The amount of cash you need is probably a lot more than you ever thought and there’s a good chance you don’t know what kind of profits you need so you have enough cash in your business and your life. That’s why we’re going to talk about the four areas of profit, what they are, and why you need them.
If I was to ask you if you’d like to have more profits in your business, I can almost guarantee your answer would be a resounding yes. The saddest thing I see most of the time is that even if you say yes there’s a good chance you don’t know what kind of profits you need so you have enough cash in your business and your life. But there is, one thing I can guarantee.
The amount of cash you need is probably a lot more than you ever thought and that’s the topic of this week’s video.
We’re going to talk about the four areas of profit, what they are and why you need them.
Hi! I’m Josh Patrick, founder of the sustainable business Cracking the Cash Flow Code and dozens of other programs. I’m also the author of Sustainable, a fable about creating a personally and economically sustainable business.
So let’s get started and buckle your seatbelt. We’re now going to take a deep dive into each of those four areas.
So first, let’s start with the money you need just to live on and not the money you need just to subsist. I call this lifestyle money. Now the truth is, almost every business owner knows they need to live on money. Actually all business owners do because…
…when you first started your business there’s a really good chance that you were using credit cards, home equity loans, you got loans from your family and friends or you took money out of savings.
You didn’t have a pot of money sitting around to start your business so you had to boot strap every single step of the way and because of that you’re most likely very frugal in how you live you live your personal life cuz you just never had a lot of money and you never want to go back to that place again.
But the truth is to have a great business that you love and really support you well it’s really about lifestyle a lot. Now people call small businesses, small service businesses like many folks watching this video have, a lifestyle business. Well, I kind of don’t like that term a whole lot, but you do need to have your business create enough excess cash so you can have the type of lifestyle that you’re happy to have not one that you just have, and I don’t want you to be sitting around wishing that you always have more money so you can upscale your lifestyle a little bit. So that’s number one.
Number two is, you know, you have to market your business to grow your business. And again, most especially small service businesses are small businesses period and first, you just go out and you knock on doors and you try to get some cash coming in. That’s step number one, but step number two is you actually have cash coming in, you have customers and you realize you need to market so you can get more customers.
So what do you do? You bootstrap it, you do most of the work yourself. Maybe you have a virtual assistant, you try to figure things out and you do it as inexpensively as you possibly can.
Now I get that, I understand that when you’re marketing your business you really don’t want to spend money on things that don’t get you a result. That makes a ton of sense to me, but at the same time if you’re not putting enough excess cash you’re going to be spending a lot of your time doing things that you’re not very good at and where you could easily outsource to hire other folks to do it for you. But to outsource and hire especially as you want better people working with you it’s going to cost you more and more money. So my question to you is are you putting enough excess cash in your business to properly market your business not just bootstrap it. So let’s look at number three.
Now number three is what I call the hills and valleys portion of your business and that’s so you’re gonna, you might have one customer that’s thirty, forty, fifty, sixty, I’ve even seen eighty percent, ninety percent out of one customer.
What happens if that one customer goes away?
Well if you don’t have a cash reserve put away there’s a good chance losing that one big customer could put your company at risk to exist period. I call that an emergency fund and the thing that I want you to do, I want you to put away at least six months but hopefully a year of operating expenses that you save for that rainy day. And the truth is if you haven’t had the rainy day appear yet, here’s one thing I can promise you, it’s going to appear.
Every business I ever worked with, has been around for twenty years or more, has had at least one, but usually two or three times in their business career where boy, having that emergency fund around would have been really nice, had they had it.
So my question for you is, do you have enough money in that emergency fund that’s going to get you through losing the big customer or going through a recession and frankly we’re overdue for a recession.
And then finally is your retirement plan. Now here’s something sad. Most business owners I know think that their business is going to get them their retirement all by itself. Well the truth is that’s only one or two percent of the businesses that are going to do that. If you’re living on a hundred thousand dollars a year, you’re going to need two, three, four million dollars, after taxes to get you through retirement.
So my question is, will your business get you two million dollars after taxes? Will it get you three million dollars after taxes?
Or four million dollars after taxes and I can tell you from working with businesses for over forty years now the answer is a resounding no. Now you might believe your business is going to get you there, but I bet you when you get and you try to market your business you’re going to be in for a really sad surprise and it’s a surprise I don’t want you to get.
Now there’s an easy way to solve that which is what I call pre-funding your retirement and you do that through a 401k plan, a profit sharing plan, maybe a simple but that usually doesn’t put enough money away and then we have what we call a cash balance plan which is a gold star plan that you can use to make sure that you have enough money for retirement.
So there you are. Those are the four things that you need for profit. One is a lifestyle. Two is do you have enough money to appropriately and really market your business properly. Three is, do you have that emergency fund put away so when you lose a big account or we go through a recession you have some cash that you can fall back on or if you want to start something new that the bank isn’t willing to fund.
Then finally is number four, are you pre-funding your retirement? Are you putting away forty, fifty, sixty, seventy thousand dollars a year into your retirement plan? If you’re not, you’re going to need to do so because my bet is your business will not provide you enough money for you to stop work when you want.
So there you have it. The four things that you need to do to become financially free from your business and crack the cash flow code.
So why don’t you leave a comment below, let me know what you think and while you’re at it DOWNLOAD our infographic that shows you the success path that what you need to do to create enough excess cash in your business to fill all those four areas of profit. Hey this is Josh Patrick, thanks for stopping by. I hope to see you back here, really soon again.