Speaker 1: every small business is going to run into the same challenge of money management. Now, money management is really more of a methodology. It's an approach to how we control the money within our company. Now, no matter which approach we actually use, there are going to be three money management basics that every single small business owner must focus on. So in this video, we're going to talk about the three money management basics for all small business owners. So the first thing we want to focus on is cash flow. Now, cash flow just literally means whatever money is left over at the end of the day. So let's say we have $1,000 come in and we have $500 go out. Well, then in theory, we have about $500 worth of cash flow. And so if you're a small business owner and you already have some of your financial statements in order, then you can go to your cash flow statement and it'll tell you the same exact information. Now, some cash flow reports can be pretty in depth, right? Pretty detailed. And in all reality, we want that information for sure. But if we just keep it simplified, what does cash flow actually tell us? Well, if we have cash flow throughout the months and throughout the years, what this shows us is that we have enough money to actually operate the business. Let's say, for example, we only had that $1,000 come in every single month, but we actually needed $1,000 to operate the company, right? Whether that was through technology, marketing, employment salaries, whatever they are, we needed $1,000 to operate. Well, in that scenario, we would be at a cash flow of zero. That means we have no wiggle room, no breathing room for any mistakes, any market trends, anybody quitting or any fees increasing between our technology and our legal, whatever the case is, we have no breathing room for those changes and variations. However, if we go back to the first example, let's say we do have that $1,000 coming in and we only have $500 going out. Well, now that gives us $500 to be able to flex one way or another if something does change. A great way to think of cash flow is think of it as like the blood that's pumping through the business, right? We constantly need that blood pumping through us to make sure that we can operate, that we can function, to make sure that we're getting enough of the nutrients, right, to all of our bones and to our muscles. It's the same thing in business. We need enough cash flow to go to every section of our business, marketing, sales, operations, and so forth to make sure that the business is healthy and it can continue to function. Now, the second thing we need to focus on is startup costs. Now, startup costs, all this means is how much money do I need to actually get started before I can produce my first cent in revenue? So, what are a few examples of startup costs then? Well, you know, let's say maybe we do want to create an entity, right, like an LLC or an S corp or something along those lines. Well, creating that's going to cost you some money. Getting a bank account set up, sometimes there's bank account fees, that may cost some money. Whatever type of branding you may need, maybe if you're selling merchandise, you may need a brand to put on there or a logo or a design, that's going to cost you some money. Maybe you need to get a patent or a trademark, that may cost you some money. We have a website, that may cost you some money, right, and so you can start to see all the things that are necessary to produce revenue is the key term there. There's a lot of times where business owners, entrepreneurs, right, will go out there and a few of us may say, hey, look, before I can ever sell anything, I need a business card, right. Before I sell everything, I need a logo. Before I can sell everything, I need, you know, you name it, fill in the blank. In all reality, that's not necessarily the case, right. For real estate, for example, you don't need a logo, you don't need a business card, you need to go out there and you need to get a deal done, right. You need to go talk to the seller, find a buyer, and make it happen. Yes, there are some smarter ways to do things, there are some ways to protect yourself through LLCs and other stuff like that, but it's not necessarily a requirement in order for you to do a deal, right, especially as a real estate broker. If you're a licensed real estate agent and you go and hang your license with somebody like EXP or Keller Williams or Caldwell Banker, well, when you go over there, you don't need an LLC to function, right, you have the protection of that other company there. You don't need a business card to sell, you're already licensed, just go out there and sell, right. So, there's a lot of things that aren't necessary to generate revenue and so it's extremely important when we're calculating startup costs that we're focusing on things that we need to generate revenue, not just things that we want and we desire. Now, when it comes down to it, how do we calculate these startup costs? Well, it's really simple. We're going to take all of those costs associated with everything that we've just recognized and then we just add them together. So, for example, maybe we do need to get the website and so forth and so on and we combine it together and hey, our total startup cost is $25,000 before we can start producing revenue, okay. Well, that is our startup cost, we just need to take note of that. Now, here's the secret challenge though, try to get your startup costs as low as possible because what we want to do is we want to be able to sell as quickly as possible so we can have proof of concept. If we're not selling anything, guys, and we're just spending money on a startup cost and all of a sudden we find out that nobody wants our service or our product, we shot ourself in the foot. I didn't want to say foot, but that's what happened, right. We shot ourselves, man, we have to be careful, we have to make sure that people actually want it before we start spending money on it to try to sell it. Now that the startup costs are out of the way, third thing we need to focus on is the breakeven point. So, a breakeven point just simply says, hey, look, this is how much money I need to make in order to actually make up my startup costs, in order for me to breakeven and come back to a zero-sum investment. So, if I put in $25,000, how long is it going to take me to make $25,000? All right, but here's the unique catch about this all. This has to be $25,000 that we make and that we keep. That means after all of our expenses. So, if we go back to the first one, we're talking about cash flow, right. If we make $1,000 and spend $1,000, then that means we've made or we've kept essentially $0. So, if we're trying to get to that $25,000, well, we made zero, none of that counts towards the $25,000, right. And the other situation that we talked about in the beginning, if we made $1,000 and only had to spend $500, that means we get to keep $500. Now, that extra $500 that we kept gets to count towards our breakeven point. So, if we think about that logically, right, our revenue, right, our just top money coming in, if we sell a product for $1,000, we're not counting the $1,000 because that's almost irrelevant in the grand scheme of things. We have to take away the expenses or the cost of sale in order to develop that so we can figure out how much money that we're actually keeping. And so, now once we figure out, hey, for every product we sell, we sell it at $1,000, cost us $500 to make and operate the company, we're going to be able to keep $500, well, now we can say, hey, how many of these products or how many of these units do we have to sell in order for us to make a breakeven? So, in that case here, let's say it's $25,000 and we have $500 as our keep, right, well, then we just take $25,000 and we divide it by $500, which means we have to sell 50 units in order for us to breakeven. Now, with this knowledge, now we start to get a lot more clarity because now you get to ask yourself, well, how long does it take me to sell 50 units? Do I, am I selling one unit a month, which means it's going to take me 50 months to pay this back off, which is well over four years, or do I sell 10 units a month, and then by five months, I'll be breakeven, which means the rest of the year should, in theory, be profit. These three are the core when it comes to understanding money management, but it does get a lot deeper than that. So, if you guys enjoyed this video and you'd like more content like this, then go ahead and check out the other video about how to create a budget in six simple steps. We're going to go ahead and leave that in the description below. We might even throw a link somewhere here in the video, but definitely check that out. I'll see you guys in the next video.