Finance Tips for Small Businesses

Finance expert Pamela Capalad, aka Brunch and Budget, gives us advice on how to save to start a small business, budgeting, and more!

Last week, we welcomed back Brunch and Budget founder and finance expert Pamela Capalad to Maker’s Row Live to answer your questions about small business budgeting and financing! Well, you guys had a lot of questions and Pamela had answers. If you want to watch the full interview, you can watch the video below. However, we also outlined some of Pamela’s best finance tips for small businesses!

***Want to see Pamela speak in person? She’s holding a free event on June 14th, 2017 to speak about budgeting and finance! See more information here!

Q: How do I start saving to start a business?

Pamela: It’s a question of figuring out what your actual expenses are right now and figuring out how much less you can live on. So, I didn’t make this up, but it’s called minimum viable income or “ramen profitable.” Basically, it’s important to know how much you actually need every single month to live. Cut out the coffees, cut out the manicures, cut out the things where you’re like: “I could be okay without this for like six months.” And so, what is that number? Then, multiply that by six and that’s your goal number for quitting.

Q: What do you think about Kickstarter or online funding platforms? Do you leave your product exposed to people who may steal your idea?

Pamela: I feel like that if you are the creative person — and I’ve had this told to me before because I’ve actually had people steal my ideas — the reality is there’s always more ideas. If you’re the actual creator and you are the actual person, there will always be more ideas and you will always be iterating and you will always be improving on whatever you’re making. So, I wouldn’t even worry too much about that. And I know, the reality is that it’s more likely that no one will care — I know it sounds harsh — than that someone will actually try and steal it. And the other thing too is that the reason why nobody’s doing what you’re doing is because they don’t want to. It’s hard for them and it’s easy for you.

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In terms of Kickstarter and IndieGoGo for exposure, I feel like Kickstarter is the perfect thing for testing out products. I think people use it for a lot of other reasons, but I think Kickstarter is designed for testing your idea and putting it out to a market and you want to get presales so you know how many you should make and you know if you should even make this in the first place.

Q: What financial strategies can be used to avoid failures for the business?

Pamela: I don’t know if you could ever avoid failure, but you could probably mitigate your risk a little bit. I think part of what makes businesses fail is being in a place of desperation. This is why it’s super important to not only have the cash flow projections but also have some kind of savings cushion. And whether that savings cushion is in the form of literal like: “I have accumulated a pile of money and now I am going to be okay for six months to a year.” Or it’s: “I have another stream of income that I am going to be able to tap into while I try this other business.” I think building the runway and being able to operate in a place of creativity and taking the stress out of feeling the pressure of needing to make that sale is a good way to situate yourself so you have more time to actually run the business and you’re gonna make mistakes and you are going to fail along the way, but in terms of realizing  you need to quit, you can extend that time period just by taking some financial steps including saving, having a runway, having another source of income. And also, the cash flow projections will also give you an idea of what goals you really need to hit.

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Q: Any personal budgeting tips when you’re bootstrapping a startup?

Pamela: It’s going to be more important than ever to track your personal expenses. It’s more important than ever to see where your money is actually going. If you’ve never done that before — maybe because you have a steady paycheck every two weeks and money comes in and goes out, but it always comes back in again, that’s not going to be the case when it comes to you as a freelancer. So, if you’ve never tracked your expenses before, I would start doing that now even before you quit and even before you go full time because understanding where your money is going means you have an awareness that you didn’t have before. You have an awareness of what you want to keep in there and you have an awareness of what you want to cut. That minimum viable income number suddenly becomes really clear. It doesn’t necessarily matter what you spend your money on — I’m a big believer of what you spend your money on is a representation of what you value. And actually tracking your spending and knowing where it goes is the first step to really doing that and understanding that. And when you start aligning your spending with your values, then maybe you don’t have to track it as much. But if you’ve never done it before and you’re about to embark on this journey of becoming an entrepreneur, on the personal side that’s the first thing I would do. I don’t care where the money goes, but I want you to care where the money goes.