Dave Ramsey's 5 Budgeting Tips for Small-Business Owners
America's foremost personal finance guru weighs in on small-business budgeting.
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You may have heard of Dave Ramsey before—perhaps from one of the 500+ radio stations his program The Dave Ramsey Show is syndicated on, or one of his five New York Times bestselling books. Or maybe from his appearances on Oprah or 60 Minutes.
Regardless, Ramsey's name is synonymous with personal finance. His show garners 12 million listens a week and millions more have seen him speak in person on the topic.
What he's not as well known for is speaking directly to the needs of small-business owners and the growing freelance economy. However, his insights on financial success can be just as easily applied to the needs of business owners.
We were able to chat one-on-one with Ramsey to get his wisdom on how small-business owners can boost their profit and peace of mind with simple budgeting strategies.
Hurdlr: You hate debt. Is there any scenario in which you would say it's OK for an entrepreneur to take out a loan to start or expand their business? Or do you recommend always going 100 percent cash?
Ramsey: A lot of supposedly sophisticated and educated people spend an inordinate amount of energy trying to say that debt is good when used properly. Baloney! According to Census Bureau data, 60 percent of all small businesses opened in a given year need less than $5,000 to start. Don't begin your dream saddled with huge debt.
As for expansion, remember to be the tortoise, not the hare. Slow and steady wins the race. We have expanded our business several times, and each time we systematically save toward a purchase goal and put that very specific amount as a line item in our monthly accounting—almost as if it were an expense.
Note: If you can't save the money you won't be able to make the payments anyway. I agree with former A.G. Edwards analyst, Peter Andrew who said, "What kills companies is debt; without debt, companies have the wherewithal to survive." Debt is a destabilizing force that exponentially increases risk and the probability of fatal failure.
Hurdlr: The "envelope method" to budgeting may not be realistic for some modern business owners (necessary SaaS products or paying independent contractors, for instance). Should entrepreneurs in this case stick to debit cards and cash to avoid overspending or is a business credit card acceptable?
Ramsey: Never a credit card, ever. Use business debit cards. We find that we watch their activity a thousand times more closely because they represent real money. I have been challenged on this by business owners who say they could never trust their employees with a debit card. To which I reply, "You have employees you don't trust helping you grow your business and you keep them around anyway?" Sounds like a leadership problem.
Hurdlr: Should all small business owners budget for taxes? Are there any tools you recommend for entrepreneurs to make their budget and/or estimate taxes?
Ramsey: Absolutely, yes. Along with your profit and loss (P&L) statement done by your tax preparer or CPA, you should also project or forecast income and expenses by doing a budget. This will force you to prepare and think of options. I don't recommend any specific tools. Use whichever does the job efficiently for you and your business.*
*An efficient solution that does the job for you and your business (over 2,700 5-star ratings) is the Hurdlr app. You can download Hurdlr for iOS and Android today.
Hurdlr: What's your favorite tax deduction or credit for entrepreneurs that "9-to-5" employees can't take?
Ramsey: The smartest decision you can make is to find a competent, trustworthy professional to handle these things for you. I learned a long time ago that it's their business to know more about taxes than I do.
Hurdlr: Should freelancers and business owners always set aside the recommended 35 percent for taxes or, if they know they're in a low income tax bracket or qualify for additional deductions, can they get away with less to benefit from the extra cash flow?
Ramsey: Self-employment tax is 15.3 percent, so we have to cover that, plus something for federal Income tax. With marginal brackets you could go as low as 25 percent total saved and that should cover you until you get up over about $75,000 in profit.
Entrepreneurs should check out Ramsey's resources and upcoming events for business owners and leaders here.
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