Dear Dave,
Do you think it’s a good idea for a small business, one that’s very young but growing, to seek out investors?
Trey Dear Trey,
My advice to someone in this position is to grow their business with organic cash. That may sound like a fancy phrase, but it just means you earn the money with which you’ll grow. This may mean growing a little bit slower, and it might even mean passing on a few “big deals” you thought were going to be the best things ever to happen to you and your business. But youwanttoknowsomething? That’s okay. I’ve turned down plenty of deals like that over the years, and it’s left me firmly convinced it’s better to be the tortoise than the hare.
Think about this. When you sell a piece of your ownership to people who are looking for a return, instead of caring about your dream, you’re creating the potential for a big mess. A lot of times, these folks will seem like silent partners—which is an oxymoron in small business. They might even present themselves that way in the beginning. But the truth is most people who’ve put money into your business won’t keep silent. They’re all going to have different opinions and ideas, and there’s a strong possibility these are going to clash at some point with the vision you have for your company.
In short, I would not recommend a fledgling small business, even one that’s doing well, to seek out investors. Period. Cash flow your growth, Trey. Cash flow your equipment purchases, and the markets you enter, also. Does this mean you might miss a good opportunity here and there? Sure, it does. But it also means you’ll be missing opportunities to fail. Too much success too soon is one of the biggest reasons why small businesses shut down. When you grow too quickly, you run the risk of outgrowing your financial resources, your infrastructure and your human resources.
Do what you can to ensure growth is steady, but play it smart. Don’t grow so fast that you crack the foundation of your company.
— Dave Dear Dave,
I was talking to some friends the other day about willsandtrusts.Theyseemed to have a variety of opinions, so can you straighten things out for me? I don’t have a will or a trust, and my financial situation is pretty simple. I just want to make sure I do the right thing.
William Dear William,
This is a great question. I’m sure your friends are smart folks, but I’m glad you’re looking for more answers. I’m not a lawyer, so I’m just going to give you a few simple things to think about. Also, I’d strongly suggest you talk to an experienced will and trust lawyer, one with the heart of a teacher, who will give you all the facts and put your best interests first.
Basically, a will is a legal document that explains what you want to happen with your stuff when you die and puts it all in writing. There are many different types of wills, but for most people a simple will is all you need to establish a solid estate plan that protects your family if something happens to you.
Trusts tend to be geared toward people with more assets and unique or complex estate issues. They also come in lots of different forms like, living trusts, revocable and irrevocable trusts and special needs trusts, just to name a few. In my mind, if you have less than $1 million in assets—and your financial world is pretty simple and straightforward—a will gets the job done just fine.
One of the most important differences between wills and trusts is the ability to name a guardian for your minor children. You can name a legal guardian in your will, but you can’t in a trust. So, even if you have a trust, you’ll still need a will to make sure your kids are taken care of after you die.
Another important distinction between the two is that a trust lets you skip probate court—a will doesn’t. Probate court cases can drag on forever. Plus, they can be expensive. If your estate gets mixed up in probate court because someone challenges the will, it could mean your family has to spend months in court while grieving. No one wants to go through that. While we’re on the subject of probate court, let’s talk about another sticky subject.
There’s a little bit of crazy in every family. You probably know who they are in your family, but if you don’t, it might be you. Seriously, though, we all know some families that seem to have more than their fair share of crazy and drama, and wills are best for families that struggle with these issues and tension between family members. Probate court can resolve those problems. On the other hand, families who can handle healthy conflict, and who trust each other, are better off with a trust, since they don’t need a probate court to babysit them.
And if you’re wondering if you can have both a trust and a will, the answer is yes. In fact, most people who have a trust have a will, too.
I hope this little bit helps!
—Dave Dave,
Recently, I began running my farm operation debt-free. I have 350 acres, and all the varying expenses often makes it difficult to budget correctly. I also have about $240,000 in debt from bad financial decisions in the past. Do you have any suggestions for budgeting in a volatile industry like mine?
Thomas Thomas,
First, you want to set up a separate budget and run a profit and loss statement. You’ll want to estimate the income for the year as best you can, and you’ll need to estimate your expenses item by itemandcategorybycategory for the year. After that, you’ll want to break it down by month. This is called laying out a business pro forma—a business budget.
Next, you’ve got two goals to work toward with your profits. By profits, I mean after you’ve paid household expenses. That includes a living wage, enough to operate, keep food on the table, the lights on and that sort of thing. After basic living expenses are out of the way, your net profit in the business should be divided between retained earnings—or savings— and debt reduction. The idea is that you’re going to put the lion’s share toward paying off debt for now. Still, you need to have something set aside for a rainy day. In your case, that could be taken literally.
Keep in mind that in business, retained earnings are used for more than just emergencies. They’re also for buyingmoreland,equipment and anything else that’ll grow your operation. But you always want a pad in there. What if you have an unusual year, and your budget estimates are way off? It could be unexpected expenditures, or the fact you simply had a bad year. In business, that’s anemergency,andyou’dtake that out of retained earnings.
Doing a budget, whether it’s in business or personal finance, gets easier and more accurate with time and practice. You won’t get everything right the first couple of tries, but with a little time and experience your budgeting skills and estimates will become more accurate.
I hope this helps, Thomas. Thanks for all your hard work!
—Dave Dear Dave,
I’ve made a lot of stupid money mistakes in the past. Even though I finally paid off six figures in debt a few years ago and am in control of my finances for the first time in my life, I’m having a hard time forgiving myself for all the dumb things I did. I have an emergency fund and other savings set aside, and I’m almost ready to buy a house. But it seems like there’s still acloudhangingovermyhead from all my bad decisions. How do I stop obsessing over my past financial mistakes?
Brea Dear Brea,
If you’ve had enough determination to pay off six figures’ worth of debt and to build savings on top of that in the last few years, you’re doing a phenomenal job! Most people would just make excuses or give up, but you educated yourself, put your head down and stomped out all that debt. I’m very proud of you, hon. What you’ve done speaks volumes about your character and self-discipline.
The late Maya Angelou once said, “Do the best you can until you know better. Then when you know better, do better.” That’s the key for you, I think. Doing dumb things doesn’t always mean you’re a dumb person. Sometimes, we just don’t have the knowledge or guidance we need to do things the right way. But once you learned a few things and saw there was a better way—a smarterway—youjumpedin and made incredible things happen. You cleaned up your
Dave Ramsey is a seven-time #1 national best-selling author, personal finance expert, and host of The Ramsey Show, heard by more than 16 million listeners each week. He has appeared on Good MorningAmerica, CBS This Morning, Today Show, Fox News,CNN,FoxBusiness,andmany more. Since 1992, Dave has helped people regain control of their money, build wealth and enhance their lives. He also serves as CEO for Ramsey Solutions.
finances, and you changed your entire future for the better. I think that’s pretty cool. And you know what else? It makes you a pretty smart lady.
I think part of your struggle maybethefactthatyou’ve spent more time making the wrong decisions with money than you’ve spent making the right ones. That’s understandable. But time will help heal that struggle. It’ll distance you emotionally from the old you until you’re confidentinthenewyou—not just in your actions, but in your heart and mind. I mean, think about it this way: If you violated trust with a friend, how would you rebuild it? First, it would take time. And second, it would take a series of trustworthy actions.
Let’s say someone had a drinking problem for a long time, but they’ve been dry for three months. After three months, their spouse still mightnottrustthemwiththe checkbook. I totally get that. It’s a good start, but it’s not like they haven’t had a drink in three years. That’s where time comes into play. The more time they demonstrate a solid pattern of not going back to the bottle, the more evidence they create for why others should trust them.
I think you’ve developed a pretty good track record of beingsmartwithyourmoney, Brea. So cut yourself some slack. If God is willing to forgive us for the really bad things we say and do, you need to be able to extend a little grace to yourself for the dumb things in your financial past.
— Dave