Boom or Bust?

Seven Hills Country Inn and Restaurant in Lenox, Massachusetts, is the best of the Berkshires-and Jim and Patricia Eder are doing whatever it takes to keep it that way. But when they bought the turn-of-the-century mansion a year and a half ago, its 52 guest rooms, parlors, dining rooms and restaurant were falling apart. The Eders' most pressing financial concerns: keeping their business afloat, financing college for their two young daughters, and preventing a loss in their investment portfolio.

The Eders, both 38, made a smart move when they enlisted the financial support of Rafael Flores, Patricia's father. His assistance prevented them from depleting their savings in start-up. Roberto Flores, Patricia's brother, is also a partner in the business. He works at the inn full time, enabling Jim to keep his "day job" as a financial analyst. All four partners have chosen to forego salaries for now, instead pouring every penny back into the business.

The Eders' number-one problem is cash flow. "If we'd have known what it takes to run this place, we might never have bought it-and that would have been the greatest mistake of all," says Jim. But payroll to employees-more than 50 in the high season-can swell to $70,000 a month.

The Eders' next priority is educating their girls, aged 3 and 6. To finance this, they've relied on stocks. "So far, I've been lucky," Jim says. Trained as an engineer, Jim is familiar with technology, and over the past 15 years he has invested heavily in that sector of stocks and mutual funds, with stellar returns. The problem is knowing when to take profits to avoid a sudden downturn in this volatile area.

Jim worries that the business may be losing money because he isn't there to supervise it during the day. Increased cash flow would allow him to take a salary and give the inn his full attention. To do this, the Eders could consider borrowing against the inn's value or using their home or stock portfolio as loan collateral. One loan worth looking into is the Small Business Administration's LowDoc program. This program cuts paperwork for loans up to $100,000.

To finance their daughters' education, the Eders must first find out how much they will need. A financial advisor could give them a better idea of how much to save and what return to aim for.

If technology stocks are keeping Jim up at night, moving some of their stock profits temporarily into less volatile sectors might help. But before making any changes, he should consult their tax advisor about the consequences of any changes. Then he'll get the good night's sleep the inn is famous for.

What's It Worth To You?

Figuring out your cash flow and net worth are the first steps in taking control of your financial life. Before you start filling out the worksheets below, pull together as much financial information as you can, including last year's tax return; bank, brokerage and credit union statements; credit card statements; mutual fund and stock reinvestment plan statements; retirement account records; mortgage information; loan repayment schedules and life insurance policies. Fill in the blanks on both worksheets and you've got it-your preliminary net worth.

Now go back and look at the value you've attached to your business, collectibles and personal property. Most people give these items much more credit than they're worth.

Not happy with your net worth? Take a look at your cash flow to see where you can make changes. Buy an inexpensive notebook, and write down every cent you spend for a week. When you see it all in writing, decide what you can cut-and cut it. Once you've got the cash flowing a little more freely, keep on track by evaluating your net worth annually.

This article was originally published in the February 1996 print edition of Entrepreneur with the headline: Boom or Bust?.