free of investment risk. However, depending on how much emergency cash you have and your own level of risk tolerance, you might want to consider an alternative to a traditional savings account.

Solution 1: Increase yield with a short-term bond mutual fund

Short-term bond funds invest in investment grade bonds with short maturities, typically 3 years or less. As such, they are generally lower-yielding investments than longer bonds. Short-term bond funds are less sensitive to interest rates than longer bonds, making them a more conservative investment. As a trade off for slightly higher yield, however, these funds do carry a bit more risk. Look for a fund with low expenses and shorter duration to preserve your principal.

Checking and savings accounts are not the only options for your emergency savings. Here are alternatives for your emergency fund.

Objection 2: Six months’ expenses is a lot of money

It’s true – half a year’s expenses represents a daunting figure for many of us. A family whose expenses are $3,000 per month would be looking at $18,000, just for emergencies. And that doesn’t include funding other goals, such as college or retirement.

One way to meet this need is to reduce the amount needed by drafting an emergency plan. The idea is that in a true emergency, expenses would be ranked in order of need, and only the most necessary would remain. A second, even complementary strategy is to combine emergency savings with another goal.

Solution 2: Combine emergency and retirement saving in a Roth IRA

If you can’t afford to max out your Roth IRA and put money aside for emergencies, consider having your Roth pull double duty. Roth IRA contributions are made with after-tax dollars, and can always be taken out without penalty. Consider bulking up your Roth contribution by combining it with your emergency savings. That way, you don’t have to feel like you’re missing out on retirement savings to save for emergencies. Any money you don’t use will be available to you as retirement income. Also, once you reach your goal for your emergency fund, you can direct your entire contribution toward your more risky retirement investments.

I’d like to point out two considerations here. It is rare that I advocate earmarking retirement money for another purpose. This solution only applies if you are unable to max out your retirement contribution and save for emergencies at the same time. Second, money that is designated for emergencies should be in a separate, low-risk investment. (like a short-term bond fund, for instance) within your Roth IRA account.

Beyond the numbers

My personal viewpoint is that emergency saving is best thought of as insurance, rather than investing. In putting aside a pool of money for emergencies, we are self-insuring against job loss, medical expenses, or unforeseen catastrophe. While there is nothing wrong with maximizing your level of protection, doing so at the risk of not being covered is counterproductive. And prioritizing other goals at the expense of emergency funding puts everything at risk.

Apr 29 2015

Combating the Costs of North Facing Rooms With Your Windows

By |April 29th, 2015|General Personal Finance|Comments Off on Combating the Costs of North Facing Rooms With Your Windows|

Anyone who has embarked on the house-buying process will know all about orientation, and how it’s one of the primary things to think about when purchasing a new property. Particularly now, when heating costs are soaring through the roof, choosing a home which is suitably orientated can be absolute crucial from a money-saving perspective.

As the title of this post has highlighted, we’re today going to focus on north-facing rooms. Of course, the majority of properties in the country are going to have at least one north-facing room, but it’s all about how much time you are going to be spending in there. For example, a north-facing bathroom isn’t going to be the end of the world, but when it comes to a living room and you are cozied up every evening, trying to keep warm, it’s a different matter entirely.

Fortunately, there are solutions. North-facing rooms might get much colder in the winter months than any other region of the home, but through strategic window treatments it’s possible to control the heating costs tremendously. Admittedly, you could also turn to other means, such as an A+ boiler, or added insulation, but window treatments are where most homes flop and where some truly huge savings can be made.

Let’s start with the first suggestion; the suggestion that was actually designed for that room which just can’t get warm. We’re talking about insulated shades. Some companies might refer to them as cellular shades, others might call them honeycomb shades – but the fact remains that their design means that they prevent heat from escaping from a room. It’s possible to purchase some of these blinds which are actually two or three levels thick, which allow virtually no heat to escape. Nevertheless, whichever option you choose, it will make a big difference to your final energy bill.

It goes without saying that the above products are a little more expensive than traditional blinds, even if their benefits are considerably better. If you don’t want to part with such cash, it’s time to improvise. Any type of blinds will suffice in this regard, whether it’s roller blinds, blackout blinds or Roman blinds and your aim is to just leave them down all through the day. Again, you’re locking the heat into the room, albeit at the cost of natural light.

If you do want to use one of the three blind types we’ve just mentioned but with some natural light, it might be time to get creative again. Motorized blinds used to be for show, but now they can act as a money-saver as well. Using the programmable timer, you can set them to open and close in tandem with the movement of the sun. It means that they can be open to let sunlight filter through into your room, whilst closed the rest of the time. Of course, if you combined such a system with an insulated blind, the effects would just be multiplied.

As you can see, north-facing rooms certainly aren’t no-go areas anymore. If you can think strategically about the windows, there’s every chance you can make them at least habitable during the winter months – and not the deterrent they once were to prospective home buyers.

Apr 27 2015

How to Choose a Good Lender for a Car Title Loan

By |April 27th, 2015|General Personal Finance|Comments Off on How to Choose a Good Lender for a Car Title Loan|

If you have a low income or bad credit, there are still borrowing options available to you should you be in a financial emergency. One such option is the title loan, which you can access if you have a clear title on a vehicle, essentially turning your car into an asset for collateral. The problem is that if you have poor credit, you are vulnerable to loan sharks who see you as easy prey. This is why you need to know what to look for if you do want to apply for auto title loans online in particular.


What Is Predatory Lending?

Predatory lending is when there is actually no benefit to you as a borrower and you end up trapped in a permanent cycle of ever-growing debt. Predatory lenders use a number of illegal practices, ranging from aggressive sales tactics to threatening with physical violence if you do not pay your loan back.

How Do You Find a Good Lender?

If you are on the lookout for a lender who provides good title loans, you need to start by looking at the interest rates that they offer. Car title loans always have higher interest rates than bank loans or other loans, but this also due to the fact that they are short term loans.

You must be careful about balloon payments, which hide just how big the burden of your finance actually is. This means that you end up having to roll the loan over for longer periods of time, meaning you constantly pay interest and end up in more and more debt. This is a situation you must avoid.

Another thing you are likely not aware of is that you are within your rights to negotiate a reduction on your loan charges and interest rates. Predatory lenders will try to lock you into bad terms with exorbitant rates. In many cases, people end up being forced to hand over the title of their vehicle, because they simply cannot meet the repayments.

There is a chance of getting caught up in a cycle of inescapable debt. This is why you need to take your time in finding a reputable lender who actually has your best interests at heart. Naturally, the overall goal of any lender is to make money themselves, but this should not be achieved by forcing you into bankruptcy. They should be completely transparent about their charges and penalties and completely explain what your personal rights are as well.

The above may sound frightening and leave you turning towards any option besides title loans. In reality, however, you can avoid dangerous situations by exerting due diligence and common sense. Spend some time doing your research, look into your various options and know your rights. Always check the name of a lender you are considering with the Better Business Bureau and your local financial ombudsman, as this will tell you whether or not they are reputable and engage in fully legal lending practices.


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