| Friend,
Now it's time to talk about protecting your finances. It may not seem all that important to you when you're barely scraping by (and if that's the case, you need to check out Martial Arts Business U), but once you start turning nice profits it'll become a priority.
So, let's discuss a few simple steps you can take to protect your assets.
Limit Financial Access
Once your business is large enough to justify hiring staff, you need to make sure that you limit financial access to yourself and your spouse. While it may seem like a good idea to give an employee or bookkeeper the ability to write checks (so they can pay vendors and pay your bills), it's a horrible idea.
The same goes for "significant others" that you are not married to... no matter how much you've professed your undying love to each other, or whether or not you are shacking up.
True story: A friend of mine had a thriving, multi-school business with a ton of students that was raking in boatloads of cash. He also had a killer licensing program going on with one of his programs, and had several other schools paying him to license his logo, name, and curriculum.
Unfortunately, he also had a hot girlfriend who had wormed her way into his heart and business. As it turned out, she was a con artist working him on a long con. One day, without warning, she cleaned out his accounts and left him penniless. He nearly lost everything, and almost had to start over from scratch.
So, be careful about who you choose to give access to your financials.
Prepare for Tragedy to Strike
Have you considered what would happen to your family and business, should something catastrophic happen to you? Most school owners don't, but if your school is your family's primary source of income, it's something you need to consider.
There are a couple of steps you can take to protect yourself and your family if something should happen to you. - Life Insurance - Term life insurance is cheaper than most people realize. You can get a decent policy that will pay out $250k+ for a lot less than you might think. I suggest that you get coverage closer to $500k, simply because you have to consider what your spouse and kids are going to do if you're gone. There will be a lot of incidental expenses, they may not have income coming in for a while, and it would be nice to allow your spouse to pay down your debt and bills if you passed on unexpectedly.
- Key Man Insurance - The death of the "key person" in a small business usually means that the business dies with them... immediately, in most cases. Key man insurance is a policy that your company takes out on you to keep the company going during such an occurrence. The company pays the premiums and it owns the policy. In the event that you should pass on unexpectedly, the policy will pay out to the company, so there is enough cash on hand for the company to survive until your heirs can either sell the business or find someone to replace you. This is important because your family will have enough to worry about if you pass on, and the last thing they need is for your business to be gone, for the bank accounts to be empty, and for your business creditors and landlord to be knocking on the door looking for their money.
- Disability Insurance - What if you're injured or become catastrophically ill... what kind of impact would that have on your business? Think about what would happen if you couldn't step out on the floor for an extended period of time. Just in the last month, I've seen three martial art school owners post on Facebook about how they are facing severe health issues, and in one case the poor guy had to close his school. A disability insurance policy will pay you an income should something similar happen to you, and it should not be overlooked.
- Write Up Emergency Legal Documents - At the very least, you need to write up a will, and have a living will that covers advanced medical directives on file with your physician and attorney. The will tells everyone how to settle your estate when you're gone, and the living will tells everyone how you wish to be cared for should you become so ill you cannot make those decisions for yourself. The first document will keep your family out of probate (a long legal process) after you die, and the second will take hard decisions out of their hands should you become catastrophically ill. Spend some time with an attorney to figure out both.
Preparing for a Rainy Day
In addition to restricting financial access, and setting up protective insurance policies, you also need to prepare for a rainy day. A "rainy day" might mean the next recession, losing a key staff member, getting sued, having your school wiped out by some unforeseen catastrophe (flood, fire, or other natural disaster).
So, here are a few action items you should consider to prepare for such an event. - Rainy Day Fund - Even when you're first starting out, you should be tucking away money each month in a rainy day fund. Your goal should be to have enough money tucked away--in cash--to pay your personal bills and the bills on the dojo for at least three months. It may take you a while to build up this cushion, so start building it up immediately and only use it in the direst emergency. Also, put it in an interest-bearing account so it's not just sitting in the bank doing nothing. The APY rates suck right now, but even 1.1% is better than nothing.
- Retirement Account - Not only can it be a nice tax write-off, a retirement account will protect you down the road when it comes time to transition out of running your school. Start investing as early as possible! Compound interest adds up over time, and even a small yearly investment early on could turn into a large nest egg over several decades. Before you do this, do yourself a favor and read up on no load index funds and other simple, long-term and low-risk investment vehicles.
- Emergency Cash - It's always a good idea to have some emergency cash that's kept close at hand. $1,000 of emergency cash can help out a lot in the case of a natural disaster that prevents you from getting to a bank or other financial institution. It may seem like a lot of cash to have on hand, but if disaster strikes you'll be glad you have it.
- Pay Off Your Debt - The last thing you want is a load of debt when the next recession hits... and it will hit eventually. Pay down your debt when times are good, so you don't have it when times are lean.
Okay, that pretty much covers protecting yourself financially. Tomorrow, we'll talk about employees, partnerships, and regulatory pitfalls.
Until next time,
Mike Massie MartialArtsBusinessDaily.com
Quick-start Guide to My Books and Resources: - Looking for a list of books and resources I've written? Click here! - Need business coaching to grow your dojo? Click here…
P.S. - Spend some time learning about how to manage your money. Dave Ramsey's materials are a good place to start.
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