I am sharing with you today a topic of a recent Mastermind. It’s important to be prepared and to know where your money is going. But it is just as important to know where you could get access to the annual amount of money for your life and business if you needed it today.
In this episode we will cover:
- Get clear on personal and business expenses
- What you need for your runway
- How would you access your annual runway
The Legalpreneur Podcast is advertising/marketing material. It is not legal advice. Please consult with your attorney on these topics. Copyright Legalpreneur Inc 2022
Episode 236: How to Prepare for a Possible Recession Transcript
Andrea: [00:00:03] Welcome to the Legalpreneur podcast. I’m your host, Andrea Sager, founder and CEO of Legalpreneur Inc. As a serial entrepreneur and someone that works exclusively with small business owners legally protecting their business, I’m dedicated to covering common legal issues faced by business owners, providing you with the business knowledge you need to catapult your businesses growth and showing you just how some of the world’s most elite entrepreneurs have handled these legal and business issues themselves. In true attorney fashion, the information in this episode is not legal advice. This is for informational purposes only, and you should always consult with your attorney before implementing any of the information in the show. Hey there. Welcome back to another episode. So we’re going to be chatting about the rumored recession.
Andrea: [00:00:55] I don’t want to get too into like, oh, we’re absolutely in a recession. We’re headed to a recession. It’s going to hit the fan. I’m not here to say that. What I’m here to do is make sure you are prepared for if shit hits the fan. And this is actually an exercise I did a couple of weeks ago in Los Angeles with Chris Harter in his mastermind. And so I feel like y’all are getting like all the good stuff from the mastermind without being there. So that’s amazing for y’all. I paid a lot of money to be in there in that room, but you’re getting the exercises some really good stuff. So basically Chris ran down a whole slew of things to be recession ready, and a big part of that was runway. And runway is essentially money or reserves on running the business. And we did this for running our lives and running our business. So what you need to do is get very, very, very detailed and very clear on your personal expenses and your business expenses. So make a list of literally every single business expense and a list of every single personal expense. So when it takes we’re talking personal. I mean, everything how much you spend on gas and this is on top of obviously your bills, your rent, your mortgage, gas, food, entertainment, shopping, if you like to shop a lot, like be very real with yourself and know like, hey, I like to spend this amount of money every month on shopping or, you know, maybe every once in a while I want to go on a shopping spree and average that out to what it comes out to be every single month.
Andrea: [00:02:36] And what you want to do is literally figure out the total amount you need per month. And if you have savings, goals include this in the savings goals and you can kind of play with it as if and run a few different numbers to get really clear. On if I still want to contribute this amount of money to my 41k, to my savings account, to our vacation account, all these accounts and you can play with it like, okay, this is if we’re not this number is if we’re not personally investing, not personally saving. This is just to make ends meet. And then the next number is, och, this is if we still want to continue saving and then the next number is Och this is if we want to go on this lavish vacation and up our, our lifestyle and we should be doing this anyway. But I just want to make sure that you are really clear on the monthly numbers as well as annual numbers which we’ll get into in just a minute. But because and the reason why is because this was actually extremely, extremely helpful for me when we did it a couple of weeks ago at Chris Carter’s mastermind. So get really clear on your personal runway and this is per month and then multiply it by 12.
Andrea: [00:03:53] And that is your. Annual runway. So do it monthly, obviously multiply it by 12 and make sure that you. Multiply by 12 to have the annual runway. Now business. Same thing. Every little expense do you anticipate on going to conferences even if you don’t have tickets booked yet? If you normally go to conferences, make sure you account for that in what you want to have in your runway, how much you’re going to spend there, how much you’re going to spend on travel or airplane rides, gas. Literally every little expense that could come up. And again, you can do this a few different versions, like, hey, this is to make ends meet. This is to go to this number of conferences. This is to actually increase our expenses in the business, run those numbers, multiply them by 12, and that’s your annual business runway. And actually, hopefully, because this is what Chris told us, he’s like, this number should scare you. Because this is actually the number that you need to have access to right now. Sit with that for a minute. That is the number that you need to have. You need to have access to that right now. Now, that doesn’t mean cash in the bank. That’s not what that means. So some people were freaking out when he told us that because they’re like, Oh my gosh, I don’t have this bunch of cash.
Andrea: [00:05:26] And he’s like, Well, I didn’t say cash in the bank. I said, You need to have access to this. And then we got really creative on figuring out strategies on how to have access to this, which is what I’m going to share with you now. Personal Runway. If you don’t have access to this right now, some ways are credit cards. Obviously, we don’t want to rack up a ton of credit card debt. However, having access to that amount of money could be really helpful, especially in stressful times. So think about credit cards, also personal loans. Personal loans are another. I mean, it’s a way, typically a way lower interest rate. Then credit cards and what? So I actually took out a personal loan when this was I guess it was a year ago and. I wanted it to be more comfortable. So I used to own a poker club and I wanted it because we thought we were going to need a lot more money to put into the business. Turned out to be a big moneymaker really quickly, but I think I wanted a loan for like. 20 or 30,000. And I went to my local credit union and I told them, Hey, I want a personal loan because I didn’t want to put it on the business. And I said it was like 20 or 30,000. And I gave them all the paperwork. Like my credit was great. And they literally I think it was it ended up being for like.
Andrea: [00:07:05] They can only give me 10,000 and. They literally they were like, Well, this is all we can give you right now. They’re like, It’s not because of your income, it’s not because of your credit score, but a lot of smaller banks or credit unions, They will not. Right off the bat give you like a 50 $100,000 loan because they want to make sure that you’re going to pay it off, which makes complete sense. So I would say even be prepared for that. And I think that my interest rate there was like 10%. I mean, I’ve since paid it off, but way lower than a credit card and. So you can have that access. But I say I share that story with you now. That way, you know, hey, if you’re wanting to go and get a loan for 20 or 30, $50,000. And you’ve never opened a loan with a local bank or credit union. Then you may want to start small now because paying a 10% interest rate may like obviously you don’t want to pay interest on your own money. However, it may end up paying off if you actually need a bigger number later on to just start building that credit within the bank. Obviously, it’s not building an official credit score with the bank, but other banks will see like, oh, they actually had a personal loan before they paid it. They paid on time. They want to see that you’re able to handle different types of debt.
Andrea: [00:08:29] So if you’ve never had a personal loan before, you’re they’re not going to lend you a large amount. First, you’re going to have to work your way up. So be prepared for that. Another thing about credit cards I want to mention, and this goes for business credit cards as well. A lot of people, you know, like if you apply, it’ll be a hard inquiry. But if you do, if you do many of them. The same day, the same week. They actually won’t all count against you. The credit bureaus tend to combine them. So if you’re going to start applying for credit cards, then you want to make sure you do it hopefully on the same day. Now. When it comes to credit cards. Of course, we don’t want to get into debt. However. We all love some credit card points. And so my suggestion is to find out which credit cards are offering the best promotions, and I’ll put my links here. I love Chase Sapphire. I have that personally. And the Chase Business Inc, I have both of those credit cards. I have the business ink for my law firm and legal preneur and those I mean, I don’t pay for flights anymore. I actually treat myself. I’m making it a tradition now. This is the second year. Last year was the first. So I’m officially making it a tradition where I accumulate all the points and then go on a solo vacation in December.
Andrea: [00:09:57] So that’s what a lot of my points go to. But also it helps with flights. So be responsible with credit cards, But it’s not a bad thing to have credit cards. I know some people say, oh, credit card debt is a worse. Of course, you don’t want to be in credit card debt, but you can use credit cards for everyday expenses and then just pay it off every month. Literally, I use my credit cards for everything because I want the points. So. Personal. Personal. If you want to make sure you have that personal runway available. Personal loans, also credit cards. And another thing is check your do you have a41k? Do you have a retirement plan? Look into what it would take to get access to that money. So I have a41k through the law firm and I know for a lot of for one case or whatever retirement plan that you may have if you have one, you just want to look into possibly getting a loan from that retirement plan. You can take early distributions, but you get penalized. The loan is a completely different story. You actually don’t get penalized and you’re paying your self interest. So the 41k loans are actually really beneficial. Another one that I don’t do personally yet, but I’m looking into is life insurance. You can actually borrow against the life insurance policies as well. So there’s a lot of ways you can get really scrappy and really resourceful on how to have this runway available to you.
Andrea: [00:11:29] So that’s personal wise, how to make sure you have your personal runway available for the next 12 months. And then business wise, a lot of these still apply. You have business loans, you have credit cards, business credit cards and lines of credit, personal lines of credit. This you want to go to your bank and go in person, go in person to chat with a bank representative and let them know, hey, I have this entity. I want to make sure if you don’t already have a business credit card, get a business credit card and let them know you want an unsecured line of credit. I so I currently at this moment I don’t have any business lines of credit that is so I just sold the house I’m waiting on it to hit my credit score. I’m hoping my credit score will jump up to like an 800 and then I’m going to go to like all the banks and be like, okay, I want this, I want this. So business wise, they initially run your personal credit. And then obviously they open the account in the name of the business. And then eventually, once you build it, build enough business credit up, they will not run your personal credit anymore for the business. But beginning when you’re starting with business credit, you they do actually run your personal credit. And then a trick I just learned at the Mastermind because we were all sharing tips on how to make sure we have our business runway available to us.
Andrea: [00:12:54] Somebody said, again, apply for all these credit cards in the same day. And if they the accounts get open once it’s on your report, go and file a dispute, because those credit companies will not be able to track the inquiry to the credit card. So they’ll have to remove it. I have not personally done this. This is something that was shared with me so totally open. Try it. Let me know if it works. And that way your credit doesn’t get completely shot and you can go to different banks, open lines of credit, and then unsecured line of credit. I think that’s for 50,000 and under. So. You can open that for each of your entities and you guys if you have multiple income streams. So a lot of times we talk about LLCs, you need multiple LLCs. This is one of the reasons you do, because you want to have access to more capital. And typically most banks will give you an unsecured line of credit, which means you don’t have to put up any of your assets like a car or a house, things like that, if it’s under 50,000. Which is what you want. You don’t want to put up your house for a business like sometimes it’s necessary, but. When you’re just wanting to make sure you have access to these to this money, make sure it’s unsecured.
Andrea: [00:14:15] In that way. You just have access to that money and you can go pull from it when you need it. Hopefully you don’t need it, but you always want to make sure you have access to 12 month runway to your 12 month runway. That means your expenses for the next 12 months. You need to make sure you have access to that amount of money. It doesn’t mean you have to have it in the actual bank account in cash. You want to make sure you just have access to that. Think that and then also getting really scrappy with OC. Can I actually like create new revenue streams? This was one that we kept brainstorming at the mastermind, which a lot of people came up with some really good ideas, but. Play it out. Can I do some consulting work? Can I do this? Can I do that? Just get really scrappy, figure out. Can I get a quick influx of cash flow? And that can be my runway. So I’m not saying, Hey, shit’s going to hit the fan with this recession. You’re going to not make any more money. I’m not saying that at all. I’m just sharing with you what I learned at the mastermind and the exercise that we did and make sure that you have access to a 12 month runway personally and for the business. I hope this was helpful. Again, reach out on Instagram. Let me know if this was helpful or not.
Andrea: [00:15:46] And I’ll see you next time. Here at Legalpreneur, we’re committed to providing a supportive legal community for all business owners. I know how scary the legal stuff can be. If you found this information helpful, I would be so grateful if you could share it with the fellow business owner. And quite frankly, it doesn’t cost anything to rate, review or subscribe to the show. Your support helps me reach more listeners, which allows me to support more business owners in their entrepreneurial journey. Have any questions or comments about the show? Feel free to drop me a line on Instagram. I promise. I read all of the messages and comments, and if you want to be a guest on the show or know someone that would make a great guest, simply fill out our application form and a team member will reach out if we think it’s a good fit. I’ll see you in the next episode.