When your expenses pass your income, the source gives a sequence of actions with a binding order, and the costliest mistake belongs to whoever starts at the end of it.
The sequence has an order
The sequence has four steps, and you cannot skip any of them. It reads from the top down, and the booklet asks you to look closely at the last step. The reserve comes only after the debts of the past are cleared, and never alongside them.
The reason is simple. As long as a debt is overdue, every dollar set aside is a dollar that a supplier is waiting for.
Suppose a designer tries to build a reserve while she is late with her suppliers. Each time a supplier pushes, the reserve is eaten. She started at the last step, and the debt she had not closed took the money back.
Now suppose an installer starts at the first step and measures first. He discovers that his average income is higher than he thought, and the cut he needs to make comes out far smaller than the one he had planned.
Why thirty days
The first step requires you to call the situation by its name. According to the source, a business that has spent more than it made, with more bills than money to pay them, is in a danger condition in relation to the world around it. And that world generally runs on one simple rule: pay within thirty days, or there is trouble.
Thirty days is the time at which a supplier stops being patient. After it, a different price begins, and it is measured in your standing with the supplier more than in money.
Suppose a garage owner pushes a payment to a parts supplier out to sixty days. The next time, he gets parts only against payment up front, and one job sits in his garage for a week.
Compare a studio owner who warns a supplier in advance that a payment will be two weeks late, and names a date. The next time, she gets the same credit from the same supplier.
Credit is built on reliability
The source describes a method of payment that has a name: paying by dateline. All the bills up to a certain date are paid, every time, and then the date moves forward. The order decides whom you pay. How loudly someone phones does not change it, and neither does the size of the bill.
To a supplier this looks like order, and that order is what builds credit.
The reason matters more than it seems. In the source's words, credit “has everything to do with confidence and reliability”.
The source goes on to say that you can hold a lot of money and have terrible credit, and you can hold little money and have excellent credit. So a person who says their credit is bad because their income has been poor is, according to the source, saying something untrue.
Suppose an IT consultant always pays whichever supplier phones her. Three other suppliers stop giving her terms, and they were the cheap ones.
Now suppose an installer announces that he pays everything by the 10th of the month, and holds to it. In his second year he gets better credit terms.
The less you have, the more planning you need
One sentence in this chapter is the only one that speaks of an individual and not just an organisation. According to it, the smaller the income, the more carefully and wisely the financial planning must be done.
Most people feel the opposite. To them financial planning sounds like something for people who have plenty of money to manage. The source says that the less there is, the more is required.
Suppose a freelancer starts to plan only after he reaches $25,000 a month. The hard years before that were exactly the years in which planning would have counted.
The source adds a distinction that removes needless shame. When spending is restrained, a wave of feeling broke sometimes goes round a business, and that hurts its credit because it is not true. The source says that restraint signals growing prosperity and tells you nothing about being broke.
Suppose a physiotherapy clinic owner tells a client that she is barely holding on. He goes to a competitor, and price was not the reason.
The booklet gives this chapter two short exercises, a calculation and a decision, and the four steps themselves are there, with the numbers for each. In the practice section at the end you will also find one called the dateline.
Planning does not replace making the money, here or anywhere else in the booklet. According to the source, planning is the second step, which is deciding what to do with money that has already been made, and it can never fix a failure to make it.
When there is not enough, the source starts with order, and with your reliability toward the people you owe.
The booklet is general knowledge, not financial advice for your business.