Monthly Archives: September 2016

Created a Rainy Day Fund

You’ve got your emergency fund set up — three to six months of living expenses set aside for unexpected events — and you’re finally feeling a sense of financial security. But what, exactly, constitutes a financial emergency?
We asked financial advisor Laura Scharr-Bykowsky for tips on when to tap your emergency fund and other advice on saving up for a rainy day.

When Should People Tap Their Emergency Funds?
Emergency funds provide peace of mind when there’s an unusual or catastrophic event in your life. Loss of income due to unemployment or disability is the primary intended use. Your emergency fund can also provide much-needed money if you face a major medical event.

Your fund should be able to cover out-of-pocket deductibles for your health, property and casualty insurance and at least six months of income to cover your expenses during a job search. Keep the money in a cash account insured by the Federal Deposit Insurance Corp.
Does it Ever Make Sense to Use It for a Non-emergency?
Some people may decide to tap this account if they have a large, unexpected maintenance or repair bill such as a new roof or heating and air conditioning unit. Others may raid their account to buy a new car. If you deplete your account in this way, try to build it back up as soon as possible, because you’ll be vulnerable if you have a true emergency. I would recommend this only if you have a stable job and good insurance.

Any Other Savings Tips?
Set up separate savings accounts for different goals and include a line item in your monthly budget to save for these less frequent expenses — for example, one savings account for home repair, one for car replacement and another for at least six months of living expenses.
This method can prevent you from raiding your emergency fund. Setting up separate savings accounts is easy and helps us stay honest with our spending.

Tips to Fintech is Bridging the Big Bank Gap

Big banks have always been averse to risk. They also tend to view small and medium-sized businesses as high-risk, choosing to restrict investment, in terms of both lending and services, for the SMB market. A 2015 credit survey by the Federal Reserve found that smaller institutions were 18 percent more likely to approve a small business loan than big banks, while SMBs that did work with big banks reported an uninspiring 51 percent satisfaction rating.
While banks are not always helpful to SMBs, there are other options for the services they deliver. The good news for SMBs is that everything from small business loans to payments, payroll to point of point of sale suddenly has competition in the form of fintech. Fintech is creating competition in a financial services market which would have seemed highly inhospitable to budding providers just a few years ago. Some fintech companies are thriving providing specialized, effective services, from lending to payments and everything else SMBs need to thrive.

Fintech Trends

Competition Benefits Many
Some of the results are stunning, with fintech companies that were themselves small businesses rapidly expanding into the service vacuum left by big banks. Companies shaking up the SMB lending market include Kabbage, which has processed over $1.6 billion in SMB loans, and Lendio, which secured $20 million in funding in October. Sweden-based payments provider Trustly is processing transactions at an annualized run-rate of over €3.5 billion.

Clearly, their market is large, and investors see continued growth. So who are their customers? Trustly’s Chief Commercial Officer, Johan Nord, sees them as regular SMEs, with an appetite for growth, that want a a cost-effective, easy, and effective system for payments.
“Trustly’s technology allows SMEs to expand from one country throughout Europe at no extra cost, effectively making them pan-European,” Nord says. “It is all managed through one agreement for all markets, thereby reducing administrative costs. Since Trustly manages the entire payment process, it enables instant and painless refunds for merchants. It affords SMEs other functions too, such as enabling payments to be delayed until certain criteria have been met or splitting payments between different providers in the value chain.”

For the most part, fintech companies have not not fought the big banks for their traditional lines of business, like big business credit, and residential mortgages, but there have been fintech entrants even to those markets, in addition to those supplying under-served or newer markets like eCommerce.
Micro-lending innovator Muhammad Yunnus won the 2006 Nobel Peace Prize, and fintech has brought this disruptive financial innovation to a range of markets, including SMB loans.

Competition from fintech not only increases the availability of financial services, it can also promote lower prices, and create new services through tailoring or packaging for specific markets, as well as innovation. Fintech can also deliver other benefits, like speed, security, and convenience.
What Fintech Brings to the Table
Applying technology to financial industry challenges often means using innovations in encryption and other areas of security, or algorithms which help analyze opportunity and risk.

Some of the specific benefits of fintech vary between different financial services, and some are more or less common to the type. Technology can lower barriers and costs, and enable new or different service models, including tailored solutions.
Just in lending, social lending and algorithmic credit assessment have increased availability for small and medium-sized businesses. New models of financing are also enabled by fintech.

Peer-to-peer lending platforms lower the scale barrier that has blocked many SMBs around the world. Companies like US-based Funding Circle or Prosper Marketplace have facilitated tens of thousands of peer-to-peer business loans. SMBs are benefiting not only from access to financing, but in some cases from superior rates, spurred by both the removal of intermediaries and competition for early market share.

In payments, fintech is deeply connected to ecommerce and international commerce, enabling cross-border sales without creating major challenges related to transaction speed or currency conversion. By enabling ecommerce for SMBs, fintech holds the key to rapid growth for companies slowed only by the size of their local market. A company successfully serving a local niche may simply repeat that success in numerous similar markets in different locations if it can manage to take payment and deliver the product or service from a distance.

Importance of Business Services Procurement to Profitability

For many small and medium-sized business owners, the same kinds of scale issues that make borrowing harder also present cost challenges. There are very few opportunities for SMBs to cut costs without sacrificing the quality of core products or services. Getting a slightly better rate, or a slightly more efficient service, can be the difference between good margins and no margins.
Savings can be found in competitive areas of the business services market, and in emerging services that do something in a new, more efficient way. While fintech has increased direct competition with the big banks face in a number of services, fintech can also reduce the number of steps in a process, as Trustly does by providing a bridge directly between customer’s banks, and the merchants they want to pay.

“For SMEs new Payment Initiation Service Providers (PISPs), like Trustly, offer the efficiencies that comes with new and innovative electronic payment solutions. Trustly’s service enables consumers to pay for goods and services online directly from their bank accounts, without the need for middlemen such as a credit or debit card, with bank level security to and from anywhere in Europe. The product is free for consumers, and has the added safety feature of not storing any of your valuable details, and for SMEs, such as e-merchants, it eliminates risk and fraud issues. The Trustly user interface can be integrated into the merchant’s web page and visiting consumers can pay from their local bank using their traditional login details, on any device.”

Those efficiencies, from avoided fees to middlemen to fraud reduction, all save businesses money.
Since all of the money saved in business expenses is either added to the bottom line or redirected into funding other areas, finding ways to receive the same or better business services for less money is a huge opportunity. At this point in the development of the market, SMBs are positioned to join the front line, benefiting from that opportunity, with fintech.
With a little extra time to shop around, you can take advantage of new and improved market for financial services.
Big Banks Cut Back on Loans to Small Business
FinTech v. traditional banking: It’s not a zero-sum game
The Big Banks Are Becoming ‘Dumb Pipes’ As Fintech Takes Over

Top 10 Fintech for Small Businesses
– For SMEs new Payment Initiation Service Providers (PISPs), like Trustly, offer the efficiencies that comes with new and innovative electronic payment solutions. Trustly’s service enables consumers to pay for goods and services online directly from their bank accounts, without the need for middlemen such as a credit or debit card, with bank level security to and from anywhere in Europe. The product is free for consumers, and has the added safety feature of not storing any of your valuable details, and for SMEs, such as e-merchants, it eliminates risk and fraud issues. The Trustly user interface can be integrated into the merchant’s web page and visiting consumers can pay from their local bank using their traditional login details, on any device.

– Trustly’s technology allows SMEs to expand from one country throughout Europe at no extra cost, effectively making them pan-European. It is all managed through one agreement for all markets, thereby reducing administrative costs. Since Trustly manages the entire payment process, it enables instant and painless refunds for merchants. It affords SMEs other functions too, such as enabling payments to be delayed until certain criteria have been met or splitting payments between different providers in the value chain.

Getting Wrong About Investing

Starting a business takes a lot of savvy. Many entrepreneurs border on genius when it comes to their particular niche, and that’s why people are willing to invest in, buy from, and do business with them. While a particular entrepreneur may thrive in her/his field, they may struggle in one common arena: Personal wealth management.

Entrepreneurs spend so much time garnering investments that they often don’t take the time to make any of their own. If you’ve ever started something you probably know all too well how easy it is to invest in a project, with no promise of a return. You pour all your time, energy and in this case money, into a venture hoping that it takes off (and eventually pays off).

One founder has set out to solve this problem. Paul Adams, CEO and Founder of Sound Financial Group, has a passion for helping fellow entrepreneurs reach personal financial success. As a result, his Seattle-based investment firm manages millions in capital for its clients. Paul has some great insights on where and why founders often struggle to manage their own personal finances.

Personal Wealth Management Tips

1. Legacy vs. Retirement Dreams
When most of us think of retirement, we think of vacations, houses and no debts. Adams and Sound Financial recommend an alternative perspective. Instead of putting your focus on how you’re going to spend your savings, think about the legacy you plan to create. “First, cast your vision of the future; then set an intention for any financial advising relationships you engage in, establish a plan and strategy and track your progress going forward.” Having this mindset helps vision driven founders find purpose in their financial planning.

2. Selecting the Right Kind of Assets for Long-term Withdrawals
Adams also details that “Anticipating a lifetime of withdrawals from a defined asset pool over an indefinite period of time is a complex challenge for which there is no simple solution. Pursuing this challenge can require creative approaches and persistent vigilance.”
Once you retire/exit/sell you’re essentially out of a job, so you’ll need to have saved well.
Solution? Plan for market fluctuation and have clear expectations of what your desired retirement lifestyle is going to cost. You’ll need to ensure that your investments are able to meet those expectations.

3. Your Business is Great, But it Might Not Be Great for Investment
The other mistake entrepreneurs make when relying on their businesses for personal success is banking on a sale price down the road. “I know entrepreneurs that have based their retirement plans on the current value of their business. The problem is, 10 years from now when they plan to sell, no one might be willing to purchase it for that price. It’s important to create a strategy that doesn’t rely on such variables.” Adams shared.
Loving your business is great. It’s natural for founders to believe that their ventures are also worthy of personal investment, but startups are risky and markets are volatile by nature, so you shouldn’t just rely on your ventures for retirement funding.

4. Mistakes in Calculating Net Worth
So much of getting a business started is pitching to the right people and selling the value of a venture. It’s not uncommon for entrepreneurs to present the best version of things in order to get people on board. Unfortunately when it comes to self-valuation things get a little tricky.
Often entrepreneurs simply calculate the most current value of the business and use that as a baseline for their own net worth. Adams shares that “There’s a difference between your personal balance sheet and that of your business. Entrepreneurs who are new to financial management also make the mistake of including the wrong assets in their calculations.
Vehicles, homes and similar assets have real value, but they shouldn’t make it into your net worth calculations unless you plan on selling them soon and not replacing them.”
Measuring your net worth is a critical part of your financial strategy because it helps you determine what investments you need to make to plan for retirement. An inaccurate assessment of your current worth may lead to shortfalls down the line.

5. Don’t Make Commitments Without Having Them in Your Existing Plans
Adams shared “I can’t tell you how many entrepreneurs get themselves into trouble by committing to things without including them in their financial strategy. Expenses like vehicles, college tuition or a better house are easy to aspire to or promise, but planning for them is a whole different game. Whenever you want to commit to something in the future for you or your family, start including it in today’s plans.
The key is having the patience to incorporate these goals as a part of your long-term strategy. It also requires a degree of self-awareness and self-control. You have to be able to realize a want or a desire and postpone it until you can assess its impact.
So to recap, Adams recommends that you:
1. Plan your legacy before you plan your retirement,
2. Plan what your retirement withdrawals will be based on both the kind of assets you have and the lifestyle you plan on living,
3. Don’t base your retirement on the future sale price of your ventures,
4. Accurately measure your net worth to help determine what’s needed to accomplish your retirement goals,
5. Don’t commit to expenses before including them in your strategy.
Many leaders and founders spend more time managing the success of their business than their own finances. The fact of the matter is you’ve worked hard to achieve the success you’ve earned, so you owe it to yourself to manage it well.