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Financial Safety Net

May 17, 2025

I'm late!

Sorry for the delay in getting this out. I normally schedule the email on Friday to go out on Saturday at 3 am. I forgot to do that and this morning we woke up to a neighborhood internet outage. Twelve hours later my wife says "Why didn't you use a hot spot on your phone"? Good question. No good answer. So here I am on a hot spot. Thanks to all our (hopefully patient and forgiving) subscribers. I hope you enjoy this issue!

If you own a small business you should have a financial safety net. In fact, everyone, whether you own a business or not should have a financial safety net. What is that? A financial safety net is another source of income that can keep your business going if something happens to lower or stop your income. It can help you get through the lean months that all businesses have. It can save you a lot of stress and worry in bad times.

Hurricanes Happen

Most people are taught to have a savings account. “Put something back for a rainy day.” I’m not talking about a rainy day. I’m talking about a hurricane. What if something happens that takes away 50% of your business’s income. Could you survive it? Savings accounts disappear really fast when you start using them to pay expenses for a few months. You need a recurring income source.

Think there’s no way you could lose 50% of your company’s income? How many of your customers account for more than 15 to 20% of your revenue? What if they dropped you?

A few years ago I built an industrial property and leased it to a trucking company. At the time they were fairly large. They provided trucking services in the oilfields. They had multiple locations but my property in west Texas was their largest operation. They were operating about 200 trucks from that property.

Timely Exit

Fortunately I had a firm exit strategy in place and I sold that property as planned and on schedule. After the sale they expanded and added a large building next door. About a year after that the unthinkable happened. They lost their largest customer. That customer accounted for more than 50% of their revenue. They had no safety net. They had to rely on getting more business to replace their lost customer. That never happened. Not long after that I started hearing rumors about them not paying their bills and getting behind. Sadly, bankruptcy followed.

If they had a financial safety net they might have survived. A financial safety net could be anything that generates a profit. Real estate is the best example I can think of.

If you have a business one of the best things you can do for it, in my opinion, is to buy a building that you can occupy. Buy one that is bigger than what you need for your business and lease out the excess space to other businesses. Their rent can pay for the property and you will never get evicted for not paying the rent because you are the landlord.

An Accidental Safety Net

I have a client that accidentally became a real estate investor. He bought a warehouse for his business to store equipment. I talked him into letting me get a tenant for the building. When I got him $7,500 a month in rent he was hooked. Now he makes more from his real estate investments than from his main business. And he has no worries at all if business drops off. He has his safety net. A BIG safety net!

There are other safety nets that will work for your business. Not everyone is cut out to be a real estate investor. Although there is nothing difficult about it. The point is not so much what your safety net is, as it is that you have one that works.

Once you have your safety net in place it can relieve a lot of stress and financial worry. Decisions in your business will come easier and with more confidence knowing that you have a cushion to keep you safe.

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That's it for this time. See you next week!

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