How to do business succeed
1. Take care your cashflow
I began my career in business consulting
and teaching on a cold January night in 1992.
My wife, Elaine,
and I went out to dinner at a restaurant
with friends Bobby and Helene Stone.
It’s an affordable restaurant chosen by two of our friends.
When we got there,
we understood the reason for that choice.
Bobby says he’s just lost his job selling computer equipment
that he’s had for 14 years.
Feeling tired,
depressed,
and angry,
he vowed never to work for someone else again.
He said he would join Helene’s home business,
selling computer equipment in the basement
of their home in North Bellmore,
New York.
“That’s great, Bobby,”
I said. “Do you have a business plan?”
“What is a business plan?” Bobby asked.
“The business plan shows what you need to do,”
I said. “You need it to know if your business is viable.”
“The business is definitely viable,” he said.
“For the past seven years,
Helene and Paula,
our part-time assistant,
have run the business very smoothly.
And I think I’m a pretty good salesperson.
Then why can’t it be a viable business?”
Helene couldn’t be more disgruntled.
“He’s gone crazy,” she said.
“We had no money and couldn’t even pay the bills.
We are looking for a home mortgage to pay off the largest supplier.”
Bobby said Helene was too negative
and Helene said Bobby didn’t know
what he was talking about.
So I had to say,
“Listen to me.
Don’t do anything in a hurry.
Bring all your paperwork to my house,
and we’ll see if our business is viable.”
I intend after reviewing the papers to give them some advice
to get them back to running their business from there.
However, I eventually realized they needed a whole training course.
And the most interesting thing about this situation is
that I don’t know how much
I can teach one person about business.
Can you guide a middle-aged,
non-entrepreneurial couple
with absolutely no background in building a successful business?
Or is one forced to learn from one’s own experience?
I don’t know.
It took me a lifetime to get the business knowledge I am today.
Many of those lessons are learned from failures and mistakes in practice.
********
IMPORTANT THING FIRST
A few days later,
Bobby and Helene came to my house
and brought with me the documents I requested about the sales,
expenses,
and expenses of the business for the past few years.
I told them we would look at the numbers together after dinner.
However, first, I want to learn about their goals,
which I always want to start first.
In fact, the initial goal of every business is
to survive long enough to know if it’s viable.
I don’t care what type of business you have
or how much capital you have.
You never know if a business is viable until you actually do it.
But a viable project is just one step on the road to a destination,
and I want to know what the destination is here.
I will listen to goals that people think are unattainable in business,
goals that would be business-appropriate,
or completely unrealistic goals you are considering.
I’m listening to the real motives that drive people.
Usually, it’s something emotional.
Bobby and Helene say
they want to make a living off of their business.
But Bobby wanted more than that.
At that time,
what he really wanted was to get revenge on his old company.
This is also normal,
but it will lead him nowhere,
except to hit a dead end.
Revenge doesn’t help Bobby and Helene’s long-term goals,
as they want to be financially independent
and never be in this situation again.
So, by defining goals,
we can eliminate those emotions.
Once you’ve defined your goals,
come back to the issue of feasibility.
I said to Bobby and Helene,
“Listen, I don’t know if your selling is really a business,
and I don’t know if you can run it like a business really or not.
But first, we have to see if it’s worth our time and effort.
We have to make sure that,
at least on paper,
you have the basis to proceed.”
Immediately,
Bobby started talking about his marketing plan.
I interrupted him
and asked Helene what information she had.
She laid out the papers and began to explain.
I said,
“You don’t need to explain, I can read them.”
I went through them,
did some quick calculations,
and told Helene. ”
Here. I’ll show you that last year your assistant,
Paula, made more money than you.”
I pointed to a few numbers.
“This is the revenue for the year,” I said,
“and this is all her expenses,
not including Paula’s salary.
She calculated the difference,
and this is what she got.
Can you read it, Bobby?”
Bobby said,
“Ten thousand dollars.”
I said, “Yes, ten thousand dollars.
Now, look at this.
This is the total amount you pay Paula.
How much is that amount?”
Bobby said, “15 thousand dollars.”
“Do you understand what I mean?” I ask.
“I think it means the business is losing money,” Bobby said.
I said, “Very well.”
I turned to Helene.
“That means you have suffered a loss.
Now, there are a few things you need to decide.
The business seems viable on paper,
but she will still have to reduce costs and invest more money.
I don’t know exactly how much yet,
but it should be a big chunk of your savings.
Are you willing to do that?” Helene says she needs to think.
The next day,
they fired the assistant,
Paula, on the grounds
that Bobby was going into the business
and the business was temporarily insufficient to pay both of them.
Helene told me that she and Bobby both cried.
“I was sobbing,” she said,
“because this just happened to him,
and now we do it to someone else.”
But it’s a necessary step
if they really want to grow their business.
And so, there were only the two of them in the basement.
Letting Paula go means they’ll have to do all the work in
that basement on their own.
****************
BUSINESS PLANNING
Most people are afraid to start a business.
That is why a business plan is essential.
It helps to demystify the process,
taking the emotions out of the work.
But you can’t make a business plan
if you don’t understand cash flow,
and people who start a business rarely do.
They confuse cash flow with revenue
or have money in the bank.
They believe that to be successful,
all you have to do is increase sales.
In fact, what you need is the right kind of revenue.
The wrong kind of revenue can send you straight
to the brink of bankruptcy.
To avoid that, you must first realize
that your capital is limited.
Everyone has a certain amount of capital
when starting a business
and no one can avoid that.
It is important to ensure
that you have enough capital to start
and to maintain the business
until it is determined whether it is viable.
The point at which viability is determined is
when the business can generate enough cash on its own to pay the bills.
A business plan is the best way to predict how you can get there.
When it comes to a business plan,
I’m not implying anything complicated,
it’s simply a proper,
realistic income statement
and a cash flow statement.
I would like to have a reasonable forecast of monthly sales within a year.
That’s what I asked Bobby to provide.
However, the plan he came up with was too ridiculous.
He’s insanely optimistic,
and this is no wonder.
People are always over-optimistic on their first venture,
and nervous at the same time.
It’s odd,
and it’s also dangerous,
because that over-optimism will lead them
to make the wrong decisions in the use of limited capital.
With Bobby,
I had to rebuild everything from scratch.
He calculates his business plan based on his thinking about the needs
of customers’ products,
not on how many products he can sell.
He vindicated his plan
by showing us his sales record at his old company,
where he sold computer cleaning equipment
for $12 to $20,000 a batch.
He never thought it would be so different
from selling computer parts for $40 a piece.
Therefore, he needed to be as meticulous as possible.
It was January 1992.
I said, “Let’s take a look at July.
How much do you think you will earn in July?”
“Twenty thousand dollars,” he said.
I said, “You have 20 working days in a month.
That means he will earn $1,000 per day.
Is that realistic?
His average order is $40,
which means he will sell 25 orders per day.
In eight hours.
That’s 3 orders per hour,
by way of a phone call.
That’s 20 minutes per order.
Do you think you can do it?”
This must have forced him to face reality.
What I want is a reasonable prediction,
a well-founded calculation.
Bobby realized his July sales forecast was impossible.
So he came up with a new plan,
which we then scrutinized,
month by month,
until we came up with a reasonable full-year revenue plan.
Next comes the most important step:
determining gross profit.
Once you have a reasonable revenue plan,
you can break them down by type of merchandise,
calculating the cost of goods sold (COGS).
You subtract your COGS from your sales,
and calculate your gross profit or gross margin
(if it’s a percentage of sales).
In my opinion,
gross profit is the most important number in any new business.
It determines other factors in the business,
the total amount of capital needed,
the volume of sales,
the total amount you can afford,
the time it takes to determine the feasibility,
even the feasibility of the business plan.
Let’s say you sell a $1 product with a cost to make or buy 90 cents.
Your gross profit would be 10 cents on a product,
or in other words 10% of sales.
Let’s say you need $5,000 per month to cover your expenses.
To get that amount,
you have to have a turnover of $50,000 per month.
Now, let’s say you need 3 months to collect the debt.
You need $100k in cash every month to get $5,000 to break even.
If that’s the case,
it’s certainly not a viable business.
Therefore, remember that gross profit is the most important thing,
the determining factor for your business.
You must use gross profit to pay for everything,
employee wages,
rent,
phone bills,
gas,
electricity,
photocopying.
If your gross margin is 10%,
you need $10 in revenue for $1 in expenses just to break even.
If your gross margin is 40%,
you only need $2.50 of revenue for $1 of expenses.
This difference carries decisive
when you start a business with a limited capital.
The higher your gross margin,
the lower the revenue you need to cover your expenses,
and the longer your capital can last.
And, for most new businesses,
timing is vital.
That was the most important lesson Bobby and Helene had to learn,
and I forced them to figure it out for themselves.
I follow every step they take.
I showed them how to break down sales by product type,
how to calculate their cost of goods sold,
and their gross margin.
We draw up a list of expenses and determine their fixed costs.
With sales, cost of goods sold,
and overhead,
they can create their own monthly income plan.
Then I walk them through the process of making a monthly cash flow projection,
which they can then aggregate into a full year cash flow projection.
I just did enough of the work to make sure
they knew how to do the rest.
The rest they have to do at home,
using pen and paper and not using computers.
Those are all stages of the training process.
When you write your own estimates on paper,
do the math yourself,
and look at the numbers for the whole year,
two things happen.
First, you will start to get a feel for the business.
Second, you begin to understand reality.
You will understand that revenue does not necessarily lead to profit,
and that selling or making a profit does not mean increased cash flow
and better understand the correlation between issues.
Another reason why a business plan is essential is
because it will help you know
the total amount of capital needed to start a business.
That number comes from cash flow projections.
In most cases,
you will initially have a very bad cash flow,
month after month,
and by the time the business takes a hit,
the cash flow will start to improve.
However,
if your predicted cash flow never improves,
the business is not viable,
then you should find something else to do.
But if the business is viable,
your required start-up capital should,
in theory,
be equal to the largest cash shortfall expected.
Also in theory,
if you invest that money in a business,
you need to watch out for the possibility of running out of cash.
In fact, I always increase that amount by at least 50%.
With Bobby and Helene,
for example,
it looks like they’ll run into a cash deficit
of about $15k in the worst month.
So I told them the business definitely required an investment
of about $25,000,
but they only put up $15,000 up front.
There are two reasons why you should define a provision
before starting a business.
First, the costs are always higher than you expect,
and the profits are always smaller.
So in reality,
you’ll probably need more capital than the cash flow projections show.
In addition,
there is also a psychological
and emotional problem.
That is,
you will raise more capital
if you know from the beginning that you will have to.
You think differently about this if you
still think that the required investment capital
you have created is already the maximum.
******************
Ask Norm
Dear Norm:
My in-house design company sells display racks
and similar equipment to retailers.
I’m trying to get around 25% to 30% of gross margin,
but I don’t know if it’s a good fit.
I always wondered how much more sales
we could increase if we cut prices.
Norbert.
Dear Norbert:
I think you asked the wrong question.
You should ask yourself how much sales would be reduced
if you cut prices.
Gross profit and net profit are always more important than sales.
I would prefer $20k gross profit on $50k in sales
than having the same gross profit on $100k in sales.
Why?
Because I have less headaches,
less shipping costs,
less staffing.
If I were you,
I would look for ways to increase gross margin,
not reduce it.
Go!
You can cut your shipping costs,
but I wouldn’t unless you’re sure you’ll get extra sales
and they’re worth it.
– Norm
A business plan is the foundation for the next steps
because you will know what elements are needed to keep the business going.
With Bobby and Helene,
I broke down the survival factors into the easiest
to understand terms
and into numbers they could control.
They will recognize the difference
between selling cleaning supplies with a 50% gross margin
and computer equipment with a 10% gross margin.
They will begin to understand how gross margin,
credit will affect their cash flow,
and how cash flow will determine
whether their business can sustain long enough
to know if the business is as viable in practice as it is in theory.
They will find the point to focus on quickly achieving success.
In fact,
Helene is finding that point of focus.
She learns very quickly.
Bobby needs more time,
and he has more obstacles to overcome,
especially the obsession with sales.
****************
Overcoming Revenue Obsession
Most entrepreneurs suffer from an obsession with revenue
when they first enter the business field.
They want to see sales grow month by month,
day by day,
hour by hour.
Me too, I don’t care about anything other than the company’s weekly sales.
So are my investors.
They never asked me about profits.
All they want to know is revenue.
It’s the revenue obsession.
You will always think that you need to focus all on generating revenue.
That is very dangerous,
especially when you run a business in the basement
with little capital.
Why? Because revenue is not synonymous with cash,
and cash is what you need to survive.
If you run out of cash,
you’ll go bankrupt.
The point is to understand that you actually
only have a limited amount of capital.
If your gross profit is not enough to cover your expenses,
you must use capital to cover the difference.
If you continue like this,
you will fall into capital abuse and quickly run out.
This has created two important laws
that all startups need to understand and follow.
First, protect your capital,
only using it on things
you are sure will increase cash flow in the short term.
Second, keep your monthly gross margin as high as possible.
Don’t pursue any deals with low margins.
Surely you will think these rules are quite simple,
but in order to follow them,
you need to set some rules and discipline for yourself.
It’s easy to go astray,
and it’s mostly due to the obsession with revenue.
Bobby is a prime example of this problem.
He has been trained to think
and be revenue-oriented for more than 14 years as a salesman.
You’ve never heard of gross profit.
His job is to sell as many items
as possible at a fixed price regardless of how big
or small the gross margin he brings.
So what does he do when he finds out he’s had a bad month?
Suppose in his business plan he predicts sales
for that month to be $20,000.
That’s your breakeven point.
It’s now the last week of the month
and he’s only hit $10,000 in sales.
He began to despair.
He called the sales reps
until he found someone
who would buy $10,000 worth of tools if he dropped the price.
They negotiate,
and Bobby gets the customer a good deal.
Bobby also feels very happy
because he has achieved his goal.
He sold tons of goods.
He came and said to Helene:
“We made it.
We have sold enough sales.”
But what did he really do?
First, he didn’t break even.
The price he negotiated left him
with only 10% of gross margin on sales.
The breakeven is $20,000 with a gross margin of 40%,
which is $8,000 in gross profit.
He sold $10,000 at 40% and $10,000 at 10%,
for a total of $5,000 in gross profit.
Therefore, the margin is 25%, not 40%.
It is not enough to cover the cost.
He was short of $3,000
and had to get capital to make up for it.
After five months like that,
the business would have consumed all of the $15k Helene invested.
Second, he was wasting his time.
You should use your time to pursue high-margin customers,
usually customers who buy in small quantities.
In addition, there is one more rule,
that is: use the time to develop relationships
with the customers with the highest margin.
Let low-margin customers find you,
then negotiate a price increase.
More importantly,
Bobby maintains a business based on a customer
who can make $10,000 worth of purchases a month.
What if the customer can’t pay, pays too late,
or only pays if Bobby keeps calling?
That is a risk,
and the risk with a large customer will also be much greater
than with a single customer.
Bobby took a risk
without fully understanding that,
and that mistake stemmed from an obsession with revenue.
Commissioned salesmen like Bobby
ever worked never worried about salary.
Do not misunderstand me.
I don’t think sales obsession is always bad.
It’s fine as long as you can balance it.
Just because you can’t balance the revenue doesn’t mean
you won’t care about other parts of the business either.
You have to find out,
catch everything,
or else you won’t be able to survive.
You will make a lot of serious financial mistakes,
just to avoid a month of bad sales.
That’s why it’s better to have a month,
or even months of bad sales,
than to let your gross margin slide.
I realize how hard it is for a salesperson
and most entrepreneurs to be salespeople too,
to accept this,
but in reality,
it matters.
Why? For your goals,
for your long-term goals,
something you decided before making a business plan.
Bobby and Helene want financial independence.
But the question is,
will this business help them do that?
They need to find the answer for themselves.
Obsessed with sales can make businesses unable
to change their long-term goals,
unable to set sales targets,
and ultimately unable to determine the viability of the business,
if you have several months of bad sales,
what does that mean?
That result will tell you many things,
such as whether your business is completely unviable,
or you can’t afford to sell at a high gross margin to hit your goal.
Therefore, you need to focus on this issue.
People’s most common choice in this case is to deceive themselves
with a series of months of high sales with low margins.
And this is very simple.
Simply lower the price of your product than your competitors,
and you can get all the sales you want.
You will think your business is still doing very well.
You won’t run out of cash
as long as your revenue continues to grow
and you can collect money before you pay fees.
The problem is,
the amount of expenses you need to pay back
is more than you can afford.
You default,
and you don’t understand why.
In fact,
this still happens all the time.
Therefore, the best way to avoid
that situation from happening
is to follow the above principles
and keep a close eye on the numbers.
If you look carefully,
you will see a big picture of your business
and you will understand what is really going on.
You’ll understand if you’re on the verge of bankruptcy
and whether it’s time to try something different.
However, maintaining business orientation is not easy.
It was even more difficult for Bobby and Helene.
During the first year,
they constantly had disagreements over business views.
Helene kept telling Bobby
that he should find a full-time job.
Her family and friends shared the same opinion as Helene.
But they are still living on Bobby’s unemployment benefits
and unemployment insurance (COBRA).
And Helene worries about what will happen
if they don’t get those benefits.
My job right now is to make things happen
and help Bobby focus on high-margin deals.
Bobby and Helene are trying to get an average margin of 40%,
but at the same time still accept deals with a 9% margin.
So I suggested that Helene manage the margin of the deals.
If they had a deal with a margin of less than 20%,
Bobby would have to ask Helene if they should accept the deal.
Usually, she would say no.
Bobby felt very annoyed by that.
I had a chance to receive a valuable order $3,000
with a gross margin of 13%,
and would add another $390 to the bank.
But Helene still wouldn’t accept the deal,
and Bobby angrily asked her,
“How can this business go forward
if we keep turning down deals like this?”
Bobby still couldn’t understand how a low-margin deal could ruin a business.
These things were completely unlike what he had done
and was used to for the past 14 years.
In the end,
however,
Bobby still adhered to his plan.
Gradually, their business margins improved,
and their customer base expanded.
After a year,
we regrouped,
looked at the numbers,
the issues,
and found out that the business was $5k short,
and they couldn’t have kept the business going without it.
Bobby’s severance allowance.
I warned them that the second year would be a lot harder
than the first year if they didn’t have the money,
and in fact,
they had a crisis of two consecutive bad months.
I presented them with two options
and asked them to choose one of two options:
they could invest another $10,000 from their savings,
or they wouldn’t get a paycheck for two months.
They choose the second solution.
Bobby and Helene gradually understood and understood everything.
They closely tracked the numbers for a year and a half,
looking at sales and gross margin by product type,
and tracking about 10 expense items.
I told them,
“As the business grows,
usually the costs go up.
You need to understand this and it’s inevitable.”
And Bobby was up for the challenge,
and Helene grew more confident over time.
Dear Norm:
I am 34 years old this year,
and I am struggling to build and manage a business of my own.
I felt like I was standing on the edge of a cliff,
trying to maintain and build a business.
I made mistakes in advertising,
cash management,
and a lot of other things.
I think the last possibility
I have left now is to be willing to accept the worst.
I hope my cash flow can meet my blunder before it’s too late.
Scott.
Dear Scott:
Your letter reminds me of my first business
when I was 33 years old.
I understand how you feel.
Believe it or not,
I want you to know that these are experiences that one day,
when you look back,
you will find many wonderful lessons.
I hope your business will not fail,
but if it does,
you will also learn many important lessons,
and I am confident that your next business will succeed.
Therefore, let’s continue.
– Norm
****************
“MINE MATERIAL” STAGE
It would be a mistake to allow yourself
to be too permissive in your business,
right from the get-go,
you think you’ve made it through the tough times,
safe and secure.
This is not just an issue for startups,
but for companies of all sizes and stages of development.
That’s because changes will always occur in business,
and they can be good or bad.
To me, a business is a living entity,
and a living entity is bound to change.
People change,
trees change and so do businesses.
They change because customers will have new needs,
because they start targeting a different audience,
and possibly because a new competitor comes into the market.
There are many reasons why businesses have to change.
However, when those changes start to appear,
you probably won’t notice them.
And if those changes are bad,
they can quickly destroy you.
I always had this in mind
when I asked Bobby
and Helene to keep a close eye on the numbers.
I don’t just think about their temporary existence,
but want them to have a clear understanding
of how the business is changing from the start,
so that they can realize other changes later.
And more than that,
I knew their business wouldn’t last forever at the start-up stage.
So we wanted to find out
when the startup phase would end
and the business would reach the “mature” stage.
The maturity stage is a special threshold that sooner
or later every successful business has to cross.
Reaching this stage depends on how successful certain elements of the business are.
That factor could be customer size
or it could be the number of active customers.
But there are certainly ten such “mature” stages.
And no matter how things change,
those maturing periods will all produce the same thing:
self-generating breakeven cash flow.
What I am referring to here is not a problem
of breakeven on a profit-loss basis
but rather a period in which each month cash increases
or decreases by itself enough to sustain the business
and allow the company to grow
without outside investment or financial support.
It is the main turning point for any business plan.
Before the “mature” stage,
the company was an “infant” enterprise
that existed on external capital.
After the “mature” stage,
the company is an independent,
self-generating entity capable of self-sustaining.
That is your next goal after determining that the business is viable.
The point is to find the boundary to that stage.
For example,
we determined that Bobby
and Helene’s “ripe” phase would be related to the customer base,
the number of repeat customers to be exact.
We find that many customers want to work with them for a long time
and almost always take the initiative to re-order.
For some customers,
Bobby and Helene just call
or fax them to remind them and they’ll order again.
Thus, when Bobby and Helene had a large enough customer base,
they knew they would generate enough sales to break even.
The question is how big of a customer base do
they need to be able to achieve that level of revenue?
If you know the recurring order of your customers,
you can determine your specific revenue over a period of time
by the number of customers.
Of course, that level of revenue is not the same every month,
but the good months make up for the bad ones.
And since we know Bobby and Helene’s gross margin,
expenses,
bad debt ratio,
and the time it takes to collect debt and pay bills,
we can also predict the cash flow generated by sales.
If you can build a correlation between cash flow, sales,
and a few other factors,
you can easily identify the “ripe” stage.
In the case of Bobby and Helene,
we knew the average amount of cash needed each month to stay afloat,
so we were able to convert that to average monthly sales.
That is their “ripe” stage.
Once they get to that stage,
they won’t have to rely on Helene’s savings
to keep their businesses and livelihoods going.
After the “mature” period,
business development becomes a top concern.
Obviously it’s a big change from before a good period,
but this change has many consequences.
It opens up a whole world of potential
that you wouldn’t have thought of in the start-up phase.
While you still have to rely on outside funding,
you also need to focus on building the business you already set up.
For example,
you must be very cautious about testing new products or services,
at least until your business is scalable and secure.
If you don’t have enough time
or money to pay for testing,
it means you are living on a capital source limited.
You have to do everything
you can to make your business viable
before you run out of capital.
Entering this stage,
the whole picture of your business will change.
Then, you will no longer have to rely on savings,
bank loans or capital from other investors.
After the “mature” stage,
your business will be completely based on endogenous cash.
You will get the interest
and can deposit them in the bank
or use part of it to reinvest in the business,
and I think you should.
You can even borrow more to grow your business
if you find yourself able to pay with profits.
You may think this is a bit reckless,
but surely at this stage you are qualified to take the risk.
If you invest wisely,
you will have the opportunity to strengthen
and grow your business.
However, that does not mean
that you are allowed to be reckless.
In fact, there are many businesses
that become negligent once they have reached the “mature” stage.
Usually, the businesses that seem to neglect their work are the ones
that reach the “mature” stage through a combination of luck and instinct,
so they never understand the motivation to do so grow your business
and fall into the revenue-obsessed rut.
They seek revenue by all means,
and after achieving it,
they feel excited,
elated,
and in a state of euphoria.
They ignore warnings
and take advantage of any new opportunities that arise.
In those cases,
if your core business is solid enough,
you’ll be able to sustain it for a while.
So, try to avoid getting into trouble by sticking to the rules
and keeping a close eye on the numbers.
Numbers help balance your emotions,
curb complacency,
and remind you that
while your cash may be self-generating,
it’s not unlimited,
and it can still run out.
Therefore, you must keep yourself
from getting caught up in such emotions.
You must learn to avoid making decisions based on emotions.
Although it is a long and difficult process,
you must learn because it is very important.
In business,
you must try to be objective,
understanding as clearly as possible what you are doing,
its causes as well as its consequences.
And after understanding those things,
you can decide based on your feelings
because at least then you have thought and chosen carefully.
That was exactly how Bobby
and Helene were after the first two or three years.
Then they have a lot to choose from.
How fast do they want to grow?
How big do they want to scale?
Do they want to continue doing business in their basement?
Do they need to hire more staff?
It all depends on them because at that point,
they already have the tools they need to make wise choices.
But the most important thing
then is that they have achieved the goal
they set for themselves when starting a business.
In their third year of business,
they had $482k in sales,
a $162.3k increase over the first year,
and their average gross margin remained steady at 39%.
They have truly achieved their goal of financial independence.
“Things got really interesting,” says Helene,
recalling her start-up time.
“A few months ago Bobby asked me:
‘What would we do if the old company offered you a job again?’
I said, ‘We will certainly refuse.’
I never wanted to work for someone else again.
Why should we dedicate our talents to others?
We are smart and wise enough to take care of ourselves.
Moreover,
our lives and financial conditions are much better than before.”
“As long as you work for someone else,
your financial situation is always completely unsafe,”
Bobby said.
“That is especially true in today’s world.
Look at my fired friends.
I said to Helene,
‘This will never happen to you again.’
And I feel good about it.”
Helene said:
“One thing Bobby always says,
and he seems to be more and more right every day,
is this: safety isn’t a job,
it’s the confidence you feel in yourself.’”
“‘That’s right,’ I said,
‘there is no such thing as a safe job.
The only security is your own sense of personal worth
and your knowledge of making a living.’”
“Even when he worked for someone else,
he still said that,” says Helene.
“At first,
I always thought it was just his optimistic way of saying it.
But you know what?
It is more and more true.”
*******************
KEY POINTS
First: Don’t let emotions rule your decisions,
they will make it difficult for you to achieve your true goals.
Therefore, you must keep yourself from getting caught up in such emotions.
You must learn to avoid making decisions based on emotions.
Although it is a long and difficult process,
you must learn because it is very important.
In business, you must try to be objective,
understanding as clearly as possible what you are doing,
its causes as well as its consequences.
And after understanding those things,
you can decide based on your feelings
because at least then you have thought and chosen carefully.
Second: Make sure you understand what cash flow is
and where it will come from.
The breakeven is number with a gross margin of 40%
Third: Control your revenue obsession
and balance it with a business mindset.
You will understand that revenue does not necessarily lead to profit,
and that selling or making a profit does not mean increased cash flow
and better understand the correlation between issues.
Fourth: Learn to anticipate and recognize changes in business
by improving your sensitivity to numbers.
You should use your time to pursue high-margin customers,
usually customers who buy in small quantities.
In addition, there is one more rule,
that is: use the time to develop relationships
with the customers by the highest margin.
Let low-margin customers find you,
then negotiate a price increase.
