Ep. 59: How to Maintain Financial Health in Your Business (Guest Lesley Batson - Rebel Rock Wealth)
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In this episode, we focus on how to maintain financial health in your business, from creation and beyond. To discuss this important topic, we are joined by Lesley Batson, who is a financial professional. She is the woman behind Rebel Rock Wealth, which provides life insurance and wealth coaching. As a wealth strategist, she helps empower her clients to think independently about their finances. Lesley is also the host of the Rebel Rock Money Talk podcast.
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Nine Financial Considerations for Entrepreneurs to Maintain the Health of Their Business.
When your business is getting started…
Pay yourself what you are worth
Protect Your Paycheck
Protect Your Life
Protect Your Business
Protect Your Assets
As your business gets flowing…
6. Save for Business - for today and tomorrow
7. Save for Employee Benefits - Retention/Recruitment
8. Save for Self - for today and tomorrow
9. What’s Next?
From the Episode:
Heather: “When your business is getting started, there are a lot of things to put into place when it comes to finances. Now the first one on your list, and I love this one is pay yourself what you are worth.
So many business owners do not do this. So tell us a little bit about that.”
Lesley: “Yes. And I know Heather that you are very familiar in your line of work especially for female business owners. I think just getting them to realize. You have to pay yourself first. When you hear on the airplane, when they say, put your mask on and then help others, how are you going to survive?
If you don't pay yourself first and pay yourself something reasonable, right? And sometimes that's not possible in that first year. Maybe it just isn't possible, but that's what you should be working towards. You should not be sacrificing, your income to be able to keep the business going.
It's important that you can eat as well.”
Heather: “I actually just had a client come to me and he had a projection that he did. He had all expenses and income, but he didn't have anything where he was paying himself. I'm like, okay. But where's the money that's going to go to you. , you have to figure that in that's important. And it's interesting how, when people find out about profit first. It's not, for everybody, but when people hear about that, they're like, oh that's just like this like unique idea. Oh, I pay myself first? What?”
Lesley: “Yeah. It's a cultural thing. Unfortunately, we're just not taught a lot about , financial literacy in school. And so we really learn from what we see or we it out on our own. And so we're always so focused on paying our bills, but we don't focus on paying ourselves. So it is a little bit of a mind shift.”
Heather: “Yeah, paying ourselves AND Uncle Sam. That's another thing people don't think about.
The next one is, protect your paycheck. So how is that different from the first one?”
Lesley: “As a business owner, you want to make sure you're, like you said, allocate a salary or be able to take distributions, be able to take some money for yourself, but protect your paycheck is in the situation where, what if you get sick or injured or something happens to you and you don't have any more money coming into your household.
What would that mean to your family? What would that mean to you? How do you make sure that you still have some money coming in while you're healing or getting better?”
Heather: “During COVID, this has been a huge awakening for people because they just didn't have enough money set aside. I work with people that are salon owners and people that do tattooing all those types of things that until there was mandates where they could actually meet in person with a mask, they had to put their businesses on hold.
Terrible. If they didn't have anything put aside or here in Oregon, they were having trouble even getting unemployment, even though it was said that, oh, self-employed people could get the unemployment. there was a big snafu here in the state and it took months before people saw any money coming in.”
Lesley: “Yeah. I'm in Florida and it the same thing. There are literally still people you see on the local news, like of local reporters, helping them get through their unemployment. So imagine those , who actually did get sick, maybe they did actually get COVID and maybe they were down and out for a few weeks or maybe a few.
We hear about these long haulers the later effects of some people who've had COVID. So imagine if , you just physically are not able to go back to work and work your business. How would you be able to replace that income?”
Heather: “And not just your business, but also your personal life as well. You have those expenses. The next one is protect your life.
Lesley: “Protect your life. So we think about protection in general, we think of as insurance, right? Whether it's your car, I know people who they get engaged and one of the first calls they make is to an insurance company to protect that ring right there. Like we want to make sure that this diamond is. But they haven't insured their own life. You want to make sure that you have life insurance and I know some people think, oh, that's just for married people or people with kids, but no, there's definitely way more benefits to life insurance. I think it's probably one of the most misunderstood financial tools out there, but you definitely want to make sure that you protect your life. Prioritize it, please.”
Heather: “And not just that, also have things in place like a will, maybe a contingency plan. And those types of things especially if you're a business owner, because if something happened to you, what are people going to do with your business? If you don't have anybody working for you, if it's just you, what's going to happen to all your clients that you were doing work for.”
Lesley: “Exactly. So you just rolled into number four, which is protect your business. And that's exactly it, it's okay. Do you have business partners? Yes or no. If you do have business partners, do you have a partnership agreement? Do you have, what's called a buy, sell agreement.
This is where you discussed the terms. What would happen if one of you were to get sick or ill or die? What happens to the other person's? Ownership or how does that work? you were to pass away, does your business partner become partners with your spouse? Is that really what you want?
Is that really what they want? It's you really want to discuss all these different things. You want to make sure that that it's very clear. who does what makes sure you have proper insurances in place for the business, whether it's cause it's overhead insurance or again, think of something like COVID or major recession, , there was a fire, like if there was something at the business, how do you make sure that your business is protected?”
Heather: “Let's go to the next. Protect your assets.”
Lesley: “So again, you touched on this a little bit, but with estate planning, right? So you want to make sure. That you have a will a trust. And like you mentioned that not just covering your personal effects, your personal affairs, but also your business. So touch on that a little bit just now, but if there are certain assets in the business, whether it's intellectual property or, equipment or locations, if there's different things that are part of the business that you and your partners have not discussed.
How do your loved ones, or how does the estate know how to divvy things up? Or like you mentioned, if you're a solo procure and you have all these things, and if you get sick, maybe you haven't passed away, but you just get sick and you can only ever speak for yourself. How do you make sure that your business is protected?
The business can continue to operate in your absence. Or how do you make sure that your customers are made aware of what's happening? So you want to make sure that you're protecting not just your physical assets, your intellectual property, but also your brand.”
Heather: “When people come to me and they want to start a business, I'm like, okay, this is not something you go into lightly. Some people just fall into having a business. Right. I understand all the ramifications of having a business, the seriousness of really once you start this, especially if you have clients, because you have to really always think about the impact that you're going to have.
If something happens to you, what does, how does that impact your clients, your family, everybody, because they have to pick up the slack for you if you're unable to do that.
So now once your business gets flowing; you have some other steps here. So save for business for today and tomorrow.
Lesley: “So we all hopefully are thinking about, when we, have our own money, we pay our bills and we put a little bit of fine, but we should also be doing this for the business. The business needs to also have its own little, it its own capital, right? It really needs to be able to do that.
So you have different needs for your business. So maybe there's, the everyday cash needs that every business has. You need those for paying your vendors or, making payroll, or just the things that you need that make sure you have capital available for those are the everyday cash needs.
So you need to make sure you're putting money aside to be able to support those different. But then you also have I guess what I call period savings. So let's just say that you have Airbnb business, so maybe eventually you'll need to replace appliances or get new furniture or replace furniture.
Maybe you've got to repair a roof or there's different expenses that come up. Maybe at some point you want to expand and you want to buy another property for the Airbnb business. Maybe if you're an attorney you want to expand and get big, more office space and you need some money for that.
So you need to think about putting capital aside, not just for today, but for future needs and things that are planned or unplanned, but then you also have this third category of sort of the emergency fund, right? This is money that you don't really want to have to tap into, but if you need to. So we just talked about COVID, right.
You should have I always say a minimum of six months, but if he can get six to 12 months of expenses put away, that's, put away, this is not money that you can easily get to, but it's safe. It's not exposed to any risk, but it's safe and accessible and it's liquid in the event that you need to turn to it, to keep things afloat.
So it really goes to the three main needs where you want to make sure you're putting money away into a savings vehicle for your business.”
Heather: “Exactly. you know, you also want to make sure that you have enough capital in your business. To sustain maybe. We were talking about a year in advance, maybe the next year. Cause you don't know something might happen. Like COVID where your business completely just bottoms out the next year.
You could be having a booming year. And I see business owners like they just like, oh, I'm going to take a big draw at the end of the year. Just cause I added all this cash in there. I don't know if that's the best thing to do.
I'm a proponent for taking things a little bit careful. I just want to make sure you're saving for a rainy day. So don't take that money out. Another thing can happen is, and this is from a tax side. Is that depending on what kind of a business that you have, how it's taxed, you might have to worry about basis in your company. And if you take out too much money, then you can zero out your basis. And then all that money that you take out beyond that you have to pay capital gains tax on. You really need to talk with a CPA or a tax advisor, especially if you are going to take big draws at the end of the year; make sure that you understand how that will impact you.”
Lesley: “Exactly. Absolutely.”
Heather: “The next one is save for employee benefits. Oh, this is a good one. Retention and recruitment.”
Lesley: “Yes. So as your business starts to grow, you may need to bring on some help. And sometimes it's just, temporary, it might be just contractors or something like that, but eventually they to bring on full-time employees and it's competitive out there. People like to know that when they come to a job, that they have some benefits and for a lot of small businesses, it's not possible, but there's definitely more and more services being made available to support small businesses.
And it's going to give you a competitive advantage, but you need to have the money put aside to be able to afford those benefits. So whether we're talking about. Providing training for your employees, maybe you're wanting to provide health insurance, how are you gonna make your portion of a premium payments if you want to do outings and , making sure your team members can collaborate and they have good relationships, that kind of thing, all those things cost money.
Maybe you want to recruit someone, maybe there's someone you've had your eye on in the industry and you really want to bring them into your company. What can you offer them? There's different things that you can offer. But again, if you don't have money put aside for that may not be an option for you and you could either lose employees or lose out from being able to recruit specific employees, because you don't have that one little thing because money's important. Salaries are important.”
Heather: “We had a guest on the show that. For her employees, they were all virtual during COVID, but because she wanted to bring them together, she's paying for a retreat in the future, but this retreat is going to cost her more money than having the rent and all of that with people, all working lives. So thinking like, oh, okay, I'm saving money on rent, but then you put on a big retreat and it could cost a lot of money to bring everybody together.”
Lesley: “Yeah, exactly.”
Heather: “And the benefits. This is a huge thing, because like you were saying, it's a competitive world out there in business. You want to be able to treat your employees.
One of the things I see is that people think, oh, I want to bring on an employee, but they are not thinking about the benefit part of it. They're not thinking about all the added tax that goes into it. And these are things you really have to calculate in there to make sure that you can truly afford this.”
Lesley: “Exactly. And the other big thing too, Heather is it is really expensive to lose an employee, the time and money that you took training and, bringing that person on. If you lose them, now you have to start that search for a new person to replace them. You got to train that new person, probably some of your other employees or teammates have to help with that a little bit.
Like it's really an expensive proposition to lose an employee. So it's much better. What did they say? It's cheaper to keep her, right. Of course, if they're just not a good fit for your company, but you want to make sure that you're keeping in touch with your employees.
So do you understand , what's making them happy. What's not, what are some additional benefits that they might appreciate that would keep them on staff. It's really expensive to replace employees.”
Heather: “Yeah. Just like it's really expensive to replace clients as well.”
Lesley: “Absolutely.”
Heather: “All right, let's go to the next one. And that is save for self for today and tomorrow.”
Lesley: “Yes. So just like for your business, make sure you're paying yourself and then make sure when you do. Salary or taking some payments, quote, some of that aside, right? Just like you need your business to be capitalized so that it can grow at some point, you, yourself, as an individual, you need to be putting money aside, right?
You may have kids. And so you may want to say for their education, you eventually, at some point are going to retire. You need to save for that at your own home, you may have a roof repair or . You may have a medical emergency. , there's only things that come up in our lives.
I always say financial planning is not a good term because you cannot plan, you just want to be prepared for any situation. So I cannot emphasize enough the importance of saving. I think a lot of us get very focused on, like I said, paying bills and we kind of love to think about investing.
But the first step, really, the critical step is protecting and then saving. Those are two things I like to try and make sure people are aware of.”
Heather: “I love to save. I like to see my savings account go up to the point where it's to my detriment, where I'm like, I should be investing some of this money, but I'm like all about saving for a rainy day for sure. All right. So now let's go to next one. This is the last of the nine what's next.”
Lesley: “What's next. So your comp your business has been going well, maybe for years, maybe for decades, who knows, but we want to think about succession. What is that next step? Are you looking to sell your business? And maybe you're a serial entrepreneur and you give yourself a five-year life cycle.
I don't know, but you want to think about what it is. Is it selling it? , are you having your kids take over or do you have maybe some key employees who are taking over at some point? You have to think about what are all those different things that are going to happen when you step away.
What happens when you pass away? What happens if you pass away before, you've sold the business? What happens. So what's next is really that long-term thinking. Or just again it's that, what if type thinking you want to be prepared for that, and obviously you, as a tax professional, you understand, let's say that if going to sell your business you know that there can be major tax ramifications based on how you choose to receive that money.
If you do want to get a lump, certain, do you want to get paid over time? Do you want to pay, into a particular vehicle? There's so many different ways. That what you net in your pocket from that sale could be affected. And so you want to be strategic about it. You don't want to be like, oh yeah, I think I'm going to sell this year.
No, you probably want to take a few years to think about succession planning or, what would you like to be the process for when you sell so that nothing is a surprise. You have your team in place, you have like a tax professional, you have maybe a financial advisor, maybe an attorney.
The people who you start to have these conversations with and they should be speaking with each other, right? You don't want your team working isolated. They should all be speaking with each other to make sure that you are getting the best outcome of the situation, which is ultimately for you to keep as many dollars in your pocket as possible.”
Heather: “For those that are out there that are maybe just starting a business or they're making six figures, seven figures. Is there any difference between these steps they apply to everyone, right? Everyone in business should be thinking about all of these.”
Lesley: “Yeah. I don't think it, obviously if you're just starting, maybe it's not possible. But just to know, it's something you want to put on your list of things that you should start thinking about at some point, right? When the business gets to a certain level of success, because like I said, at any point you could get sick or you could get hurt or, maybe the business is like it booms and it's actually more successful sooner than you had realized.
Maybe you realize you'd rather exit and do something else. want to start thinking about. What would be that next step? What would be next?
As you mentioned, there's more than nine things that, businesses should be considering when it comes to finances. But these are just some that I wanted to highlight, because I feel like they're the ones that are neglected, again, business owners are just very focused on the business and even the accounting or like the numbers of the business, but they're not thinking of that, that next step is the financial health of the company.
Again, putting that money aside, putting that capital aside so that it can grow or for their own personal selves, how do I make sure that my business is actually supporting me? like Can I grow personally? If you're someone who's very passionate about a particular charity or issue or something like that, it might be very important to you to make sure that you have money set aside for that.
So maybe that is a very specific line item in your own personal budget. This is my monies for, giving in this particular situation. But if you are not earning enough from your business, you're not gonna have. The ability to put money aside for that. So you want to think about what are the things that are really important to you on the personal side, make sure that you are structuring your pricing in your business to support that.
Of course, assuming the businesses earning that kind of money so that you can pay yourself without guilt, you can very reasonably pay yourself what you deserve and be able to not only meet your personal financial goals, but meet the business and financial.”
Heather: “I think for women entrepreneurs, they have a tendency to, I don't want to stereotype women, but in my experience that women, one undervalued themselves and two, they don't price their services high enough because they might be like, oh, I feel bad about this or whatever, but do you find those two things.”
Lesley: “One hundred percent. And I don't care if you own a yoga studio. If you are a financial advisor, if you are a baker, , I have clients in so many different industries and it is a struggle. They do not know how to price their products or services correctly. And for some reason, just like you mentioned, there's this emotional.
Factor that they include oh, I don't want to charge too much or this, or some extreme cases, they are overcharging. And I have to say to them well, let's look at what the market will bear, like maybe this is why you're not quite getting the, sales that you're looking for, because maybe your pricing is not, it's not right.
So I actually do have a program that we're hoping to get launched by the end of the year, me and a friend of mine, it's called price it. And it literally is a tool , to help businesses. Figure out how you should be pricing your services and your products. We're just trying to get the platform, so we can get it online and out to people, but we hope to have it ready by the end of the year, but it is a crucial thing. But another thing about women, business owners, Heather, that more and more, I'm starting to have this conversation with them is to ask them not just, about their own personal sort of financial goals, but understanding a broader picture.
Do your parents have money set aside? Do your parents have life insurance? Do your parents have long-term care insurance because more and more women are becoming that caretaker, not just of their kids, but of their parents. And it typically doesn't fall to the sun or the male child.
It typically is, falling on the female, the daughter. If you are running a business, And you are not putting money aside for yourself. And then a medical emergency comes up, not just for yourself, but for your parents You have a parent who get sick or, you need to take over, or you need to be able to take care of them, if you don't have money set aside to do that, how are you gonna be able to accommodate them? Do you live across the country from them?
Do you have to move them into your home? Do you need to accommodate your home, maybe to build a ramp? There's so many different things that can happen, maybe it to put your parent into a facility and then let's fast forward a few years for yourself. Maybe. Do you have long-term care insurance in place?
What if you get sick? What if you don't have children? Like I am a single woman. I have no kids and I'm not married when I get to my later years, I have to make sure that I have money set aside if I have to live in a home or if I need to have a nurse come over a few days a week or a few hours a day, something like that.
So you need to be thinking about the future. Like we're very focused on today as we should, but let's not forget about the future because it's really important. And we are living to be longer, older and older. It is not unusual for people to live, to be a hundred years old, but yet we still have this mindset of retiring at age 65.
try to challenge people to think how realistic is that, and maybe you do, like I always say, Hey, I retired from it and now I'm on my second career. So maybe I challenge people to think about what is something that you're passionate about. Is there something that you can transition into and maybe you don't do it for 40 hours a week, but it still can bring in some income for you because number one, you don't want to be bored.
I think we all, can't wait to retire and sit on a beach for a month. But after that, you're going to start to get bored. And especially if you're a creative or, if you just like to feel productive, you probably want to still keep doing something in some capacity. So I challenge people to not think of the word retirement, but think of the word longevity and think about how can I be productive, over the long-term.
How can I fund my longevity, understanding that at some point you could have some health challenges as you get older. So just making sure that you can afford that, the other really important factor that we really never talk about is inflation. And therefore the cost of things. So if we think about the cost of healthcare 20 years ago, how much was your health insurance?
20 years ago? How much did it cost you to go to the doctor 20 years ago? Think of it today. And now think of it 20 years from now. What do you think it's going to be? Do you again, have that money put aside or do you have enough, insurances or things put aside to make sure that you can cover the cost of things in the future?
Inflation is not going away. If anything, the inflation rate is getting higher, which means your purchasing power is getting less and less as time goes on. So we need to be more cognizant of it. And this is not to say this group is save and never spend your money. That's absolutely not it at all. We want you to live and enjoy what you make, but also make sure that you've put aside what you need for the future.”
