Mister, Can You Spare A Dime?

By Jerry Stewart

Our world today is full of extremes. And when it come to money, well, its no exception. There are some people who will do just about anything to get money, while there are others who care so little about it that they aren’t even willing to support themselves. The rest of us fall somewhere in between –desiring enough money to take care of our needs and the needs of our family while, at the same time, not selling our souls to get it. But the truth is this – money is a necessity. If you doubt, just reach into your pocket or your purse or your wallet. What will you find? Hopefully a little cash because sometime today you’re going to need it.

But the need for ready cash becomes even more crucial when you own your own business - it takes a lot of money to keep an operation going. So, just what do you do when there’s not enough money to take care of business? That’s my topic for today’s report.

Because any business has its up and down cash flow cycles every month, there are some businesses that are required to pay money out for operating expenses before the income monies are even received, and you find yourself short of cash. So, what do you do? Well, one simple solution is to negotiate a line of credit with your bank so that when your account is short you can take the needed funds from that line of credit. But, there’s a right way and a very wrong way to handle these funds. Allow me to explain.

I have one client that is a big operation with a good amount of profit, but sometimes the wait for the actual monies earned can get pretty exasperating. So, to level out the monthly cash flows I helped this company secure a line of credit with their bank. As they needed the funds they would call the bank and make a transfer from the line of credit to their company bank account and everything worked smoothly - I thought.

One day as I was examining their bank statements I noticed that they were paying a good amount of interest expense for their borrowed funds – too much interest. Upon further examination, I noticed that as they were collecting their receivables, many times they were not immediately paying back the line of credit – and that unpaid line of credit just kept collecting the interest on the balance owing. When I showed my client just how much interest he was paying on that money borrowed when he had funds in his account to pay it he was shocked – thousand of dollars wasted every year.

So, if you have a line of credit in your business operation, here’s one good way to save money. Have your bank agree to tie the line of credit directly to your bank account and to have that line disperse funds only when your account becomes overdrawn. Then, every time you make a deposit, make it directly to the line of credit, so that your bank account balance is always at $0 and any extra funds hanging around are applied against the loan. This will save you a lot of money.

Well, that’s all for now. I’ll have another money report again next week. Until then don’t forget – It’s Your Money!