Hey, I'm Mike miner with elevate financial training. And I tell you, we've got a great program put together for you today. And we're gonna talk about getting cash, growing cash and keeping cash. But first, let me just tell you just a little bit about our member community. And here's what I mean by that. It's free.

It doesn't cost you anything. But occasionally I develop tools that involve spreadsheets, worksheets, other things like that, that help you work with your clients help you work with your small business owners, but it helps you in the member community, there's a file sharing building, which means I can put files in there, and you can use it for free. Here's the secret. If you don't join the member community, I also sell those worksheets and templates and videos and things like that as well. So if you'd rather pay me that's fine. If you rather pay me just get those things for free.

Just become a member. Now, of course you're joining my mailing list and I'm gonna send you an email every once in a while, but you never know I may be coming across great things that well, you can use that in mind. I mean, here's the things you're going to get the free resources I talked about, you're going to have an exclusive members only invitation to our app. Yep, I have a mobile app that we can communicate that you can use the files with, we can talk about we can you really, it's just a way for us at the private social network for people like us that believe the same way about cash flow. And when I want to help our clients, you get discounts on on paid materials. Just because you're a member.

Of course, I'm going to have some member only training events, which means webinars that I won't even put out to the public just for you. So that's what becoming a member of, you know, the elevat financial trainings community is all about. My hope is that it becomes robust, becomes a source of sharing for both me and for you. We'll both learn and will help small business owners together. So the website for that is elevate Financial training.com and then slash members, if you forget about that it's just at the top of the toolbar, right at the menu bar click members, you just sign up, all you have to do is give an email address and you're in boom, free stuff. Okay?

Let's get to the real reason why you're here, right? You're here because you want to know how to get cash, how to well grow cash and how to keep cash. This is important. This one, particularly because I hear a lot of people talking about growing cash forecasting cash, looking at what my cash balance can be like in the future. All I'm focused on guess what the profit and loss statement, the income statement, nobody talks about the balance sheet. So I'm going to show you today is a cool little trick, a unique trick, to fact, actually forecast the balance sheet.

And when you forecast the balance sheet, it tells you if you have enough money to grow, right, are you actually going to have enough money to do what you think you're going to do? And then we're going to end with another neat trick called the financial impact map. And what the financial impact map does. It tells you exactly Where hidden cash is in your company. So I'll show you how to do the calculations how to find the hidden cash, because hey, you can't keep it in your company if it's leaving out the backside so I'm going to show you where it leaks and how to keep it from leaking. So thanks for joining me, let's get grow and keep cash in our company.

First of all, I've got to tell you that profit and cash are now the same Of course, you know that right? profit is paper. It just exists, you know, in profit, especially if you use there's two different types of accounting. One is the cash based accounting. The other is the a cruel based accounting are cruel, I say cruel, like they're mean it's cruel. It's cool because it tricks you.

It tricks you into thinking that you know, maybe had money and you don't because having profit on the on the income statement is great. It shows you you have a viable business. It shows you that you sold more than you spent that month, but it doesn't mean you have cash in the bank. Too many times business owners look at themselves at the end of the month ago. Oh, I made money. But where did it go?

You know, Where'd my money end up at? So that's what I want to talk about is that difference between profit and cash. And the reason it's so important to me is that 50,000 business owners file bankruptcy per year 50,035% of those are sitting to have net profit on the books. That's right. They think their money making money and they really don't. So what I try to do is focus on the cash cash is what you can spend cash is what you can, you know, keep in the company reinvest in the company, profits great, but I'll take a company with cash over a company that has a lot of profit every single day.

So let me show you how to get Alright, before I get to that, there's only four ways to make money. I don't care how you describe them to me. I'm going to say that you can look at just four things in your company. There's only four ways to make more money. And that's it so you can describe any way you want to, but there's only four and here they are. First things is you can increase sales right.

Now Mike, you're going this is way too simple. Of course. We know that Yeah, just bear with me, you know, cut the guy some break a little bit of slack. Yeah, you can increase sales. That's probably the hardest one. That's why I say that one's first.

Okay. The second thing you can do is cut expenses. Now everybody goes here first, right? This is where everybody ends up at, I'm just going to cut expenses, and I'll have more profit at the end of the month. True. That is true.

Now, there's a warning here that don't cut the expenses that actually drive your revenue. There's a point in time when I actually ran a restaurant, I had a competitor that actually went out of business because they cut expenses, but because the wrong ones, they cut marketing, advertising, guess what, when you stop telling people to come to your business? Yeah, they're gonna stop coming. That's exactly what happened to him when we cut No, during the 2008 2009 downturn. We cut labor, right, because that's one of the largest expense I had was that labor we actually looked for cheaper ways to buy our product, make the product, but we kept the advertising in place. Why?

Because I still want people to come in matter of fact, it's more important During an economic downturn, because people have to be kind of, you know, enticed given a reason to come back into your business, when you cut expenses, don't cut the things that actually drive your revenue. Because when you have less revenue, you're gonna have less profit. Doesn't matter how many expenses you get. Number three, the third way that you can make more money as you can increase your price. Yeah, some people try to say, Well, if I increase my price, I also increasing my sales. True, but not all the time, you can actually increase your price without increasing sales.

Yeah, I mean, people just buy less, right? They buy less of that particular unit. And that's okay. Now, I tell you when I lived in Seattle, and I did that for eight years, there's a company based in Seattle that is the absolute best in the world at increasing price. They are and I saw it, I mean, we had a Starbucks right across the street from our office and I went over there one day, and I said, You know what, I'll have a grab a caramel macchiato and barista behind the counter says this sort of before two hours 47 cents. Oh, wow.

Three months later, I go into Starbucks and say, you know what I liked this time, he grabbed a caramel macchiato. He's a sir. That'd be $4 and 58 cents. I'm like, wait a second before 47 that was 458. And what I realized is that every 234 months, Starbucks puts anywhere from five to 15 cents on every product, and keeps raising the price until the demand comes down. They are the best in the world.

If you remember this from school, the best in the world at practicing the price elasticity of demand. That's right, they are raising prices until the man starts to drop off. And then they kind of hold the prices in place. So increasing price is a way to make more money. And if you can get away with the same thing Starbucks does wanna, right, I mean, first of all, who knows how much something costs and Starbucks, so it's always funny to me to say that. So here's the last one, number four.

Number four is you know, of course you can buy better, right which means you You can actually kind of work with your vendors by your goods, buyer services. If you can get cheaper labor or find more efficient ways to do what you're trying to do, you can buy better, which is actually decreasing your cost of goods sold, which increases gross profit. And I'll tell you a little secret about gross profit. Once you have your expenses covered, the net profit line will increase by the gross profit percentage. I harp on gross profit all the time. That's the only place you can get cash in the company is gross profit.

So you got to manage it religiously. Gross profit, gross profit, gross profit. So those are the four you can increase sales increase price, you can cut expenses or buy your goods or services just a little bit better. That's I don't care how you describe it. That's the only way to make money in your operations. So four things now that I said that, show you some other things that you can do.

The first thing I'm going to break it down, we're going to start with getting money, how do we get money in our company, then we're going to go to actually growing money in our company forecasting it, and then also keeping money or what are some things we can do to keep money from leaking out the back door. So we'll start right off with getting money, right? We're gonna get money and put it into our business. There's really, there's a whole host of ways, right? I mean, what are the what are the what what's the best way a startup gets money? It's the three F's, right?

It's friends, it's family, it's schools, right? It's up. And they're not fools, because you know, they're just dumb about the way they invest. They believe in the guy you know, more so than the idea of the product, you believe in the guy that thinks he can do something, so to invest into it. But it's just a funny way to say, you know, that startup people have to put in their own money, they got to put their own skin of the game, I don't care if it's time. I don't care if it's, you know, a second, you know, mortgage on your house or credit cards or savings.

You have to put your own money in. But besides that, there's other ways to get cash into your company. And we're here to talk about that. But before you understand before you understand how to get cash in your company, you got to figure out what you're offering, right? Before you go to an investment before you go to the bank, before you go to anybody else in the world and ask them to buy your product or your good. You got to figure out what is your value proposition?

What are you really offering? You know, because no price will always be too high if you have no value. And that's what I always say, you know, if your price is gonna be too high, no matter what you do, if you have no value, so you actually have to have that value proposition What that means is that the perceived cost subtracted by the perceived benefit has to be greater, right. So your the benefits you get has to be greater than the cost. You know, that that you incur? I mean, that's why some people can charge $8 for a hammer.

And other restaurants can actually charge $19 for a hamburger because all of the things around, you know the lights, the movie, music, you know the mood that they create the guy with a towel over his arm, all of those things create the mood in your body. willing to pay a little bit more for that hamburger in that place? Because, well, you feel like you're getting the benefit you feel fancier, right? So you're a little bit more money, but it's still a hamburger. It's still just, you know, ground beef abundance and garden stuff. That's all I got.

So, but your value proposition is that important and you have to start there. Why should somebody buy from you? And why is the price right for? If you follow me in the passion, know that I've got an exercise I go through decisional price doesn't matter. So look for that in a future future lesson. But why price doesn't matter.

Here's what it really does matter, though is people have to understand you know, who you are, and what is your value proposition. And to that end, you have to start with the end in mind, where are you going right? Your ultimate goal in your business is to build transferable value. And transferable value is really just you have enough money to do whatever it is you want to do next. You know whether you want to retire Hire by another larger company, push things down to your you know your children. It doesn't matter what you want to do, maybe walk away and just close shop, you have enough money to do whatever it is you want to do this.

To get there, you've got to start with the end in mind. That's why when you're getting cash when you're getting set up, I want you to think about running your business as if you intend to sell it high. What's it look like in the future, right? Because we put your car on the market, you put your house on the market, you clean it up, you make it presentable, your business should be that way too, because people tend to invest more, they'll buy more from you, they'll come more often. They'll pay more for your business in the long run. If you start with in mind What's this look like?

And it should be you know, like it's on the on the market. Even today, even if you have no intent to sell. Start with in mind, know your transferable value number, getting money in your company. First of all, there's four different ways you can get money in the company. Right? And one of those is well, you can get cash from operations right We talked about four ways to make more money from your operations.

But that's really, you know, do you have something to sell? Is it a good? Is it a service? You know, is it priced right? you control your own costs, you know, you practice good expense controlling your own. And then at the end of the day, you have more cash.

So that's number one, you know, I will spend a lot of time there. Everybody knows everyone in business. At the end of the day, I should have profit profit should be cash. All right. Number two is a you can sell your assets. But I'm not lying.

That's another way to get cash in your company. If you're in a cash, no poor position right now, or you're in trouble, you can sell your assets. That is a huge red flag though to everybody around you. If you start selling your assets, first of all, the only reason to buy an asset is to increase revenue or increase profit. That's the only reason even buy that's the only reason to even get right is if it's gonna make you more money or making more profit. Other than that you shouldn't be buying assets.

But you may be in a position where you have assets already. You have things that are either dated, you know, or they are obsolete or that they don't, they don't fit your needs anymore. Maybe they're undersized under capacity you're upgrading. It's okay to sell those assets if they're not being utilized. Right. So those assets, you don't use some bring more cash and actually have the assets on hand that generate revenue and profit.

Think about that. Just generate revenue, does it generate profit? No, accountants all the time. Not begun. But sometimes you ask people to buy farming equipment, but they can't generate more revenue off of it, but it does reduce their tax exposure. So what I'm saying is, ask first, does it generate revenue?

And does it generate profit? So those are the two kind of ways inside your operation? Let me talk about the two big ones. Now. The two big ones is you know, I can use debt financing, right? I can use debt financing, which is you know, I go to the bank.

I get along, and I pay it back, right. Maybe I get a $50,000 loan 7% what do I owe the bank at the end of the term up to 7% $50,000 That's it, right? But you're actually, you know, you actually have to make that note. So that's debt financing. The other one is, take on investors take a little partner's take on, you know, VC money angels, does somebody like that? That's the other way.

So you're definitely using equity financing. The difference between the two, you know, what, why would a VC firm, an angel investor, maybe get 20% of your company of your company, as opposed to the bank who only gets 7% of the loan that they make, right? Well, that's the risk tolerance of both. VC firm will have a little bit higher risk tolerance, but they're gonna spread it across 10 or 15 different companies, and then you want to hit right because if, if two companies one takes on debt, one takes on equity, the one that takes on debt goes from zero to a billion dollar valuation. The bank only gets 7% of the original loan, that $50,000 VC firm. If a startup go from zero to a billion, and they had 20% A huge number, right?

That's, that's a big thing, you only need one other 15 in the portfolio, we hit like that, and they've got a pretty good return on their investment. So the risk tolerance is a little bit different that spreads across but the rewards are so much higher, right? vc is higher risk, higher reward, bank, lower risk, lower reward, but it's necessary for both, you have to figure out which one's right for you is debt financing, right? Or is equity financing right? So let's kind of take a look at the pros and cons of both the kind of the differences between those. And then another lesson that I actually talked about how to prepare for bank loan, where I've got some worksheets that tells you about the likelihood of being able to get a loan, or that's what you can just use our 30 minute introductory free conversation to talk to me about it and you know, I'm going to give you some advice, but definitely I think I'll go down through kind of the lens.

First of all, here's the things that use are true about you. I don't want to invest a lot of time if you go after investors money, it takes a lot of time. You're gonna convince a cool people or company to invest in you. So it takes a lot of time, you don't have a lot of time to do this. Secondly, I can make loan payments from our profit. term loan payments are made with retained earnings or net profit.

So you got to think about that, do I actually make enough in profit, I can make this loan payment? That's that's kind of the trigger that makes them look at do I make enough money in profit to make a loan payment, then the amount I need is small enough, it's a smaller one, and it funds organic growth, right? It's small enough, I know I don't have a big idea that's going to go nationwide, or we'll have something that's going to go worldwide. We're going to be the next Facebook, but it's small enough organic growth, you know, you're probably right for some debt financing at that point in time. And, and I don't want to give up control the company. It's a big one, right?

Giving up control the company is huge, because, you know, some of you don't like to do that. They don't like to have to answer to a board. They don't want to answer to other investors. They want to make control their own destiny. So if you If you're a type of person that doesn't like to give up control, that debt financing might be for you as well. And then lastly, I have good credit.

I think everybody knows this, if you're going to go to the mic, chances are, you're gonna have to do a personal guarantee. If you had bad credit, there are other ways to get money. But, you know, at the same time, if you have good credit, and you actively participate in managing your good credit, this is the way to go. So let's contrast that with actually getting some investment money. You know, first of all, you know, I can take my time and look for the right partners. And that's true.

What's the partner because you're getting, it's almost like you're getting married, right? You're getting married, because you're gonna have to work with your investors in order to make more money with them in the future or to encourage their further investment. So you want them to trust you. You want them to be in love with your company. Again, it's almost like being married, you know, and you have an idea or company that can become a national brand, right that you've got Think that way, they're not looking for the small, you know, I can take over the neighborhood, we're looking for that company, that's going to be a household name, right? Yeah, you got to take Facebook, you've got to think, you know, who knows, you got to take one of Uber, right?

Uber Lyft, you got to have something that that can has the likelihood of becoming a brand so big that everybody knows about it. And then you need to, you need a lot more money to grow, right, you're going to be substantially more than one alone can undertake. We're not talking about a $50,000 home, we're talking about a $5 million investment, right, substantially more money. So if you're looking for larger funds, and you have, you know, that idea with a company that can become a national brand, you're looking at the right way to become you know, looking for investors. And then you know, you need some guidance, some wisdom you want introduced to somebody else, you know, those relationships. When I say pick partners, you can marry the relationships of your partners or investors become or can become your relationships as well.

So you want to lose Get that as What does my investor group bring to the table? You know, who they know? Who can they introduce me to? And have they done this before? You know, if they've never been in your line of work before, chances are they haven't encountered some of the things that you might encounter. You want to look for people that understand your industry, or what you're trying to do the best they can write best you can.

And then the last ones, I'm not worried about sharing controller profits with others for the success, right? Because even if you're diluted, you're not in 100% ownership, you're 50% Well, you can be 100% of zero because you fail, or he'd be 50% of a million. Depends on how you look at it, right? So if you're not afraid of giving up control, and you need the other things, more money, more, more coaching, more advice, more wisdom, and you've got time to look for that right partner than equity financing might be something you want to pursue. So this kind of difference between debt financing and equity financing and we're talking about getting money into the company. How do I how do I get that Jesse get going, you know, again, those are the couple ways you can do that.

So let's talk about growing cash. Now, I promised you right up front, I'm going to blow your mind with this technique, right? Because, yeah, I've got a company arm already up and running. But now I want to grow. Now I need to know what it's gonna look like. And you can use a lot of products out there that can forecast your cash, Do I have enough money to, you know, to pay my bills next month?

Well, what it doesn't tell you is how much you're going to be short. Because they stopped short of looking at the balance sheet, right? And remember, the profit and loss statement is just, you know, it's just going to tell you, if you had a good or bad month, quarter or year, it's not going to tell you if you have a good or bad company, it doesn't work right and doesn't have enough money and have money moves through the company. That's what the balance sheet does. It's the combination or combination of every single decision you've made as a manager or otherwise. So you got to look at that balance sheet.

So I'm going to teach you a short way, a quick way to find forecasted balance sheet based on what you think you can grow. And what I'm going to use as a technique called come sizing, that means no matter what the sales level, or I try to keep my percentages of the accounts at the same level as they are in my current sales value. So in this sample company, we currently have about 800,000 in sales, right, we currently have about 800,000. So now, when you become a member, or you're watching this course online, there's resource material that you can download, in addition to, you know, watching this video. So if you're looking at the resource material, you'll have a blank worksheet of this, and you'll see the numbers that I'm using when I populate, you know, the actual worksheet here. So sample company has currently 800,000 in sales and earns 5% net profit after tax.

And what we're looking at is actually, you know, the balance sheet and if you notice this is side by side, it's not assets. On top liabilities and equity on the bottom, it's side by side because the technique that I use actually works better if I line up the balance sheet like this. So Mr. Sayle, I'm gonna blow your mind gonna give you a different way to look at it. And what I'm looking at is, assets are on the left side, we got cash at 16,000. If you notice I got percent of sales. That's saying that on average, my cash tends to hover around 2% of my sales.

My accounts receivable are about 25% of my sales. My inventory is about 20% of myself, do you see what I'm talking about there? So my current assets take up about 55% of my sales value, right? That's kind of how my balance sheet works. And if you go back and look at your balance sheet, you're going to see that it tends to be pretty consistent with your sales value over time. You know, there tends to be a trend that occurs.

You notice that it'll do the same thing though, with equipment or leasehold improvements or things like that because they don't tend to move as frequently as you know, our sales and our current assets do. The same thing happens on the other side of current liabilities, you've got accounts payable at 17%, and accruals, at 5%. And this person actually has no notes payable, no line of credit. So he doesn't have any current liabilities, or credit cards that are after this point in time. But he's got long term debt. We didn't mess with that.

Because again, we have to make a management decision to take on or buy more debt or take on long term debt or buy more equipment. So the other ones tend to move in our sales capacity, our sales buy, and then of course, our equity and now our equity, that that line gets changed by our retained earnings, right or investments that we make, but net profit at the end of the period is put on the balance sheet in the form of retained earnings or equity. So you got to remember that because that's important for doing this forecasting technique is how has the equity change, right. Now here the scenario right the scenario of a company I work with He wanted to forecast his growth. Alright, so we looked at his balance sheet and it looked like this. Now in this view, I've dropped off all the fixed assets and all the long term debt and equity, I want you to focus on the left side of assets, current assets and current liabilities.

That's what I call variable assets, because they vary with sales and variable liabilities. Again, because they're more variable with the sales they tend to move along with sales. So that's variable assets, variable sales very important for the compensation technique, because that's, and then later on. In another lesson, I'm going to teach you a sustainable growth formula. So you're not guessing saying how much should I grow? I'll give you the formula on how much you can grow based on your variable assets and your variable liabilities.

So let's forecast his growth right in the blue box in the top left corner, that's the old one. That's the current one. That's the one we just looked at $800,000 he has about nine Hundred and 16,000 in assets, and of course liabilities and equity. So that's at the current value, right, which is $800,000. But he doesn't want to be there. When I talked to him, he actually says, I want to increase sales this next year from 800,000 to 1.4 million.

Yeah. Okay, that seems reasonable. You know, if he's already known 100,000 probably won't point for me. But I gotta say, that's a 75% increase, right? So, you gotta think about it that way. You're like, oh, wait a second, you're almost gonna double your company.

Do you have enough money to do that? No, isn't enough cash. It's actually coming through your company, that you can actually grow that much, right? It's a guy just go there. And I'm going to try to grow and he just kind of guesses on how much he can grow. Well, what you can do as an advisor, is help him see whether or not he has enough money to be able to do that.

Right. It's one thing to say you can do it and be able to do it. He might be a great salesman and be able to increase sales that much, but does the cash flows through company in a manner he can support it. Right? This is step two. Most people most products skip step two, they only tell you Yeah, this is what it'll look like if you do it.

They don't tell you can you do it? So if he does right now, this is what we're doing. We're doing what if right? We're going to forecast out What if he does sell 1.4 million. If he sells 1.4 million, he makes 5% profit normally, so we're going to expect that he's going to make $70,000 right? That's gonna be his net profit after tax is $70,000 based on his historical, which is about 5% net profit of a $7,000 a year on 800,000 or 1.4 million.

It's not bad, but you gotta remember he's also a business owner. He probably has other benefits and takes out as well. This is a nice little company that he's got right. So that equals is 5%. When we create the new balance sheet, right, we have the old one and the blue. Then we're going to forecast the new one based on the new cycle.

And the new sales is 1.4 million. That's what we're growing to, that's what we're going to is 1.4 million. Now from there, you've got cash, right? If we had 2% of 1.4 million, that's actually 20,000. We've got accounts receivable. We've got 25% of accounts receivable is 350,000.

You have inventory inventory of 28%, of 1.4 million is 392. Can you see how I'm going down on the left side? Alright, so I'm just going down the left side, knowing how the balance sheet works, going down the left side and calculate when I add up 28 plus 350 plus 392. That gives me $770,000 in current assets, so that's what I would expect from him in the following years, hey, if you're going to go to 1.4 million, you're not going to have 440. In current assets, you're going to actually going to have 770 and notice how much you know account seabone up right where this money doesn't have made it in profit, but he doesn't have it yet. Then of course, we're going to say didn't buy anything, right?

I mean, we can make this more complicated and that in some purchases of equipment, we're gonna say he's just going to use the equipment that he has in place. So it keeps his equipment at 256. And he has leasehold improvements of 220, which gives him total assets now, of 1.2 million, right? 1.2 million. So he had 900,000 at 800,000 in sales now 1.4 million, his total assets is 1.28. Now, here's where it gets a little tricky.

But and here's also the reason why I set this up. And the left side right side is at the top of the bar. Because what we know about the balance sheet and what we know to be true is that its total assets equals 1.2 million, then sodas, total liabilities and equity. It has to be right it has to equal 1.2 million now Instead of coming down the left side, we're going to go up the right side. So you're going to work it like a U, U shape. And it's important because we're going to see how much money he's short.

Right? That's how we're going to end up is how much money is the short of being able to accomplish this goal. So when we work it up the right side, right, we're gonna work it right up the right side 1.2 up to notes payable. You've got to look at the equity, where does the equity come from? And like I said before, equity is retained earnings plus net profit, right? That's how retained earnings increases.

Now, last year at 800,000. He made $506,000 in ARR, he had $506,000 in equity, but we said that if he sells 1.4 million, he's actually going to make $70,000 in net profit this year, right? So you're gonna have to add those two things together. You're going to take you know the 506 and add in the $70,000 And that gives us a new equity if he does make a sales goal of $576,000. See how I did that? I took what was already on the the balance sheet for retained earnings.

And then said what if he does make is 1.4 million, we're going to anticipate he's also going to make 70,000 in net profit. net profit is put on the balance sheet in the form of retained earnings, increasing equity by $70,000. So the new equity is 576,000. So knowing that's true now, if total liabilities and equity is 1.2 million, and equity is 576,000. That means that total liabilities has to be 670,000. So 670 plus 576 equals 1.2 million.

You see how I'm doing that now we're going to work it up the backside. So then we go to total term debt, right long term debt, and it was term debt, he had 234,000 because we didn't take on any more. So 234,000 when we subtract that from 670 is total liabilities of 670 minus 234. That means his current liabilities has to be 460 or $36,000 $436,000. Okay, now we're starting to see where it's going, right? Because when I calculate accruals accruals at 5% is still only 70,000.

And accounts pay what 17% is 238,000. Does 238 plus 70 equal 436? No, no, it doesn't matter of fact, we're actually going to be short because it used to be that we didn't have any notes payable. We didn't have any short term debt, any line of credit any credit cards, but because accounts payable at 238 and accruals, at 70, you're not equal 436, we're going to have to To take on some debt, right? This is the connection between, can I grow? And will I be able to grow?

Right? Do I have enough money? Or can I physically do it? When I look at those people last year again of zero, but this year, it says, based on math and mental sheet that he needs $128,000 to be able to grow that much, right? He's gonna have to get a line of credit, he's gonna have to use credit card or increases cash somehow, it's just physically not possible running the business the way he does today, to grow 75% without adding more money to the company, right growth takes funds growth takes it so I may just it's like a monster right company just eats money while it's growing. In this case, not only do you know, hey, I can grow to 1.4 but if I'm going to grow to 1.4, I need $120,000 more.

What is that going to do? Well, if I'm a advisor, I say are you comfortable? Are you comfortable with getting $120,000 loan credit. If you're not, let's back off our growth, bro. Right? Let's be safe.

If you are, hey, let's go for it right now what you got to be careful of is that is that sustainable? No. Can he do it without taking on too much debt? And that's something that we'll talk about in a later lesson. But in this one, we're talking about, hey, work into balance sheet backwards forecasting the balance sheet, we know that he can grow if he actually takes on debt. Right?

So pretty cool trick. That's a growing money or grow yet growing money inside your company is knowing how to keep money inside it, or do you need more in order to grow? Now let's talk about keeping cash, right? Keeping cash is like you have it, it's sitting there inside your company. But sometimes it leaks out sometimes it goes somewhere you don't know where it's going. So what we've done is that a photograph we have what's called a financial impact worksheet, and it's six things that are derived directly attributed to cash leakage, right?

This is places within your company that cash leaks, and sometimes you just don't realize it. But if you're in a short term or a cash flow problem, look at these six first and try to improve your cash position. Here's how you do it. I mean, on this first sheet, I've got gross profit, net profit and sales. I'll look at those first, right? So gross profit net profit sales.

I'm using the numbers right off of the financial statements that are in the resource material. So the sales on there is 7100. And when I say target that means the industry average if I know the industry average, I'm going to use the industry average. If not, I'm going to say target of being what my goals were inside my company, or you know what I want it to be right so it's either the industry average or any goal that you want that your target this is what I'm trying to achieve. Right. So in this case, we're saying that, you know, the company wants to earn 32.2% right?

Why because the average company earns 32.2%. If they did that, they would have made 2.2 million and I've left off the zeros. But we're talking millions here based on the financial statements. So they would have made 2.2, almost 2.3 million. Instead, when you look at their financial statements, they only made 2.2, which is 2.1, almost 2.2. Subtract the difference, the target is what I want.

Actual is what I did when I subtract them. That's $106,000 left on the table. You think, wow, I mean that and believe it or not, that's a 1% increase, right? Because of what they had if you calculate it somewhere around 31.7. And this is 32.2. So we're talking about you know, almost a 1% increase.

So what percent I mean, think about that, you know, if 1% gross profit is all you need one more percent, when I call your vendors and say, Hey, listen, you know, I've got a property down here. I'm gonna need about a 15% haircut on all my products. I'm Well, your vendors probably gonna laugh at you No, we're not gonna go do that. Maybe I'll give you 5%. Well think about 1%, in this case gives you $100,000. If the vendors give you 5% off at three, four or $500,000 in your pocket, right?

Because if expenses are covered, that money goes directly to net profit. So this is one way you can you can see that 1% increase in gross profit puts $100,000 back in your pocket. Now looking at net profit, and believe it or not, I've got a negative on this, right? So it's a negative because I'm worse than my target. So I put a coat on these and I'll show you why use the code in a second. But I put a coat so I've got a negative sign next to the gross profit because I'm worse than my target.

If I'm better than my target or better. We'll say competitors. If I'm using industry average, from better my competitors, I'm going to use the positive sign so on the Profit against sales on 7 million. I want to earn 3% doesn't take much to make me happy 3% I'd be happy if I did that on that $220,000 of profit. But in this case, our sample company actually earned 11,000 big huge difference, right? The average competitor because I'm using industry averages, my target is 3%.

We only made 11,000. That's actually $209,000 difference. Okay, think about that. We're way worse than what our target is what the industry averages, so we're worse. But you gotta look at it two ways. Here.

One, yeah, my net profit is worse. But I'm also not good enough in gross profit. So $100,000 106 is actually part of that 209 if you look at it, right, so if I added 106,000 to my average company, if I edit 106,000 my gross profit It actually flows through to net profit. That means I have $100,000 too much operating expenses. If you want to know how much to cut through this exercise, because it will show you the difference between the 209209 net profit and the 106. And gross profit is exactly how much you should cut in operating expenses.

It's exactly what it tells you exactly what to do. Okay, on sales, this is saying, Hey, I bought equipment, I've got assets, how much should I be generating with my assets? This is what we're talking about. So I've got about $3.6 million in assets. The typical company generates 2.3 dollars per dollar investment. Let me show you how to read that target sales to assets or sales bass, that ratio is for every dollar I've invested in equipment.

That piece of equipment is supposed to generate $2 and 30 cents, right. So that's the target I want to generate $2 and 30 cents, it's not a good way to forecast your sales. If you buy a piece of equipment How much am I already generating per equipment, and that's how much my new piece should be able to generate as well. So if I generated $2 and 30 cents, for every dollar invested in assets, I did $8.2 million in sales. But I didn't sell 8.2 million, I only sold seven, nine. So with that, I should have sold 8.2 or could or can sell 8.2 I only sold 7.1.

That means I can actually sell another million dollars with the equipment that I have in place. That's kind of a good thing. No, even though it's worse, it's negative. Even though it's worse than my target. It shows me that I have more capacity in my current operation. I don't have to go buy new equipment to increase revenue.

I have the equipment sitting right here inside my building. So that's the first three. The next three are inventory, accounts receivable accounts payable, that they should look familiar because this is your working capital cycle. This is your cash conversion cycle. How long does it take cash to move through your company? So when we look at inventory, if you ever want to know how much you should have, right people go, I don't know how much inventory I have, I just buy it and keep it on the shelf.

Well, this is a way to find out, how much did you spend in cost of goods sold. And then you're gonna divide that by the inventory turnover rate of your competitors, right? The average if you can find out the industry average, for your, you know, your type of business. This is saying that they have to replace inventories five and a half times a year, right? They're they're buying and selling minus five times a year. So when I take my cost of goods sold, which is how much I actually sold, and divide that by the how many times I should have had to replace it.

That gives me $895,000 that I should have on the shelf. Right? That's what it's telling me what I sold divided by how many times I should have bought it in a year equals how much inventory I should have on the shelf. That's your number, right? How much inventory ship 895,000 Well, in our case, though, we actually have 1.2 million. So how much inventory is too much inventory?

Well, if I'm consulting with this company here, I'm saying we got $322,000 worth of inventory, that's too much. And believe it or not, you reduce if you reduce the inventory from 1.2 million to 809 5000, we're going to put $300,000 cash back in your pocket. Well, what how do we do that? By now replacing it? Right? what you normally do is when you sell something, you actually go to the vendor and replace it, you buy another one, you give him more money.

Let's not do that through attrition, let's work our inventory level down to what it should be. And keep that money in the company. You're going to improve your cash position just by maintaining the right level of inventory. Then we got accounts receivable All right. So we already know we have too much inventory. We got to reduce that by 320,000.

But the next two we're actually good at when I calculated those up on $7 million of sales. They actually collect eight times per year. That's the turnover rate is what we want, right? Yeah. The target turnover rate is most companies collect eight times per year from the clients. So they should be owed right now.

$855,000. That's what they should do. But they're not owed, that. They're only owed 654. That means they do a better job collecting. All right, when it comes down to it, the sample company does a better job collecting, they actually like to make the phone calls to the vendors to make them get the money coming in, because they're owed less.

And it gives them a financial impact at $200,000. So if you compare this company to the average company, they have $200,000 more in cash because because of their collection practices, and that's a positive thing. We're better than our competitors are better than our target. And then the last one accounts payable is we owing right now on our inventory 4.9 million. And we the average company actually pays their vendors almost 11 times per year. So that means they should owe their vendors currently on the balance sheet $456,000 All right, this company actually owe $750,000.

And you're not gonna believe me when I tell you this, but it's true. That's good. You're like, Oh, wait, how's that good. Everyone else? Oh was 400,000. This company owes 700,000.

It's good because they haven't paid it, the cash is still in the company. And we'll be talking about cash and cash flow. Cash is still in your pocket is better than the cash you gave somebody else. Right? That is basically what we're saying. So from a bank's perspective, they're gonna call this a source of cash.

Right now, all phone calls they like to make to their customers where they don't answer for the vendors. That means they're not paying as fast as as their vendors are. And the financial impact of that though, by stretching your payables. This is the visual look at stretching a person's payables is $294,000. So they actually have $294,000 more in their their pocket than their competitors do so that's positive. So what do I do with it?

I just told you six things, I've got four negatives into positives would if you want to talk to your business owner, your client or yourself, you know, if you're the business owner, create this map, right? It's called a cash impact map. And it shows you where you're leaking cash. If you notice I got gross profit, net profit sales inventory, ar AP down the side up at the top, I'm going to put the negative sign on the left side and the positive sign on the right side. Then I'm going to create a bar graph right when I create the bar graph, it gives me the visual evidence I need to make the next decision. And gross profit.

We were negative of 106,000. In net profit, we were negative 209,000. Remember that? Right? So by improving my gross profit, I can get $100,000 more in cash. By improving my net profit and get $200,000 more cash.

You have to kind of do those together. net profit you can't touch you have to touch Sales gross profit or operating expense, net profit is just result. So in this case, we're going to improve our gross profit by 1% gives us 100,000. The other hundred thousand we're going to get from cutting operating expense, right? We're going to cut operating expense, it's the difference between the two. So we're going to improve gross profit by 1%.

And cut operating expense by $103,000. Especially with that sounds, then we can improve sales by 1.2 million. That was the heart so I was just gonna leave that alone. Yeah, let's find the other cash first, and then we'll go back and get sales. But you know, you especially if you find out you have a gross profit problem. You don't want to add more sales to it because it might compound the problem.

Right? Then on inventory, we find out that we had $300,000 too much in inventory. Those are the things we were bad at compared to where one which is just average, average to the industry. Those two things were good. We were good accounts receivable and good in accounts payable if you notice I went red and green right red for bad greens for good When I'm consulting, talk with my clients, I build this map form, I say, Listen, if you don't know where to start finding cash, solve the cash flow problem, if you don't know where to start, look for the longest red line and start there. And now you said, Mike, you just told me a lot more about sales until I figure that one.

Alright, so we're going to start, we're going to start on inventory, we're going to reduce our inventory level data. And we're going to fix gross profit, which ultimately helps us fix net profit when we cut expenses. So the three moves that I'm going to tell him is cut inventory, reduce inventory, just don't replace it. Then we're going to call our vendors get that 1% better and gross profit. We're going to cut $100,000 in operating expense, and then we can focus on sales, right because we got everything else working properly. Don't touch receivables and payables and listed become problem with your vendors relationships.

But other than that, look for the longest red lines and focus there. This is your priority of work. It sets your agenda if you're a consultant and you're not knowing this, you know, you're not help them find cash in your business. Look here, go and tell them to focus on these areas and put more cash in the business. The other thing I want to tell you about is when we talk about expenses is disciplined expense control, right? You know, you got to ask yourself, hey, do we need it?

You know, can we afford it? Especially what we're talking about? Do you need can you afford it? Just draw this basic, you know, chart? No, no, no, no, but if you need it, and you could afford it, that's when you buy it, right? If you don't want to do that I get follow this rule.

Here's the hard and fast rule for expense control, adjust your operating expense, you know, by the same amount that your gross profit increases or decreases, that's going to maintain profitability. Alright, so if you have $400,000 less to spend, spend $400,000, less, just look at the change how much gross profit moved up or down. I can do the same without operating expense. They should move together, right just like that and you'll maintain the profitability. So, when Thank you, we talked about growing, getting and keeping cash. No, it's really a pretty cool thing to be able to sit here and go through this.

Talk about how to get money into the company to begin with. Talking about growing money within, you know, growing money or being able to grow your business and keeping money in and determining whether or not you can grow with debt or without it, right. Especially what we're doing is forecasting a balance sheet. Not many people talk about that, but it's super important, right, just super important. And lastly, we've talked about the financial impact and finding hidden cash inside your actual business. So how do I find that hidden cash?

How do I, you know, what are the actions I take was my priority work? What's the agenda that I do? Look at the six items where cash is most likely to leak and determine whether or not yours is leaking and compare yourself to industry average or any other number that you want to maybe it's just a goal. Alright, so those are the, those are the three things. So if you enjoyed this, I'm gonna invite you again become one of our community members. If you go to elevate financial training, comm slash members, just an email address, when you get an email address, you do get access to the file sharing, you get special webinar invites you get discounts on products and prices that are only special to you.

And it doesn't cost you anything, right? Really what we're doing is building a community where we can share where we can, you know, we can educate and really elevate small business right? So give your business the boost that it needs and become a member today. So I appreciate it. My name is Mike mile and also cold cash flow might look for me in the future. We'll be doing this again.

Thanks