Let’s talk about 2015, the year when I scaled from zero to 1.5 million dollars.
Now, as awesome as it sounds. .
It almost destroyed me because of the fact that I didn’t have the proper cash flow management habits.
Truth is, 99% of all businesses fail.
And if you do not master cash flow management, it doesn’t matter how much money you make.
YOU WILL END UP FAILING.
With that being said, let’s talk about that in this video!
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Let’s talk about the elephant in the room..
And that’s this thing called, profit.
You go around and you see all these people online talking about their numbers and revenues.
And you’re like. .
‘Oh man, I wish I could get a revenue like that.’
I’m telling this right now, as your business grows and you go from six to seven figures and so on, your business will get more and more complicated.
And what necessarily could be an eight figure business might actually have less profit than a six or seven figure business if you don’t exactly understand how to properly manage your cash flow.
When I first scaled my business from zero to 1.5 million dollars, I thought it was awesome.
But on paper, it was a nightmare!
I ended up hiring faster than I should have.
I ended up spending more of the income on things that weren’t necessarily needed.
And what was initially designed to create freedom for myself ended up turning into this giant headache.
Where I had to worry about payroll, where I had to worry about making sure I paid the bills, and making sure that all this is not only maintained but scaled.
It was literally just a giant nightmare!
Had I learned how to properly manage my cash flow better..
I would have definitely scaled a lot faster, a lot better and with a lot less headache.
And that is the reason why we need to talk about that today!
Like I said, above 99% of businesses end up failing because they do not understand how to manage their cash flow.
How much of the money should be spent into operations, and how much money should come out as your own profit.
THOSE WERE MY BIGGEST PROBLEMS.
To make it clear and simple, we’ll sum up the six steps that you guys can do to actually make sure. .
That you not only increase your cash flow and increase your profitability but also allow yourself to create the business that was initially designed to create your freedom!
Step #1 HAVE A “PROFIT-FIRST” MENTALITY
I understand if you think and say like, ‘Oh Mike, but I have to take all the money and throw it back into my business.’
But here’s the thing with business..
IT WAS INITIALLY DESIGNED TO CREATE US FREEDOM.
A lot of you guys wanted to get into business not to be a slave of your business and not to have another job.
But to detach yourself from the business so you can actually start living your life
How come startups in Silicon Valley end up failing?
It’s because they run out of their cash flow.
They run out of money to actually throw back into their business.
Maybe their payroll is too high, their operational expense is too high, and they don’t actually figure out and focus on the number one thing that actually matters in business.
And it’s not your revenue.
It’s not how big your team is. It’s your profit.
At the end of the day, ask yourself how much money you’re actually keeping.
Is your business bank account actually going up, or is it going down?
That is the number one important thing.
What’s going to change and shift everything else in your business is understanding that you need to have a profit-first mentality.
Don’t worry about how much money you need to spend on advertising.
Don’t worry about paying your team first.
Don’t even worry about paying yourself.
At the end of day, YOUR BUSINESS IS ITS OWN ENTITY.
And the profit that it creates is its own thing.
At the end of day..
This profit generator (your business) is going to be like your future bank account or your cash reservoir.
That’s the platform that’s gonna initially create that nest egg that’s soon gonna allow you to retire and live the life that you want. .
It’s gonna be smart and systematic so you don’t actually have to worry about saving until you’re 65 to actually retire!
Step #2 CREATE 5 DIFFERENT BUSINESS CHECKING ACCOUNTS
To sum it up, label them as follows:
- OWNERS COMP
Let me actually describe what each one of these means and what this actually is going to look like in your business.
Income, is ALL OF THE INCOME that’s coming in.
In your income bucket, you have for example, YouTube money, affiliate money, consulting money, and informational products.
That’s every single one of the cash flows that is coming in to your business.
Even if you’re a coach, consultant or a service provider,
It’s the exact same thing.
It could be cash flow from Adsense, it could be from informational products, from speaking engagements, or it can be from selling books..
All that goes into your income.
Profit is what you actually take from the income.
This is what you keep at the end of the day after you spend all of the money on operational costs, on all the physical things that you need to spend, on all of the overhead costs that you have to spend on a monthly basis.
This is what’s leftover.
But instead of thinking about profit last, we’re gonna start thinking about it first.
Owners Comp is basically what you use to compensate yourself as an owner.
Or if you have any co-founders or like business partners, this is what you guys pay yourself out from your income bucket or checking account.
I can’t tell you how painful it is!
And if you’ve never dealt with this, I’m telling you this right now..
This is gonna save you a lot of heartache!
If you think that all the money in your bank account is yours, IT’S ACTUALLY NOT.
There’s a lot that you have to actually give to the government in form of tax.
And depending on what state you’re in, you have to give a lot more.
If you don’t understand this ahead of time, you’re gonna start spending on a lot of things.
This is what Robert Kiyosaki talks about in lifestyle inflation..
“When your income starts going up and your business account starts going up, you think that it’s your money but it’s not. It’s your business’s money.”
Here’s the problem with most people, they start spending money on so many different things and that at the end of day in their business bank account, they’re left with nothing.
And then oh, Uncle Sam gives you the bill on how much you’re actually over taxes!
It’s $10,000 to $40,000 money that you no longer have because you thought that your business was your own money that you actually ended up throwing away on dumb stuff!
So having a tax checking account and getting ready for that is a really important thing.
OPEX is operational expenses.
Operational expenses are what you spend on advertising.
For example, if you follow me for awhile, you know that we kill it with advertising.
In the past blogs and videos, I’ve talked about exactly how we attract clients every single day into our business.
Like I’ve allotted a portion for the team’s payroll or for the software that we use.
All of that is paid off by the operational expenses.
What you need to do when you first begin with anything, after you have a profit-first mentality, is you need to GO TO YOUR BANK (like right now after reading this) and you need to go and CREATE FIVE DIFFERENT CHECKING ACCOUNTS!
It’s very easy to set up and this will be the biggest thing ever.
Step #3 DETERMINE YOUR CURRENT ALLOCATION PERCENTAGE (CAP)
What that is, is basically every single time the money comes in, either from YouTube, adsense, book sales, course sales, consulting, from informational products or from affiliate marketing..
All of that goes into your Income bucket.
Now the question is..
What percentage are you gonna put to all the other buckets (Profit, Owners Comp, Tax and OPEX)?
Remember, we’re not paying the team from the income.
We’re not paying the operational costs from the income.
We’re not giving ourselves profit from the income.
We’re not doing any of those other buckets from the income.
The sole reason for the income bucket is to collect money and then later on, you disperse it into each one of those different buckets/accounts which then for example . .
Once you pay on OPEX, that’s how you know as to how much you could actually spend on advertising.
If you have 10 grand in the bank account, you don’t spend all 10 grand on advertising.
Or else, you’re gonna ruin yourself, and you’re not gonna have the profit you need!
You’re not gonna be able to compensate yourself, and you’re not gonna be able to pay the tax. YOU NEED TO MAKE SURE THAT YOU SET ALL OF THESE UP!
HOW TO BEGIN
So how you ought to do it when you’re starting is to START OFF SMALL.
If it’s as little as 1%, start off with 1%.
As long as you start understanding that you have this profit-first mentality and you’re certainly creating this nest egg for your financial freedom. .
That’s gonna start giving yourself the less heartache, struggles, and headache to actually remove yourself from the business and create the life that you want!
If you’re just beginning right now..
I want you to start forcing yourself to create current allocation percentages that’s going to be beneficial for you.
So for example. .
When you begin, you can start off with profit at 8%, owners compensation at 20%, tax at 5%, and then OPEX at 67%.
Take note that when you’re beginning, your operational expenses are a lot higher because you don’t really know how to squeeze all of the profit in your business and make it as lean as possible, to turn it into that money-making machine that you desire.
To get a clear picture of how I exactly do this, make sure to check my YouTube video right here.
That’s what I want you to set up right now, your current allocation percentages (CAP).
Just know that every single time you make money, you move it into the buckets.
But remember, the most important bucket is making sure you give yourself profit first instead of paying all of the bills.
I remember, there was a guy who was making $100K/month and he was only profiting $1K.
What’s the point in making $100K/month when you’re only profiting $1000?
I’d rather have a $10K/month business that profits $5K instead of that.
Which is why you gotta start asking yourself what type of business you want to actually create!
Step #4 DETERMINE YOUR TARGET ALLOCATION PERCENTAGE(TAP)
I want you to beat the numbers.
Start trying to move your current allocation percentage (CAP) up. That will be your target allocation percentage (TAP).
So when you have $10,000 to come in, maybe instead of putting $800 in your profit, perhaps you should put $1,500 in your profit.
And you want to start moving your way up there so that the business starts turning into a money-making machine.
Step #5 MOVE RESPECTIVE AMOUNTS INTO EACH ACCOUNT TWICE A MONTH
Every 10th and 25th of the month, you technically do your accounting to see how much money you made and how much money you could actually spend on advertising.
So you don’t just spend it all like for example for me, when we didn’t have this set up. .
I just thought every single income that is in the giant bank accounts, I thought that I should spend that on advertising.
But then guess what?
I had to worry about payroll, about paying the expenses and I had to worry about all these things that were almost like I was blinded to because I didn’t have the different buckets.
And then when the tax came, I just realized how unprepared I was.
But if you have already had this setup, you’ll surely be ready for it!
So every 10th and every 25th of the month, whatever is in your income bucket, move it to allocated percentages with the current allocation percentage (CAP) and try getting your way to the higher percentage of your target allocation percentage (TAP).
What’s important then is, you gotta be strict with this approach and you want to cut out unnecessary expenses.
If you can’t find a way for example, to pay your team with the 67%, guess what?
Your team might be too much!
You actually have to let some go.
You have to be very strict with this.
You have to cut unnecessary expenses.
And when you have a profit first mentality, it’s gonna allow you to increase your profit margins.
STEP 6 FIND WAYS TO INCREASE YOUR INCOME
At the end of the day, what makes this easier is if you could find bigger flows of income to come in.
Like for example, if you follow anyone who trains, if you’re a coach, consultant or service provider, we teach you how to command premium prices of 5 to 20 grand per sale that would go into your income bucket.
If you need help with that, you could schedule a strategy session with us if you’re a coach, consultant, or service provider that is actually serious in hitting your income goals, that has a skill that could solve a life or business problem, and that truly cares about serving their clients!
Hopefully you get a lot of learning from this.
My name is Mike Vestil.
If you want any of the FREE resources, check them out below.
And if you’re an existing business owner, make your scheduled call with our team on how we can better serve you.
I’ll see you on my next blog!
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