Get Wealthy: Know Your Numbers
So we're talking about something that I know is near endear to most small businesses hearts. And that's money, right? Because, let's face it, we are in business to make money, whatever your definition success is. That definition doesn't have to be on Lee about money, but it needs to include money. And I have found my experience. The last 30 years with small business owners were not really good at keeping track of our money. And we lose a lot without that information to be able to grow our business. I love this quote. It says, Let me go back to this. It says, As a business owner, I'd like to sleep like a baby. I go to bed early, and at midnight I wake up screaming my head off, right, So that's we dream about these things. It's our life and a lot of people, Unfortunately, our love are really hurt by keeping thinking about the finances of their business. A lot of folks saying that'd be really great. I'd love to be in this business if I don't have to make any money. Well, success includes ...
making money and there's a lot of symptoms. If you're stuck in this area. The 1st 1 is you're always worrying about cash flow. Are you gonna have enough money in your bank account to pay all your bills? And most importantly, are you have enough to pay your freelancers or you're gonna have enough really to pay your employees. The other place you're stuck is that you don't review your financial statements on a monthly basis. Not only don't you review them, but when I say the words financial statements, you're not even sure what those darn things are. And you're also afraid when you finally sit down with your accountant, which many times is only once a year, that you'll get some kind of surprise or you're afraid to ask your accountant what is all this stuff means now, how did we get here? We got here because our expenses exceed our income, Right? We have more going out than we have coming in. Perhaps our prices really are too low or we offer too many discounts. I find that a lot of small business owners they don't really ask enough for the service or product that they offer. And so I'm gonna do a little survey here. I want to find out, like for you. Karen. What is the price for Yogi Stream? What is the price that you offer? And then what is the value that you actually give? And I want to see if those things things are really imbalance. Well looking. There's multiple options for Yogi Stream as faras when it becomes the subscription service, you can get it for a 24 hour period, a seven day period or an unlimited monthly. Be unlimited money monthly will end up being $15.15 dollars. All right? And so for $15 you really get a whole month unlimited of yoga on your site. You get even. You get the month of the live streaming, but then you have all the archived videos as well. So there is a lot of value anywhere from a five minute office yoga up to a 60 minute, for that's wrong. And by popular math, that's what, $90 a year, my figure. Is it close to $90 here? A little bit more than that? More than that. Okay, I got the bathroom. We have been a math class here in a while, but so why isn't it $19 a month, or $24 a month or $29 a month. Because certainly, if I could do yoga every single day and look at the archives, that's worth more than a dollar a day. It is worth more than dollar a day, but staying competitive with other people who do similar things, matching what they do. So what I want you to think about is we can't really focus on Price. We gotta focus on value, and if we're not able to make any money, we've got to really raise. Our prices are lower costs and we'll talk about that. So many small businesses have too much overhead, right? The things that we just collect that actually run our business will talk specifically about that. Sometimes perhaps we pay our bills early, right with him earlier than terms or we don't go out there. And actually, I know this is hard. We don't go out there and ask people for the money they actually owe us for service or product we provide. And why don't has anybody ever done that? We've kind of been a little bit scared. Why don't why don't we do that? Carol, why don't we do that? I that was something in a previous business, I I had a substantial A our accounts receivable, right? Money that people, right? And, ah, lot of us don't go out and collect that money because for somehow, we don't ask people for money, even though we deserve it. I'll give you a strategy that will do this or somewhere. Somehow. We've outsourced all the financial knowledge, our business, and we understand ourselves. Now, the reason that I talk about this I actually lost I'm not proud of this. 1999. I lost a $1,000,000 when I sold my last company because I didn't understand had to read my balance sheet. I didn't realize that some of things that were negative on there should have been positive. And some of the positive should have been negative. And this was especially difficult because, as I said, I had an M b A from Northwest University. So I really should have known better. So ever since then, I started hanging on. Ah, sign in my office. I'll take you back to 1992. Who was running for president? 1992. Bill Clinton and Bill Clinton had a campaign manager named, uh, Mr Carville, right, and what he talked about was he had a sign in the Arkansas office. Their campaign headquarters and the Sinus simply read. Somebody remember, It's the economy, stupid. And why did he have that sign his office? Because he want to make sure that everything we did everything the campaign was about was focused on the single number one issue, which was the economy. So after that, and after losing a $1,000,000 in the sale of my business, I always had a sign hanging each one of my officers that says its cash flow stupid because having enough cash flow is really what the business was about. As I said before, this is really hard, even if you have an M B A from Kellogg, which is a wonderful university, By the way, it was me that didn't do the learning. Now I always say cash is king and every other face card in the deck. So let's first talk about what is the difference between cash flow and sales, and we know the difference between cash flow and sales because they're very, very different kinds of animals. in your business. So, Miyoko, do you know me? Sales is your price. Maybe it's during times to Conte. Um, cash is what you left minus T um, or the overhead expenses over. That's a good start. So remember, sales or revenue is the items you sell, the products or services. It's what you bring up on the cash register when you go deliver the product. Cash is not initially the same thing. If I take MasterCard or Visa or a collect money exactly when I sell the product, they may be similar. But many of us provides services in. Sometime later, we actually get paid. That's why cash and sales are not really the same. Now, let me pick you to pick the words cash or sales. If I'm going to go pay one of my employees, can I pay them with sales or can't pay them with cash? Yeah, you can't pay them with sales, right? Unless you collect the money. You can't do this. You never gonna go to your your freelancer or uh or the person you have to pay rent to And you're not going to say, Oh, you know me Cash for this month would you take this receivable? Right? It doesn't really quite work. That's why what I talk about his cash is really more important than profits. Cash is the amount of money that I have left at the end of the month, and we discuss about what is what contributes the cash and what subtracts from cash. One of my favorite quotes of all time is that sales is vanity. Cash flow is sandy. This is always always talked. Like why did $100,000 this year I did find 1000 and a $1,000,000. I don't care what your revenue is. What I want to know is how much cash did you get to keep in your pocket? Because they only cash. It doesn't really matter what your revenues are. So there's a lot of ways that you actually increase your cash flow. I remember I actually have a security system installed in my house. So you all know I'm from Chicago Now, if you're gonna come look me up, there is a security system that gets checked every still night. If there's some part of the course you don't like. So I used to pay every single month, $30 each month for the security service and these the building once a month. And I used to pay it within 30 days. A couple years back, I got a letter from them that said, for my convenience, there were now bill me on a quarterly basis, 1/4 in advance. So why did the company decide to do that? Increase their cash flow. Right? Because if they get the money in advance right, they're gonna have it sooner, and they can keep it sooner instead of getting in every single every single month. Right? So that really wasn't for their convenience. It really was cash flow. So let me give you another example of how this works Is that if you have a business that has inventory or forget about in the toilets have receivables. Let's say you sell $1000 a month of whatever it is, and on average, it takes you that people 30 days to collect that $1000. All right, then. So this is sales. And this, then, is cash. What if I could collect this $1000 in 15 days instead of 30 days with my cash flow, go up or down, It would go up right, because I'm getting the cash sooner. So that's one of the concept. We're gonna talk about it. I don't get more cash into my business when I really need it. First thing you have to do before you understand any of the financial statements is you have to really understand how does your business make money? And we discussed this a little bit yesterday. Is it based on number of customers Isn't based on number of your margins. So I want to go to east of our participants in the audience and talk about how their business actually makes money. So, Shannon, let's talk with your business. How do you actually make money anyways? We sell products, so we have inventory of sales. We provide services. So we have lessons that teachers provide students. Okay. Um, are you gonna write back? Yeah, right down. Because because I think you're mentioning many ways you actually make ways they didn't. So you have products, right? Products, Okay. And then you have you sell lessons, right? Yes. And one other way. Um, we also do rentals rentals. Okay. And we also have a recording studio. You have a recording studio. Okay. All right. So these of these different things, right? So if sales costs and then profit, right, So this is this is a great example. So for products we have to pay for that product, right? So we collect dollars. But then there's some kind of cost of goods, right? That each gets to our net profit. Correct. So we have to pay someone else for that product. And we do redistributed. Yes. And so the idea is that we sell it for more than we buy for, right? So maybe we buy it for we buy for 50 cents and we sell for a dollar or something like that, right? And so for our lessons, how does that work? Um, we charge per month for lessons, right? And then the cost is basically paying. The teachers cannot cost the service or cost the dentures, and then we have some kind of net profit right on DSO. Perhaps I charge $50 an hour for the lesson. And maybe I should I pay $25 an hour to teach or something like that. All right, what about rentals? So rentals is sort of a different animal because it's something that we paid for probably a while ago. But we're continuing to rent it out. It's continuing to bring in revenue, even though it's not costing us anything, right? So that's a little as you said, that's different. Maybe I pay $500 for an instrument one time, but then what I'm doing is I'm renting it out at $25 a month or something like that, and over a period of time, the stream of payments is going to give me a profit for what I paid for it, right, these air, many different ways to make money. And what about the recording studio, similar to lessons we charge for the an hourly rate? And then we have to pay the engineer right? So this is a great example. You really have to understand how your company makes business because makes sales because sometimes you have to buy a product and resell it. Sometimes you are hiring someone, your reselling their service. Sometimes you're making an investment up front for a piece of equipment and then you're charging on monthly basis. Hope that stream of payments is going team or, you know, let's talk about how you make money. So I have advertisers sponsors. Let's do that now, because again, it's a different kind of thing. Yeah, very different. And this is good for everybody Who's really listening out there on the Internet is that you have to really understand how you actually make money, right and where your leverage points are. So you have advertisers. Okay, sponsors, answers. Okay, features. I'm sorry. Feature features, which are what features are people kind of their kind of people who want to be on the show is finally organically came on the show, like like an infomercial, but a little more organic. Um, and then I also teach courses, okay. And then I also to coaching. So this is this is really great, because these air different ways, we're doing it. So for what happened use I'm sure for the show is that you have advertised that give you money sponsored, give you money and featured give you money, and you hope together, whatever your cost to do the show, then you have some net profit left over. Right? Right. So if you collect $5 from all the sponsors, you're hoping that it only cost you $2. So you have a $3 profit? Of course, we're dealing when simple numbers, Right? Yeah, I know these, actually, if u zero e and I know for these, you were actually talking about millions of dollars, but I don't want embarrass anybody that's really out there, right? And then when you're punching right, there's some kind of you charge them some kind of money. And again, there's a cost of your time and this is one. The biggest mistakes that a lot of solo printers make is they don't really build out in their mind. There is a cost to your time. It's not free and the same thing with coaching. They give you some dollars and some kind of cost of your time. All right, this excellent. Let's talk about Yogi Stream because these are all the different ways and you'll notice there's many different ways you can make money. You just need to know up front how you're actually to make money and where the leverage points really are. So let me erase this. All right, Karen for Yogi Stream advertisers, sponsors and subscriptions. Okay, so let's do some time. Advertisers, sponsors, subscriptions okay, Corporate wellness would fit into the subscription, has his individuals and also corporation, right? Yes. And then there will be an e commerce portion to Okay, so there's product, right? And then long term. That will be the ability to dio Skype individual yoga sessions. There's some kind of coaching, so coaching. Okay, so again we've seen this. It's It's a similar kind of thing we have. We have some money that comes in. We hope that the cost of the site is less, and over here we make some net profit right for for subscription. This is a very important sauce of revenue because of something we talked about before is lifetime value right? And remember for for Yogi Stream, these are There's no additional costs for adding additional subscriber, so our cost of sales for each additional subscriber is basically zero. That's why this could be very profitable for you. If you go to e commerce, it's like selling products. You come and bring in dollars. There's some kind of cost of goods, and then there's some type A net profit right and coaching. There's dollars. There's some kind of cost of service for that particular coach And then there's a net profit, All right? Excellent. They're all different ways. So, as you're listening out there at home, start mapping out for your company how you actually make money. Is it based on products? Is it based on service? Is it based on time? Is it based on some kind of intellectual property that you create? Once you make some kind investment, then you get a stream of payments. So, Miyoko, you've got a little bit different business. I don't want you share any trade secrets here. Okay? About how, actually, financial advisors make money. But how is this based on? So for formal reinsure, any final short of ISA practice each otherwise or sets own price for our team, it's comes into way. First ways managed fee, right? Um and that is basically the assets we manage in that percentage that's get charged to that and build quarry. Um, and we also have transactional our team. We agree that we will do most of businesses and managed fee because if our clients accounts do well, then we get paid bore. If they don't do well, then we get Payless. So it's put us on Same incentive them. But we do transactional when we sell something like bond, whereas the interest rate is so low right now, that doesn't make sense for us. The charge. A percentage on order Italy. So the way that miracle makes money is that she charged the percent of the amount of money that she manages on a quarterly basis, as well as if certain transactions are done, she gets a percentage of that, and then all this money comes in. She's got all her costing her overhead. I I, um the mountains take part of that. You have to pay your staff and things like that and obviously have to pay yourself. So again, there's many different ways to make money. There's no one that's right or wrong. Understand how you make the money and where the leverage is. Many of youse talked about the different ways that you make money, and I ask you right now what is the most profitable parts, right. So, Shana, for your business, what's the most profitable part of business rentals? Rentals. Okay, because you're making one investment, and I can now rent it out so much a month, and I make a lot more you know, what about for your business? What's the most profitable at the moment? It's teaching because I'm still in the process of of building out my my my business. Excellent. Karen. Yogi Streams would be subscription subscriptions, of course. And I assume we just got time, Yoko, I assume it's really the asset management. Yeah, it's not necessarily the most profitable, but that's the light thing. Todo long term value. So again, think about how you make money won. The issues that we have is that there's a lot of growing businesses right that actually suffer from not having enough cash growth actually does suck cash at your business. Now, this is very, very difficult to think about because it's counter intuitive. So I'm gonna have a little test here, right? And I want to do is I want you to raise your hands. You want to put thumb up or thumb down? Okay. If if if this activity makes cash flow go up or cash flow go down. All right. I'm not saying majority is gonna rule here, but we'll see what happens. All right? Only race this, So when accounts receivable goes up, that means that mawr people. Oh, your company money. We're not looking Miyoko here. Right? Money? Is that Is that an increasing What? When accounts receivable goes up, right. I'm gonna draw this out because very counterintuitive. When accounts receivable goes up, is that an increase or decrease in cash? All right. I would think it would go this way. Okay, so we have three out of four say that it's actually go actually makes cash flow go down. Right? And so, milk A what is cash will go down when receivables goes up. Because you're waiting to collect money, right? Because mawr more people owe you money. That means they're not paying right now. They're paying it later. So that means that your cash flow eats at your cash flow and your cash flow goes down. This is very difficult to understand that it took me a long time to do that. But if you collect your money later, does that mean you'll have more cash now or more cash later? You'll have more later, Right? Okay, So the next one is payables, so this is a decrease. So if pam bols goes up, is that an increase or decrease in cash? If payables goes up. Is that increase or decrease in cash? Yoko haven't voted yet. I don't think it's affected immediate cash if I'm paying my bills later. Is that an increase or decrease in cash? My payables goes up, which means I owe more money later. Right? This is the change, right? This is say, this is the change, right? This is a change. The number of its own being bigger, small doesn't matter. It's the change. If my payables goes up, is that an increasing cash or decrease in cash right now? Increasing cash. Right. So if I if I walk into Shane is store and I pay her right now for the instrument, I'm gonna buy right or I She sends me a bill for 30 days from now if I should send me over 30 days from now. That's my payable, right? And therefore, I get to keep my cash, and I pay it later, but it's not good for her cause or cash goes. That doesn't go increase today increases later. All right, All right. The next one, inventory. Now, I think that Shane is the only one here that carries inventory. Is that correct? Karen carrier example. Commerce. Right. So if inventory goes up, if we have mawr inventory, is that a use of cash or a source of cash? This cash go up or his cash go down? Depends on when the payables dio. No, because it's goes down because the mawr inventory you have, the less cash you have, right? So and we're talking about mature a bit a little bit later because inventory can really suck your cash flow because remember, when something is an inventory, they've taken that money and you don't get that money back until you sell that inventory. So that's why we're gonna talk about how important is as far as how often inventory turns and what the Realtor points and things like that are so that if you didn't pay fee inventory cause it was unlike 90 Day Thames, then doesn't that make it perhaps happy thing? Perhaps if you if you can sell it before you have to pay for it, can be a good thing. What I'm talking about is that many people have inventory. They a lot of times keep inventory longer than days. You have to sell fort, So if you could work out the magic like Sally's talking about. Then you've really got it going on, right? Sal? You already. You already fall through all the stuff. It's, uh it's fantastic. So now if mawr working capital gets put into the business, if I get a loan, if I get a loan from the bank, is that an increase of cash or a decrease in cash? This'll wasn't one of the choices. Okay, all right, so it's an increase, right? It's an increase in cash, so these concepts are very difficult to understand. But it's very important because the thing that you really need to do is have a manager cash flow, not your revenue, right, as we discussed before. This will go to finding where the leverages in your business and certain leverage points will produce more cash. The ones with the higher margin is less cash