The Two Magic Numbers
if you don't have an understanding or grasp on your cash flow, it can be pretty detrimental to be honest. Um, It's just like your personal finances, right? When you think about your personal finances and the money that it takes for you to live, maybe just yourself or even your family, you always have to know what is coming in and what is going out. It's very hard for you to make any financial decision in your personal or business life if you don't even know how much money is coming in. So one of the things I always say, I always call it with your personal finances or your business finances. It's called you're too, I call your two magic numbers, right? How much you have coming in and how much you have going out, How much you have going out is how much does it cost to run you right in your personal life? Or how much does it cost to run your business every single month? If you don't know these numbers, it makes it nearly impossible to make business decisions. It also makes it nearly impos...
sible for you to even understand if your business is doing great or not. For a lot of entrepreneurs, I noticed during the pandemic that with the drying up of cash flow or the drying up of income was really the first time that they took that they actually took time to look at their cash flow and seeing, wow has my business business been profitable at all? Because if one week or one month or one single circumstance took your entire business out, that probably means that you were operating in a negative cash flow anyway, right. The negative cash flow is literally when it costs your business more money to run, then what you're bringing in through sales. So example, If your business makes $5,000 a month, but it costs your business $7500 a month. You are operating at a net loss of $2500 a month, meaning it cost you $ a month on top of what you're making just to run your business. So for a lot of entrepreneurs, as I mentioned during the pandemic, this was the first time they look to their finances. They realize that yes they've been running their business but at a deficit. Right? So that's why it's extremely important to have a very clear understanding of the cash flow of your business and what's coming in and what's going out for a lot of business owners. Um Pre pandemic. Or let's say before making their business more digital, they were only looking at this around tax time right? When it came time to file their taxes, they're talking to their C. P. A. They're saying well how much did we make? Right. And that is not the time to start looking back at your finances. The time to start looking at your finances and understanding if this cash flow is is good if it's positive or negative um is on a monthly basis. Because that way you can make any potential changes the following month, right? You can make any potential changes the following month so that you're not in the same situation again.