mainly produces signature corporate logos on hats, T-shirts, canvas bags, and the like, generates annual sales revenues of approximately $240,000. The James family realizes future growth depends upon two things: access to investment capital and human capital. There is only one part-time employee, and profits from the business are reinvested. “It is a legacy issue for me and my brothers to keep the business going, but there hadn’t been much interest on our parts to do the work until now,” says James.
Although James is in good financial shape, she may need to defer or delay some of her goals. “She has an excellent foundation for building wealth,” says Danny Freeman, financial adviser at Darda Wealth Management in Winston-Salem, North Carolina. However, “several of her goals are going to compete for her available funds.”
BLACK ENTERPRISE had Freeman review James’ investment portfolio and financial objectives.
His recommendations are as follows:
Invest in the family business. At some point James will have to decide if she wants to leave her corporate job to work full time in the family business. However, to support her current $70,000 salary, the family business would need to generate $600,000 to $857,000 beyond its current revenue stream (wage expenses usually run between 7%-10% of revenue for similar industry firms). Freeman says James and her brothers need to map out a strategy to help their father secure more clients and achieve realistic sales increases that could support new hires or salaries for family members wishing to join the business full time. The James family also needs to explore the long-term growth potential of the business as well as establishing an exit strategy: Meaning, will this become a generational entity or will they seek future sale to a larger company?
Pay off existing debt. James’ No. 1 priority should be to eliminate debt. Currently she is paying about $1,100 per month on three credit cards that have balances (she has eight altogether). If she doesn’t add to her debt, she should be able to pay off her credit cards within the next 12 to 15 months. In addition, Freeman advises James to begin to “superpay”â€”meaning, make the minimum payment on two of her three credit cards with the highest balances but apply her disposable income toward paying on the credit card with the smallest balance until it is paid off. Repeat this process on the remaining cards until all balances are paid. Since James is looking to buy a house in the near future, she shouldn’t look to close her accounts, since this could negatively impact her credit standing.
Increase savings. James has the disposable income available to save an additional $200 to $400 per month to contribute toward a down payment on a home. “The shorter the time horizon, the more conservative one’s investment strategy should be,” says Freeman. Therefore, any extra money that James saves should go into a money market fund.
Delay homeownership time frame. James should consider extending her target date of becoming a homeowner until 2007, because buying