How do you deal with a cash crunch?
How do you build your reputation based on how you are controlling your cash?
In this episode, my guest, Tim Francis, will help you answer these questions.
Tim is an award-winning entrepreneur and the Founder of Profit Factory, a company that helps entrepreneurs become more profitable, reduce stress and confusion around cashflow, and minimize overwhelm around finances.
He also teaches a three-day workshop called Know Your Numbers, which is for entrepreneurs who hate accounting but want to get their financials under control.
Today, Tim will share his forte on looking at your cashflow and some simple strategies in cash clarity and control and building a great reputation.
If you want to implement, get more clients and grow with less stress let’s have a Clarity Call.
Go to BreakthroughStrategyCall.com
You’ll walk away from it with clarity, new insights, and actions you can take to exponentially grow your business… to grow with less stress- even if we never work together.
To reserve your Clarity Call, go to BreakthroughStrategyCall.com or send an email to firstname.lastname@example.org with Breakthrough Strategy Call in the subject line.
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#1 – Send them to our Podcast (over 200 hours of insights and strategies) at: www.growthtofreedom.com
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Listen to the podcast here:
Leading By The Numbers With Tim Francis
You are going to love this episode because we have an expert who’s uniquely qualified to talk to you about cashflow. If you’re in a cash crunch, are you in a place where you’re worried or concerned about having a cash crunch? Whether it’s a bad economy, good economy, a crisis, or anywhere, is cashflow important to you? You are going to get a unique view on how to look at cashflow, deal with a cash crunch, and a whole lot more. Our expert is Tim Francis. He’s the Founder of multiple companies, in fact, but one company in particular, Profit Factory. He helps founders, CEOs, business owners, entrepreneurs, maybe like you become more profitable. He helps you boost your cashflow.
He helps you simplify cashflow. He helps you reduce stress and get out of the overwhelm in your operations. Potentially help you get out of the stress of the day-to-day business. With one of his clients, in 74 days he helped this company uncover hidden treasures so to speak. You might ask, “What is the hidden treasure?” He helped this company find over $472,000 in profit. Let me use a disclaimer. We’re probably not going to help you find $472,000 in profit in this short episode we’ve got, but what if you could get a small piece of that or get a piece of that wisdom so you could find it in your own business, and maybe want to connect with Tim? Tim, welcome to the show. How are you?
Dan, I am so grateful to be here. Every time we see each other around the continent, it’s always a pleasure and it’s great to be here virtually with you.
At the time we’re doing this show, we get to see each other around the continent this way, which is becoming commonplace for everybody. I want to dive into it, Tim. You’ve got a wealth of wisdom. We got a chance to meet each other a handful of years ago through a good friend of ours, Dr. Jeremy Weisz, and his partner at Rise, John Corcoran. Thank you for being part of our day. You’re going to want to learn from Tim in all likelihood with some of the simple strategies he can give you around cash, clarity, and also building a great reputation. If you never want to miss an episode, go to GrowthToFreedom.com/subscribe. Tim, let’s dive into it. You’ve been on this journey. You’ve got a couple of companies, you help entrepreneurs, hundreds of companies, business owners, and founders boost their cashflow, simplify the process to be able to do that, and create less stress in their business around cash as well as the team. Why are you doing what you’re doing now? What’s driving you to do this?
I have always been passionate about learning and growing for sure. After I read Rich Dad Poor Dad as most people have, I knew that I was not going to take the beaten path. I wanted an unlimited ceiling on my income. My journey led me into a lot of maybe some of the hype-y world of getting rich through real estate, internet marketing, and stocks. The common denominator was getting rich. I swallowed all the Kool-Aid and hook, line and sinker went for it. I also happen to get involved in real estate at historically the worst time in the entirety of real estate.
In 2008, 2009 and 2010, was when I was jumping headfirst in. When the market corrected I ended up losing about $100,000 of other people’s money. My own personal property went down by $100,000. I was $200,000 down and it was a stressful time, to say the least. It was also an exhausting time. As I was scrambling to rub two pennies together, I met a mentor and that mentor ended up being the leader of a $12 million Ponzi scheme, one of two leaders. His business partners were convicted given a 25-year ban from holding securities and a $250 million fine and ended up leaving the country. It was like, “Where did I end up?” This was like an alternate universe. When I thought it was as bad as it was going to get, it got worse.
The way it got worse is on December 26, 2010, I had a health crisis. You and I have connected over our respective health crises. Long story short, I developed a case of Erythema Nodosum which is a painful swelling that goes through ankles, knees, hips and elbows. Within five days, I went from walking around normal to being unable to walk. I had to move in with my parents for full-time care. Thank God I’ve got this amazing family that supported me my whole life. If my mom had not paid my mortgage for me for three months, I would have gotten double bankrupt both personally and in my business.
I’ll always remember there’s this day in the second month of lying in bed sometime in February of 2011. When I felt this warmth flushed through my body and tingling I’d never felt before. I heard a voice that said quietly, “Tim, is this what you want?” At that moment, time stood still. I don’t know if a second went by or a minute or an hour, but then I heard another voice. It was quiet but it was certain though, and that voice said, “Yes,” and it was my own voice. All these dominoes fell one after the other in my head, heart, and soul. I realized that I’ve been chasing fame and fortune through real estate and through rock and roll because I was a touring drummer back then.You are your number one asset. - Tim Francis Click To Tweet
What I needed to be focused on was mastery. In my pre-illness days, I was super excited about books like The 4-Hour Workweek and in my post-illness days, a book like Cal Newport’s So Good They Can’t Ignore You. It’s an unbelievable book. As I was lying in bed, I also saw this quote, “Hell is meeting the man I could have been.” To this day, that stops me on my tracks. I decided that even if I never become rich and famous, have a Lamborghini, live on a yacht, or whatever that all the hype-y stuff tells you that you can have. If all I’ve got to do for the rest of my life was getting a little bit better entrepreneurship with every week that goes by, that would be a life well-lived for myself.
I focused on the process. I was stone broke, I had no way to make money, and I couldn’t even type on a computer for a few months there. It was too painful. As soon as I could start learning, I started picking up Perry Marshall’s book. I couldn’t even afford his $97 eBook and my friend gave me a pirated version, when I met Perry, I confessed to him the pirated version of his book on AdWords. There is this event that Perry and I put together, The 80/20 Summit, which we did a few years in a row. One year was in a castle in Banff, Canada. It was spectacular and I broke down in tears thinking, “Here’s a span that I’ve studied his material, which is the ladder that I climbed to get out of debt and out of this black hole and now we’re sharing the stage together.” It took me to my knees. I’m grateful for all the teachers I’ve had along the way.
There’s something else that I realized that stopped me in my tracks. Here I crossed that magical number of now I’ve got a six-figure business and multiple six-figure businesses. All these entrepreneur milestones, and yet, I’ve opened up my online banking, and I go, “My tax return, accountant, and financials all say that I made $300,000 or $400,000 but I’m opening up my online banking and I see $12,000. How can that be?” I was frustrated not knowing what it was. What’s even worse, Dan? I know how big you are on principle, values, and reputation. Every time my accountant would give me a tax return to sign, I’d look down at it and he’d say, “Here it is. Sign here and here.” I would look at it and at that moment, I’m like, “This is a legal document.” If I file a wrong tax return, theoretically, I could go to prison. I don’t know what I’m signing off on here and I put my name on it. I felt violated, but I’d ask my accountant questions, and he’s like, “Tim, it’s a question. The computer would depreciate in a five-year straight line, the net income is different than this.” It was all these jargons. I kept asking questions. He’s like, “Tim, it would be better if you deferred your questions to an accounting class.”
Dan, I have been rejected from business school three times. I couldn’t finish Calculus in high school. What am I supposed to do? I felt such a violation and I signed the documents anyway because I felt I had no other option. As my career progressed, I was lucky to study with a handful of masters around leading by the numbers. I was watching them work when they’re able to take a set of financials in ten minutes and sometimes not even ten minutes, even if it’s a business that they’ve never seen before and have no experience in that industry. They can basically circle three numbers and say, “This and this. These are the three spots you need to go and ask more questions.” It’s like X marks the spot in here. I’m like, “How do you do that? That’s insanity.”
It’s interesting because Warren Buffett says, “The most important skill is accounting.” I’m like, “What is this hieroglyph secret club thing called understanding financials? How do I get admission without hating myself for having to deal with numbers and money?” I bit the bullet despite the fact I felt ashamed of how stupid I felt with numbers. I felt frustrated. Here, I’d accomplished great things and yet, I felt like a grade two kid not able to do the math. I decided that I would make it my sole focus for the next few years to do nothing but learn about how to lead by the numbers and understand financials. I crisscrossed the continent. I spent about $100,000. I stayed with a bunch of next level mentors and bit the bullet.
I registered to audit because they wouldn’t let me into the actual full four-credit class but I audited night school at the University of Alberta Accounting class for a whole semester. I despised driving up to the school, parking my car, walking in, sitting down, and despising everything about it but week after week, it was starting to click. By the midterm, I got 100% which I was proud of and that’s what unlocked this whole realization that as much as we hear about sales and sold 6 or 7 figure business, and 6 and 7 figure launch, even Mark Cuban on Shark Tank will say, “Sales cures all.” With all due respect, there’s a gross misunderstanding. I get it, sales is an important lever in business but it’s not the only lever. When entrepreneurs run around believing that sales is the only tool that they’ve got, you’ve got a hammer in your hand and everything looks like a nail. The thing is, especially in a time like this, amidst this pandemic and dealing with a cash crunch, what happens when your number one tool is your only tool and it gets taken away? How do you navigate the cash crunch even when sales are going down? There are ways to do that.
I discovered through the last economic collapse how to do that both duct tape farmer economics cocktail, accounting cocktail, and napkin accounting. I didn’t realize what I was doing. It was years later when I was in classes, learning from accountants and whatnot, “That’s how I was able to make that work.” I was able to package it into a perfect little three-part process. It’s allowed me to bring clarity, calm, and confidence to situations that can feel perilous. Pandemics are not the only time that we feel tight on cash. As you said, “Even in a good economy, we can feel a cash crunch.” At the end of the day, if we’re thrashing around in the middle of a pool, absolutely exhausted trying to keep our head above water, that’s a problem.
What I strive to do is be the edge of the pool. I want to give you something you can hold on to. It may not get you out of the water, you’re still in the water, but at least you can take a breath, you’ve got some stability, and you can invest your energy instead of flopping around in the water. You can scan the surface of the water to see what’s out there above the surface. Look down into the water, see what are some of the things that might be coming up towards you and we can be clear and make good CEO decisions and good business owner decisions by the numbers. We’re honoring the one thing that’s going to get us through which is cash, not revenue. Make no mistake, we need revenue for medium and long-term sustainability of a business.
I’ve got to be totally clear here. It doesn’t matter if you’ve got the best idea to pivot if it takes you four weeks to launch that and you’ve got two weeks of cash, it doesn’t matter. It does not matter a bit that you might have the next Facebook or the next whatever idea or even something super simple. You’re going to teach online on how to do yoga from home. It doesn’t matter. If you do not have cash, it is over. If you imagine a diver and a diver going into the water, they think that sales is the oxygen tank on the scuba divers back. No. Sales is the flippers on the feet. It accelerates things and you get to do new things. You can move faster, go further and see more exciting things so it’s the flippers on the feet. The oxygen tanks are not sexy, but it’s essential and it’s on the back and we don’t care about those oxygen tanks until we’re out of oxygen. In a cash crunch, we are in crisis time, and we’ve got to get to the surface to be able to replenish our reserves.
If you’re looking for a way to simplify the numbers, what would it be worth if you had that magic trick to look at three numbers in minutes to know where, what and how to do it? It gave you clarity, calm, certainty and confidence. What would that be worth to you? If you’re interested in getting a sneak peek of what those strategies are, and what you can do about a cash crunch, creating a cash surge or building your cashflow and simplifying the process. Maybe you’ve ever felt like, “I’m reading this return and I don’t get it.” How would you like to learn and get a snapshot of what to do and how to do it? We’re going to take a deeper dive into the strategies you can put in place that you can implement to be able to do that.
Tim, there are many opportunities for us to dive in here. I want to hit it. What are a couple of strategies that people can immediately put in place to take action with to be able to navigate cashflow and understand it in a much simpler and easier way?
There are three parts to navigating the cash crunch. I call it the Clarity and Control Roadmap and it’s three steps. The first is going to sound nonfinancial, but it might be the most essential. You’ll resonate with this, Dan, because you and I have both had our respective health crises. We know that it can go away quickly in the blink of an eye or snap of the fingers. In the Clarity and Control Roadmap, the first step is to control stress. I know that doesn’t sound financial and it’s also tempting to say, “Sleep is what happens whenever I’m done working. Exercise is done whenever I find a few minutes. I’ll meditate, go for a walk or walk the dog on the days when I don’t have a full calendar,” or whatever the case is. When you flip the switch into going, “I’ve got to manage cash here. The world is spinning.” I want to know, what are you actively doing? What are you putting in place as a strategy to manage stress? It’s not a question of if the stress is coming, I promise you, there’s a good chance you’re going to be losing sleep, going to be a little short with your loved one, and not able to think straight. There’s a lot.
Here’s the thing, one of my friends and past clients, Michael Isom, talks about your number one asset is you. It’s not your house or anything else. It’s you because you’re the one that makes everything else happen. Even for myself, through this pandemic, I was like, “I’ve seen the script before. I know this is a stressful time and even if I’m not feeling like I’m losing sleep or whatever, I’ve got to smash that button, activate the team, and the process around me.” You can go to my Facebook account and scroll through my feed, I started doing workouts every morning at 8:30 AM Central. If people want to join for these workouts, jump onto my Facebook, and join us. It’s one thing to say I’m going to work out in the mornings. It’s a whole other to brain hack myself and say, “I’m doing it live on Facebook. I will be here every morning, Monday through Friday at 8:30 AM Central. I will not miss a morning.”
I’ve got 300, 500 followers or friends on Facebook. I talked about accountability. I also knew for myself that it would be too easy to go, “Whatever. I’m not doing it this morning unless I had another live human being.” My best buddy here in Austin, we live, and this as a fluke, same building. We live one floor apart from each other on units above and below each other. On our balconies, we can talk to each other. I told him, “Will you work out with me? I know if I’ve got to personally deal with a personal friend and 3,500 people on Facebook, I will be there.” After that, I knew if I invested some money that that’d be another brain hack and I was like, “If I invested some money, I’ve got some skin in the game.” I went onto Amazon, ordered some fitness equipment, and set up a little workout station on my balcony. For each of us, what does the trick is going to be different in terms of what keeps us accountable to whatever it is we’re choosing to do.
James Clear’s book, Atomic Habits is exceptional for learning how to hack your own brain. Charles Duhigg, The Power of Habit, is a great book as well. There are some key areas we need to think about when designing how we’re going to control stress. Physical activity is one of them even if it’s to discharge some energy out of our bodies. It doesn’t mean you have to go from zero to CrossFit superstar or something like that. Even if it’s making sure to go for a walk, get some fresh air. Move the body a little bit. Maybe the biggest of all might be sleep. Whatever you need to be able to stay on top of sleep. There are unlimited free guided meditations on YouTube if you want. Five minutes is sometimes all it takes to quiet the mind. For some people, it’s talking to someone whether it’s a professional therapist or counselor. For other people, it’s being able to talk to a trusted friend, family member, parent, child, or whatever it is, that creates that off-ramp.
My friend Thanh from Asian Efficiency is an expert on how we create morning routines, evening routines, and how to be conscious and active in designing that so we can control stress. I won’t go too much further into it. In some of the standard areas, I probably would lay off on the booze, at a time when things are getting tough. I get it can be a bit of a mechanism for some people to off-ramp with moderation. You know yourself and be responsible around that. In terms of diet, exercise, sleep, water is another big one. From there, it’s also other areas of life. Are there other things going on? Am I overcommitted with areas and volunteering? Am I over-committed in terms of roles I’m playing, maybe in my family? Can I renegotiate that with team members or family members so that I can reduce overall stress? That’s the first step. It’s controlling stress and it has to be a conscious active effort to say, “This is my stress management plan. This is how I’m going to hold myself accountable and how I’m going to evaluate if I am being effective or not.” That can be as simple as journaling what times you go to bed and get up. That’s the first step.One of the best ways to extend cash is to simply control expenses. – Tim Francis Click To Tweet
I’m going to add one for you to test because you are a hacker. I’d love to get your test on it and you might share this with some other people. Ideally, you share the source. A new strategy I’ve experimented with in decreasing stress and especially related to increasing sleep and sleep quality. You might be reading or winding down or whatever, but put a nice bag on your feet for at least ten minutes before you go to bed. You might even go, “I don’t have the ability to make a smooth transition from what I was doing before I go to bed.” Put them on when you go to bed and keep them on for at least ten minutes. I found this to be a powerful enhancer multiplier for quality of sleep and length of sleep as well. That’s a new hack for you to try that. I haven’t heard anybody that’s ever taught that one before. Try that. I’d love to get your feedback on how it works for you or anybody you share it with.
I’m guessing the science behind that is similar to the chiliPAD, which I do have. Todd, the Founder of chiliPAD is a super nice guy. A bit of the science behind that is for the body to fall asleep, the body has to go down by a few degrees. The faster that we can reduce the temperature of the body, the faster we fall asleep.
Your feet are a gateway. If someone’s going to do drugs, one of the places to shoot is in their feet, because of the rapid delivery system through your feet, apparently. I’m not a scientist, I don’t play one on TV and I didn’t stay at a Holiday Inn last night, either. However, the rapid delivery through the feet, by cooling your feet, it brings the temperature down pretty fast. I thought I’d share that with you. I thought you’d appreciate that. Let’s dive into step number two. Step number one is controlling stress. What are steps 2 and 3?
Step number two is controlling expenses. A concept I came up with is the idea of the bloat factor. Let’s do a thought exercise here. Let’s say my business does $100,000 in revenue and has $90,000 of expenses. That would mean I have $10,000 of bottom-line profit. My profit margin is 10%. I’m keeping 10% of the 100% that I sold. What that means is, I had to sell $10 to be able to keep one. That’s what’s happened. If I now want to take a look forward, I might be tempted to say, “I want to spend $1 moving forward, all I’ve got to do is make $1.” The reality is it took you $10 to create $1 of profit for you to be able to turn around and invest that into your business moving forward. You have to sell 10x of what it is that you want to keep. When we start looking at managing our expenses, which is not a real sexy topic, it’s like, “I want to go and launch something and sell more.” More revenue, that’s the answer. If you keep a margin of 10% into the next week, month, quarter, year, or whatever it is, you have to sell ten times more than what you want to keep. If you cut $1 of expenses, that $1 goes straight to the bottom line. Every dollar that you cut off in expenses is an increase of $1 in profit.
Selling $10 is required to keep $1 in profit at the same margin. I created this little bloat calculator, it’s in a spreadsheet that I can share with everyone that you can put in your profit margin and it’s simple to figure that out. All you’ve got to do is pull out your last income statement, also known as a Profit and Loss Statement, also known as P&L. If it’s got the word revenue or sales at the top, you’re looking at the document. Look all the way to the bottom, it will say net profit or net income. It’s the bottom line. Divide that bottom line by the top line, you’ll get your percentage, you can put it into the bloat calculator. After that, if you want to know how much lift you’ll get from cutting an expense, put in $28 online subscription to whatever online tool. I’m going to cut my Amazon Prime video account because I’ve also got Netflix. I’ve got a Calendly subscription and I’ve got a ScheduleOnce. These things show up in our businesses.
I did this in my own business. It’s simple. All you’ve got to do is print out your credit card or bank statement and look at what I can eliminate. It took me 25 minutes to print the statements, circle five things and I went online and canceled those five things online. I saved $250 per month in 25 minutes. At my company’s net income, it means something I don’t have to sell $14,000 in the coming year. That’s mind-blowing. Oftentimes we say, “I don’t want to have to cut $250 a month in expenses. That’s not $1,000-hour work. I’m going to get me a new client or I’m going to launch some promotion for my Amazon product that’s going to make me way more money than that.” Let’s compare apples to apples. This is not just $250, this is $250 a month times twelve and we multiply it by the bloat factor. If I can avoid whatever $6,000, $10,000, $12,000 or $15,000 in new sales that I’d have to make to make up for that, that definitely is $1,000 in our type of work big time.
One of my clients, we did this exercise in private consulting, he cut $9,000 in expenses per month. We ran it through the bloat factor calculator. He does not have to sell $985,000 in revenue in the coming year, because all he did was cut a few expenses. In a time when sales are going down, how much easier does he sleep at night knowing that he doesn’t need to sell $1 million, he could have a decrease in $1 million in revenue and you’d end up with the exact same place that he’s been in the last year. It’s mind-blowing. The name of the game here when it comes to navigating a cash crunch isn’t cash, believe it or not, the name of the game is time. In this pandemic, we will find a medical solution. There will be testing and in 1.5 years there will be vaccines and on and on.
In terms of a medical event like this, we are going to get to the other side. Sometimes the name of the game is don’t go out of business. Dr. Glenn Livingston, a smart guy, talks about, “The name of the game is to stay in the game long enough that you can win the game.” It’s a matter of time. In the world of money, you’re talking about the runway, how much runway do I have? Even in our personal finance, let’s say my lifestyle is $10,000 a month and I’ve got $10,000 in the bank, I have one month of runway. If I can cut my expenses in half to $5,000, without making any more money, I doubled my runway to two months. We’ve got to push the crisis line, which is the moment that I run out of money as far down the path as we can, to make sure that it’s long enough that we’ve given ourselves the runway to pivot if we need to.
If you have a business that is in grave danger, and there’s a way to pivot it online, maybe you teach cooking classes and you’re going to teach them online. Maybe you were a trainer at a gym and now you’re doing it online. Whatever your situation is it’s amazing if you can find a way to pivot. We need the runway for your new plane to take flight or else it doesn’t matter if you’ve got the sexiest plane. If it doesn’t have a runway, it’s not taking off. The name of the game is time and cash is the currency that buys us the time. One of the best ways we can extend our cash is simply by taking care of step number two here, which is controlling expenses.
I can’t help but think of the new business that you’re going to likely be running because you’ve already built a platform for it. It’s called Profit Factory Fitness Get Fit and Make Money at the Same Time. Your already existing platform of followers up to 3,000 people who are on your page watching you do your workouts in the morning and they can through osmosis, make money. I’m kidding.
We’ve got the Profit Factory for the money and we’ve got the Pro-Fit Factory for fitness.
We’ve got control of stress and amazing strategies. Looking at expenses and depending on your business, I want to speak to this elephant in the room, you might be a little skeptical and also there can be misunderstanding around finding statements. Sometimes a lot of expenses get hidden in the cost of goods. Another thing that you may want to do is look at your cost of goods and see if that’s got some expense creep to it along with the expenses that Tim pointed out with you. You’d be amazed. We do this.
We recommend it with our private clients. Similar to what Tim was sharing is to run your expenses. Another way to possibly look at doing it is for the last few months, run the cumulative total, and do a descending order from greatest to lowest. You’ll be amazed at what you might be spending your money on. You’ll probably find that labor is one of your highest if not the highest expense you have but the other one you start looking at and going, “I’ve got ways that I can shave off of this,” by applying what Tim shared with you. What’s step number three, Tim?
It’s Controlling Cash. Dan, I’m going to give you an ultra-ninja trick I’ve discovered from being behind the scenes of at least 70 different companies looking at their finances and I’ve sat through 139 board meetings. One of the fastest bumps in cash I’ve ever seen from a single phone call is when I realized that anybody who used a merchant card processor, which is pretty much all businesses these days if you call them and you ask them, “What is the reserve total and what is the reserve duration?” If you’ve been a good client and you’ve had few to no chargebacks, there’s a good chance that your credit card processor is willing to reduce the total reserve that they’re holding and reserve duration. Especially ever since the credit card companies introduced a zero liability for their cardholders, Visa and MasterCard are not going to take the risk on themselves. They charge the risk of the business owners. How they hedge and buffer against risk is by holding a certain amount of money that you’ve sold, earned, and collected. They hold it in the Visa and MasterCard credit card processing system. They don’t release it to you because they want to see if there are going to be any zero liability chargebacks or refund requests or anything like that.
We don’t realize it, as most business owners, but sometimes we have tens of thousands of dollars sitting and being held by that company. If you haven’t called them to ask about improving or reducing how much they’re holding for months or years, there’s a good chance that when you signed up with them, they said, “This is it.” It’s because it’s a new relationship. There have been times we’ve made a single phone call, we’ve had $20,000 released into our bank account the next day. That is such a pro tip. It’s a single phone call away and could release tens of thousands of dollars into a person’s bank account. It doesn’t work every time but it’s sure worth the phone call.
While you’re on that phone call, also ask them, “I’m looking at other options. Do I have the best rate with my charge rates?” There are other terminologies but say, “I’m looking around. I’d like to know that I’ve got the best deal.” That little add-on will get you a decrease in the fees you’re paying, which also adds to your bottom line in cashflow. It’s controlling cash.Cashflow forecast includes stress management which affects business and personal life. - Tim Francis Click To Tweet
The tips that you brought and the tips that we both gave address number 2 and 3. Number two, controlling expenses so reducing credit card fees that’s the tip you shared is amazing. Number three, controlling cash, how can you get more cash coming in? The third step on our Clarity and Control Roadmap, as we navigate the cash crunch is all about controlling cash. There’s a tool I developed and offered with no charge to everyone here who’s reading. It’s a simple spreadsheet. You don’t even need to know how to add and subtract because it’s in a spreadsheet that already has the adding, subtracting, pluses, and minuses already in there. We need to establish what’s called a Cashflow Forecast. It’s simple. There’s an important distinction here that most entrepreneurs have never heard and do not make in their own business and yet it can be the difference. I call this the Cash Clarifier and when I teach my course this is something we spent some important time on. There’s a difference between sales sold, earnings earned and cash collected. It’s three completely different paths.
It’s not even they’re brothers and sisters, they may be cousins to each other. The Cash Forecast will give you a shortcut here but let me explain something here. First of all, sales sold is, I signed a contract and someone says they’re going to pay me. I sold it. Congratulations. Let’s say I’ve got a website company. Someone say they’re going to give me $10,000 to build a new website for them. I don’t have a website company, but let’s say that I did. I sold it. Good work. Next up, have I earned it? That’s the second pathway. Sales sold earnings earned. That $10,000 is only earned once I’ve delivered the whole final product and they sign off and say that it’s complete.
People who get in massive problems with not understanding the difference between sales, earnings, and cash are oftentimes consultants, people who run masterminds. Let’s say, you sell a mastermind spot for $24,000 and people pay you on the first day, you’re like, “I’m going to Disneyland. You haven’t earned that $24,000 because the mastermind hasn’t started yet. You only earn 1/12 of that $24,000 every month that goes by assuming it’s a one-year program. Earnings earned is a completely different story than sales sold. That is all a different story than cash collected. Let’s say that I sold the website and was prepaid 100% of the website, I’ve sold $10,000, I’ve collected $10,000 but I haven’t earned it yet. We can only use cash once it is sold, collected and earned. It’s only once all three of those checkboxes are true.
There’s more to the story than that because there’s the difference between total cash that we’ve got in something called free cash. Total cash is a total amount of money that you’ve got in your bank account, whether you’ve earned it or not. It’s the total amount of cash sitting in the bank. If you’re looking at your balance sheet and your financials, it says cash or it might say the bank account names. From that, we have to take out that total amount. If we’re scratching this out on a piece of paper, if I want to know my free cash, I’ve got to take my total cash number and I need to subtract what’s called committed costs. A committed cost is anything I’ve promised to pay for but it’s not happened yet.
Let’s say that I’m the client buying the website. If I sign a contract that in two weeks, I need to make my first payment, that payment is a committed cost. I can’t touch that money because it’s already earmarked for something else. This is such a gap for 99.99% of entrepreneurs. We also need to know what our payables are. Payables are anything that you’ve agreed to and received. You’ve now received the product of the service and now you’ve got to pay for it. Let’s say it’s the flip side, where maybe I’m buying a website from a developer. The website is complete, and I still need to make my last 50% payment. That’s a payable that I owe in whatever the agreement is in the next 30 or 60 days, whatever it is.
Most entrepreneurs open up their online banking and say, “If I’ve got it, I can spend it.” That’s not true because you’ve got things like committed costs and payables. One of the biggest of all the payables and one of the payables you can pretty much never get out of is taxes. Taxes are another one of the payables. Another one is deposits. Any real estate investors out there, you know what I’m talking about. You’ve got all this money from all your tenants sitting in deposits, security, and rent deposits and you can’t touch that. Next up is most likely for most people, and I’m not going to say I’m a financial planner nor am I an accountant so make sure you seek proper financial advice on this or whatever. Credit card debt usually is a double-digit and sometimes 21.5% or 19.99%. It is eye bulging. Sometimes entrepreneurs will say to me, “Tim, what’s my next best investment here?” I say, “Do you have a credit card that’s not paid off?” If you want a 20% return, guaranteed, pay off the credit card.
This next one is a bit of a Tim Francis Original, it’s a TFO. My students always call it TFOs. It’s something called VST Debt. It’s Very Short-Term Debt. In accounting, we talked about long-term or non-current debt. That’s anything that you have to pay more than a year away. Current debt or short-term debt is anything in the current year. When we’re in a cash crunch or even when we’re not in a cash crunch, not in the next year, we need to know this month what amount of my debt do I have to pay off. With a lot of small business loans, you’ve signed a personal guarantee, you might lose your house if you do not have the cash to pay off that VST Debt, that Very Short-Term, this month debt. Make sure you’ve got some cash earmarked for that.
Next up, and we touched on this one a little bit before but I’ll give it the full attention it deserves, is unearned revenue. Unearned revenue is any cash that’s come in that you have not earned yet. That could be a prepay on a service, a website or maybe you’ve received the first payment on a shipment of your product that you’re sending out. If you’re a consultant, it’s the first 25%. Whatever it is, unearned revenue is cash that’s come in that you have not earned yet. I have a different bank account. I’ve got my general operating account. I recommend people do this if you have unearned revenue in your business, set up a separate bank account for unearned revenue. Set up a different bank account for deposits if you’ve got a lot of that like a real estate investor. Set up a different bank account that’s for taxes.
You can get a sense of approximately what your tax rates are going to be. We don’t know until after the year is over what all the write-offs are going to be but ballpark it. Call your CPA and say, “Approximately what did I pay on taxes as a percentage of revenue?” As you’re moving forward with revenue, skim that off the top and put it in a tax account. At the end of all this, and the formula is total cash minus committed costs payables including income tax, deposits, credit card debt, VST Debt, Very Short-Term and unearned revenue and now we know the free cash that we can play with and work with. Maybe in some of these cases, you can call the people you owe money to and you can renegotiate when you’re in a cash crunch. We’ll talk a little bit about that in the last and final tool here.
At the end of the day, if you’re not clear on what you’ve got, how do you even make decisions? It’s almost impossible. I have a little mini-training and webinar that people can watch to learn how to set up a cashflow forecast. If I were to do only one thing in my personal life and my business life when navigating a cash crunch, these are the two things I would do. Number one, I would manage stress in my personal life, which then affects my business life, and in my business life, I would do a Cashflow Forecast. That is the single most important and crucial thing. You’ll see when you do it on the spreadsheet. I’ve made this stone simple.
If there’s a red box, you’re out of money. If you had a green box, you’ve made it another week. It takes 25 minutes. It’s super fast. Punches in a couple of numbers and you’ll see a red box or a green box. in the crisis line, the, “Oh crap,” line of your business is the first time you see a red box. The second that you can see where that red box is, now you know what you can manage for. There are many ways to navigate this. You can renegotiate with payables, maybe see if you can get paid sooner by people who owe you money, take a bank loan or line of credit, go to friends and family. Also, look into the Payroll Protection Program, PPP from the government. Unfortunately, we may not know when that money shows up.
If you read this far after the whole pandemic has completed like other SBA loans. When revenue is going down, oftentimes we need to manage stress, control stress and expenses and be super crystal clear on how much cash I’ve got, how much oxygen is in the tank on the back of my scuba gear so I can make the right decision. If I’m going to say, “I’m going to sell more, launch a new product, new service, launch a new payment plan or something like that to help our people,” it’s going to take multiple weeks to roll that out. I was working with this one client, a multimillion-dollar company. They had no idea that they had 8.6 days of cash. That’s it. How different is your decision-making when you realize you have 8.6 days of cash versus thinking you’ve got months and months of runway? When I think about the course I teach, which is called Know Your Numbers, I don’t think of it as an accounting class. It’s a decision-making class and it allows us to make decisions by the numbers. It so happens that some of the most important numbers in business are financial numbers.Fear is false expectations appearing real. – Tim Francis Click To Tweet
I would encourage you, what would it be worth to have that clarity, confidence, peace, and certainty around your money? I would implore that this is about developing healthy profit habits. This episode could be called Profit Habits. Whether it’s a good economy, bad economy, do you want good profit habits? Do you want to profit more? Do you want to have more clarity around your numbers? Do you want to have the optics to make smarter decisions in a short period of time to make better rapid decisions and not feel the fear of being unknown or suppressing it all? It’s like, “I’ll look at that later. I cross my fingers and hope.” Hope is not a strategy. You’ve got strategies here. Tim, you’ve shared some amazing insights here. Where can people go if they want to learn more, get access to a class, learn about these strategies? Where can people go to go deeper with you and your stuff?
If you hit KnowYourNumbersWorkshop.com/growthtofreedom, you don’t even have to opt-in. You click the button to start learning. There’s a one-hour workshop that I’ve got there and from there if you do want the Cashflow Forecast, it’s on the same page. People can click and they’ll get a Google Sheet sent to them. From there, you can start plugging your numbers in. That’s it. On that page, you can get the Cashflow Forecast and quick 60-minute training on how to use it. With this video and the Cashflow Forecast that’s for free, I’ve had 4 or 5 business owners message me and say, “Tim, I never did take your course. All I did is I watched that free training and saved my business.” These are legit. You might even know some of these people. This is for real. This is not hobby stuff.
If someone wants to know more about the full course that I offer, it’s called Know Your Numbers Workshop, it’s the exact same URL. You can see what some people are saying about the course, the relief and the clarity that they’ve gotten. Sometimes you realize, “I have less to worry about than I thought.” Sometimes we find out, “I have more to worry that I thought about.” Either way, there’s that expression that “No news is good news.” That’s true in good times. In bad times, no news is horrible news, because it’s a vacuum. To your point, you always say this, Dan, “Fear is false expectations appearing real.” In the absence of clarity and information, our brain starts creating all scary outcomes.
The course itself is a three-day workshop. I do it live on Zoom. If you’d like to participate in the live event, the information is on that same URL. If you do choose to purchase the course, it’s $995 and there’s a discount code, it’s Cash is King. Put that in on the checkout page and that will take $500 off the course. Instead of being $995, it’s only $495 and it gets you a bundle. The bundle includes a couple of things. Number one, you get access to the next Know Your Numbers live workshop that I’m doing on Zoom so you can ask me your live questions. Plus, it also gives you immediate access to the recording of the last Know Your Numbers Workshop. If you can’t wait until the next live Know Your Numbers Workshop with me in real-time over Zoom, no problem, you’ll get access immediately so you can get a head start. You can still show up on the live Zoom with Tim if you’ve got questions to ask.
I want to encourage you to go to KnowYourNumbersWorkshop.com/growthtofreedom. Get access to the training, the Cashflow Forecast, and learn more about the incredible course. Make sure to punch in the discount. Cash is King is the keyword that saved over 50% on the registration for Tim’s incredible workshop to give you clarity, insights, strategies, and a whole lot more. There are other tools he’s got available with this that we won’t have time to go into but go to that website. Tim, what is something I should have asked you that we didn’t get a chance to cover up until now?
Something that you should have asked me that you have not asked me yet maybe around, how am I making certain decisions or what are some tools around making decisions?
What are the tools around making some better decisions?
That’s facts and figures. The great Keith Cunningham oftentimes will say, “Emotion and intelligence often work inverse of each other.” The more emotional we are, the less intelligent our decisions are and the more intelligent we are, the less we have to make emotional decisions. Getting facts and figures around a situation is huge. We’ve talked a lot about that. I’d like to offer one other perspective here around making decisions, especially when the chips are down. Provided that you have done part one, which is you’ve controlled stress and you’ve put some pieces in place, you’re going to be able to stay creative. Once you’re calm, clear, and confident we’ve got the space to be creative. When we’re creative, we can explore different options. We can do some research as needed to come up with a tight executive position of where I’m going to go next with my company.
Something that drives me insane and this is a massive pet peeve of mine, and Dan, maybe you’ll concur. It drives me crazy when I hear an expert, author, coach, podcaster or webinar person say, “Here’s the one thing you need to do,” and they proceed to tell you it’s write a book, Facebook ads or whatever the strategy is. They don’t know me. You don’t know me. How do you know that’s the fit for me? You’re telling me I need to have a mobile-enabled Facebook ads campaign that drives people to a webinar funnel and a salesperson. What if I’m selling step through bathtubs to senior citizens, the better place to sponsor The Price Is Right for goodness sakes. To me, there’s an intersection of three forces. I call this 3D Decision Making. If you imagine a letter X has two lines, one that intersects the other.
Imagine a third line going straight down the middle. It’s almost a little asterisk of sorts. In the middle of these three forces is what the fit is for you, me, and for whoever. Whatever your answers to that question are your answer for you. The first factor is, what is my unique set of circumstances? That’s anything that’s external to me. That could be competitors, Coronavirus, or the price of the exchange rate on the US dollar. It could be anything that’s external to me. It could be the job market trying to get talent. This is making a letter X one line crosses through the other. The second factor is, what is my unique set of resources? It’s anything that’s internal. That’s going to be, how much money, teams, skills, and networks do I have? Do I have a list? Dan, you always talked about the criticality of having a list. What are all the resources I have inside of me and my team? I’d say so far most people go, “That’s not necessarily groundbreaking insight to say external or internal.”
What brings it together is the third line that drives down the middle of the letter X. That is, what is your unique timeline? If you’re in a situation that you go, “I’ve got this huge list of followers, I’ve got enough cash to make for the next month and a great product that to release,” but you’re going to have a kid next week. I know exactly what I need to do in the middle of this cash crunch, “I need to launch this new product. It’s been in my back pocket for weeks. I can launch this thing within three weeks.” If you’ve only got one week of cash in your resources, your timing now becomes one week and we’ve got to solve the one-week problem. In a cash crunch, in a sense, Roger Hamilton made a fascinating point about this. He says, “We all end up going down 1 or 2 levels.” You’ve got a big team and you’re not managing too many people, you’ve got a few direct reports, in a time of crisis, you’re going down a level and you’re much closer with your middle management. If you have a smaller business, let’s say you are the manager, you’re getting down into the trenches and working with the frontline workers. If on the other hand, you are already at the front line, maybe you’ve got to do more of the frontline, where you’re working longer hours. In a downturn, in a cash crunch, you need to step down.
An expression out there is, “Don’t trade time for money.” It’s one of the worst advices of all time. I thank Keith Cunningham for setting me straight on this. He said to me, “The time is worth the money if the time is worth the money. What do you think Michael Jordan is doing out there, LeBron James or any of these superstars?” They are trading their time to make some money. If they don’t show up, they don’t get paid. They’re paid to play basketball, the Adidas, the Nike ad or whatever. We need to look at those three factors and if our unique set of circumstances, resources and timing dictates that the best thing we can do is pick up the phone and offer time for money, I’d say there’s no shame in that. There’s a ton of intelligence and prescient insight in that and that’s what’s called being a good thinker and a responsible entrepreneur if needed. We could go on and on about clear decision-making and you’ve been generous of your time to have me.
There’s a ton of wisdom there, Tim. Ideally, as you’re reading you get a glimpse of the wisdom that Tim’s hand. I want to encourage you to go to KnowYourNumbersWorkshop.com/growthtofreedom. Tap into those resources, get connected and get clarity. You can go out at numbers and turtle up around it, or you can have joy and confidence around it. You don’t need a PhD. You don’t have to abdicate your finances anymore. You don’t have to be afraid to sign off on a return. You’re going to have clarity if you take the time to learn this stuff.
Tim, I appreciate having you on. I want to encourage you as you’re reading to apply what Tim has been sharing. I’ve got four pages of notes here. We talked about three parts to the Clarity Control Roadmap, control stress, expenses, and cash. Tim gave you a handful of ways to be thinking about the difference between sales, earnings, collected payables, a laundry list of payables that are the hidden treasures that maybe you haven’t thought about that if managed or lead properly open up a lot of opportunities. Also, clarity, peace, and a whole lot more. He talked about the importance of forecasting, facts, and figures, his asterisk, unique circumstances, resources, timeline, and the big lie, the big myth out there which is about trading time for money. It is if it is and that’s the key. You can design that. Seize the day, make it a great week, and we’ll see you next time on GrowthToFreedom.com.
Resources mentioned in this episode:
- Profit Factory
- Dr. Jeremy Weisz – Previous Episode
- John Corcoran – Previous Episode
- Rich Dad Poor Dad
- The 4-Hour Workweek
- So Good They Can’t Ignore You
- The 80/20 Summit
- Facebook – Tim Francis
- Atomic Habits
- The Power of Habit
- Asian Efficiency
About Tim Francis
Timothy Francis is an award-winning Entrepreneur. He’s originally from Canada and now lives in downtown Austin, Texas.
He’s been a guest lecturer at NYU in New York City, and has appeared on the Forbes and Inc Magazine websites.
His company, Profit Factory, helps Entrepreneurs become more profitable, reduce stress and confusion around cashflow, and minimize overwhelm around finances. In short: he provides a straight path to growing your cashflow and make day-to-day operations much easier.
In his private consulting, he helps Entrepreneurs to lead more effectively, understand their financials, and make clear decisions “by the numbers.” To date, he’s personally advised over 100 companies, even saving a handful from bankruptcy. His biggest win so far? In just 74 days, Timothy helped an internet company find $472,000 in pre-tax profit. Not revenue, but $472,000 in profit. Laughing, Tim reports, “I wish I would have charged a percentage of the upside.”
Tim teaches a 3-day workshop called Know Your Numbers, which is for Entrepreneurs who hate Accounting, but want to get their financials under control. Amidst the panic of the pandemic, he’s also released a free mini-course called Navigate the Cash Crunch, outlining the 3 steps any Entrepreneur needs to take to make it through tough times. You can get this mini-course for free at NavigateTheCashCrunch.com.