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Note Biz Money Mistakes

Money Mistakes New Note Professionals Make 

One trait that sharply differentiates the seasoned note professionals from the unseasoned the world is their willingness to take calculated risks. Note professionals tend to look for every opportunity to push the boundaries and discover new things about both themselves and the note industry. They’re excellent problem-solvers, they test their recognized limits, they cross boundaries, and they sail towards uncharted waters. This propensity for risk-taking stems from the note professionals skewed perception that often equates risk with opportunity.

However, that same willingness to routinely take risks also makes them more likely to make mistakes. And based on my own tumultuous personal experience with growing my note business while working a full-time job (even though it was a very long time ago), we make mistakes all the time. Indeed, the industry’s most recognizable note professionals usually had as many failures as successes over the course of their careers.

Some failures and mistakes are minor and can be corrected on the fly. But some—especially those that concern money—can easily burn the house down. It’s a big reason why the vast majority of note businesses fail during their first few months or years of operation. A pipeline that suddenly dries up, a huge unexpected expense, or a rapidly accumulating amount of debt have all been known to bring even the most promising new note businesses to their knees.

Based on both my own experience and those of other note professionals, here are the biggest financial mistakes new note business owners tend to make—and how to avoid them at all costs.   

Not Having Separate Business and Personal Accounts – There’s no shortcut on this issue. Even if you’re striking out on your own as a one-man operation, you can’t afford to cut corners on keeping your finances separate. You’ll pay the price later.

Ignore the call of convenience and commit yourself to creating separate savings, checking and credit card accounts for your note business before you begin collecting revenue from closed note transactions. Doing this right at the beginning will make it much easier to do the accounting for your business, plan for quarterly tax estimates and budget for unpredictable months that may lie ahead.

Having separate bank and credit accounts will also allow for a more accurate picture of your business’ financial health by preventing overlap between what you personally earn & spend and what the business is generating & costing on a monthly basis. The IRS also implements very serious rules against the inappropriate personal use of business funds, and you can easily fall into a taxation pit if you’re not careful. Having a separate business and checking account will also better shield you from damaging your credit score if your note business takes a nosedive in the future.

Most importantly, separating your business and personal accounts promotes a very different psychological way of thinking about how your business factors into your life. Every dollar your business earns shouldn’t go directly to you if you’re investing in growing your note business and building a stronger future for yourself. Having separate accounts will help keep you from blurring those lines.

Immediately Making Big Purchases for the Business – When you start a new note business, it’s understandable to want all the best new laptops, a flashy website, maybe an office, best-in-class software, to hire a direct mail company and possibly a highly talented staff to help grow the business.

However, if you’re itching to make major purchases (even if they feel like investments) near the beginning of your note business, think these decisions over very carefully. Some expenses like building a website or attending an industry trade show will be, but you need to always to ask yourself if the expense in question is going to help you generate more revenue in the short-term.

Other expenses such as luxurious parties, team-building trips, and frivolous electronics that aren’t essential to the growth of your note business offer very little value to your bottom line. If you can’t afford a paid subscription to a popular contact management platform, go for a free or less expensive alternative. Make do with the absolute bare minimum. If hiring regular staff is out of reach, look for talented freelancers or virtual assistants. If you can’t afford to hire a direct mail company, prepare the mail yourself. Grow your note business first and accumulate a higher level of disposable cash before spending on the “nice-to-haves.”

Making Large Personal Purchases (Like a Car) – Even if you’ve separated your personal and business accounts, scenarios often emerge that force you to dip into your personal funds to finance a business need, such as an expansion into a new niche or a marketing method that promises to deliver a high return for your note business.

During the first year or two of your note business, there are a lot of unknown variables and unexpected learning opportunities that’ll come your way. The reality is that you’re going to hit roadblocks. You’re going to have failures—and some of these may come with a big price tag on them.

If you’ve rushed out and purchased a car, home or another large personal expense and your note business has something unexpected come up that means you won’t be able to pay yourself next month; you can’t be strapped down with an exorbitant amount of personal expenses. Be as lean as possible in both your business and personal life while growing your note business.

Incurring Credit Card Debt with the Expectation of Future Revenue – The tried and true advice to never to count your eggs before they hatch is timeless financial wisdom. So is the exercise of prudence when it comes to credit cards. While using credit cards responsibly is a normal business practice, it also exposes you to the risk of deep debt if you mismanage your newfound line of credit.

Because credit cards are so convenient to use, many new note business owners fail to see that they’re compounding their expenses and incurring interest charges every time they use they leverage their credit line and don’t pay off the full balance each month. Many experts consider irresponsible credit card use as the worst financial mistake new business owners make, and that goes for note businesses as well. If you’re looking for convenience, use a debit card instead.

Not Saving for Lean Times and Emergencies – From Benjamin Franklin to today’s best finance experts, there’s no shortage of people telling you to keep an ample stash of savings at hand for unexpected expenses. 

Call it saving for a rainy day, but there will be times when something happens and covering the cost using your credit card is a shortsighted solution that only tends to create more problems down the line. Most financial planners advise business owners to keep at least three months’ worth of expenses in an emergency or contingency fund for both their business and their personal expenses.

Not Planning for Upcoming Tax Obligations – You will definitely have to talk to your accountant on this one since there are different federal and state tax obligations depending upon where you live and your personal situation.

However, back when you were a full-time employee before you started your note business, your employer would give you an easy-to-decipher W2 form every year when it came time to file your income taxes. Now that you’re self-employed, you’re responsible for taking the initiative and paying your full tax obligations on your own throughout the year.

As a self-employed individual or corporation, you must make estimated quarterly estimated payments to the IRS so that you’re not stuck with a massive tax bill come April each year, and accurately calculating these requires some time and effort. Plan accordingly as this is now just a part of being in business for yourself.

Not Setting a Clear Budget for Your Business – If worst comes to worst, you may be able to run your note business without a clear plan for the future, but you’ll have a very hard time succeeding without at least a rough budget to help guide what you can and cannot afford to spend on each month.

It is your job is to steer your note business towards profitability, and you can only do that if you have a carefully planned budget for operational, marketing and other expenses. Having a clear budget increases financial discipline and clarifies the roadmap to your note business growth.

Master Your Money Matters – It’s far easier to lose money than it is to earn it.

While a single drastic financial decision can cause a note business to fail, failure more often than not follows a series of bad decisions and financial mistakes. You can avoid these mistakes by giving more attention to the details of your personal and business cash flow throughout the year.

Plan your budget, track your expenses, save for emergencies, keep the lines between business and personal clear, and always think of expenses in terms of how they’ll generate future revenue for your note business. Remember success demands action, keep on marketing, it’s going to work!  TWITA! (That’s What I’m Talkin’ About!)

Jeff Armstrong of Armstrong Capital has been a note investor and broker specializing in the performing seller financed note industry since 1991. For more updated and current information on how he can help you with your note business, your note investments or to request a quote on a note you currently have visit to email him and subscribe to his weekly Note-Able Newsletter.

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