In order for 6- and 7-figure revenue entrepreneurs get to the next level in their businesses, there is just no escaping the need to understand cash flow.
Specifically, you need to know:
- How much cash you need to run your business
- Where it’s coming from, and
- When it’s arriving.
Whether the company I’m working with is just starting out or is already at half a billion dollars in revenue, one consistent key to success is knowing how to use this information to get cash when it’s needed.
The great thing is that, whether the company is big or small, the tools to accomplish this cash-mining are identical! It’s only the magnitude that is different.
Let’s take a very specific example. One of the things many on-line entrepreneurs do is high ticket coaching, where services are upwards of $5-$10 thousand per client. So, let’s discuss a great example of how to make cash materialize for one of these coaches, even if it didn’t seem to be there before:
Let’s say that a coach has a $5,000 course offering for a 3-month course/coaching program. New clients have the option of paying the $5,000 in full or taking a 3-month payment plan paying $2,000/month for the duration of the course.
Let’s also imagine that this particular coach is having a short-term cash flow problem. Maybe she’s decided to hire a second coach, or it is time to buy a new computer, or put some money into more aggressive marketing.
At the same time, say she has 5 clients who still owe here $10,000 on their payment plans. Now, she definitely doesn’t want to alarm her clients by just saying, “Hey, I’ll give you a deal if you pay me early,” – although that IS an option not to be overlooked.
There is actually another option – and let me be clear here – this is NOT FACTORING YOUR RECIEVABLES FOR EXHORBITANT INTEREST RATES. No – for small businesses, you can actually go to a normal (not knee-crushing) bank and get a very reasonable loan based on the typical amount that your customers own you at any given point in time.
I’m going to reiterate here: I am not talking about a “paycheck loan” with the interest rate at 50% and the threat of bodily harm. I am talking about real, credible, institutional lending sources that lend this sort of money at reasonable rates if you have some basic financial reports and a history of collecting on what people owe you.
There are three things they will look for:
- That your business has had a steady income stream; and
- That there is money coming to you that you have proven in the past that you can collect.
- That you have the financial reportss to show your revenue history and collection success (usually at least 6 months of that history)
This sounds more complicated that it is. All they will really require here is a 6-month snapshot of your Profit and Loss Statement and Balance Sheet (you can print that right out of QuickBooks, or Excel, or Xero, or whatever tool you use) that history (print your QuickBooks out for the previous 6 months); and then a list of the customers who owe you money, how much they owe you, and when it’s due.
The reason they do this is that they have some reasonable assurance that you have cash flow that will cover the loan based on that set of reports.
Then, for you – as you collect the money from your clients you can pay the loan back. There usually are not penalties for early repayment on this sort of loan.
Yes, you will pay interest for the use of their money, but you’re getting cash in your pocket earlier which is what counts in a cash crunch.
I am not saying everyone needs to go out and do this, but it is a secret hiding place where there might be some cash you haven’t thought about before. Happy Cash-Hunting!