Prefer to read instead of watch? Here’s a rough script I used for this video.
Whenever you’re going into business, your goal at the end of the day is to be able to take money home from your business so that you have an income to provide for your family, save for the future, give to charities and whatever else you may want to do outside your business. The goal isn’t to maximize the amount of revenue your company makes, because having a ton of revenue doesn’t do anything for you if operating expenses consume all of that revenue. Your goal may not even be profit, because you can have a profit on paper but not actually have any money to take home at the end of the day because your clients are slow paying their bills or you’ve given them 60 day or 90 day terms. What you’re really optimizing for is your cash flow and your profit margin. How much cash am I bringing into the business from my customers and how much of that cash can I take home from the business as profit.
In this video, I want to talk about how you can maximize your company’s cash-flow and maximize your company’s profit margin. Here are some tips to help achieve those goals.
First, be incredibly weary of signing up for subscriptions and recurring monthly payments. These things sneak up on you and eventually add up to be thousands of dollars per month. When you’re signing up for a subscription, you are committing to buy something every single month without deciding that you want to keep paying for that thing every month. It’s really easy to let these things slip and then you find out you’ve been paying for a service that you haven’t used in over a year. It’s easy to think that when you’re considering signing up for something, “Oh, it’s just $20.00 per month or $100.00 per month, I can afford that.” But these things add up over time and it’s pretty rare that they ever go away. I recently went through all of MarketBeat’s recurring subscriptions and noticed that I was still paying $294.00 per month for a web server that I thought I had cancelled 4 months ago, so that’s $1,200 down the drain that’s not coming back. So, be very careful when signing up for recurring payments and make sure you actually need them and regularly review them to cancel stuff you’re not using.
Second, don’t always assume that spending money is the solution to your problems. In my business, we use a lot of technology and cloud infrastructure services like web hosting accounts, email service providers, data feeds, etc. These things add up to more than $10,000 per month in monthly expenses. Whenever we’re looking for a new data feed or service for our business, we often find that there’s a way to accomplish our goal or get the data we need without paying for a monthly service. Often we can end up building a service ourselves or make a non-cash deal to get what we need.
Third, don’t give generous payment terms to your clients. If you work with big companies, they may ask you to give them 60 day or 90 day or even 120 day payment terms for the work that you do. This means they want to wait 3 or 4 months to pay you after you do work for them and effectively they want a 90 or 120 day interest free loan from you on the amount of their bill. Be very hesitant to do this, because at most you are going to get 30 day terms on any money that you owe, so you don’t want to have to pay for any expenses that your clients generate to your vendors when they haven’t paid you and may not pay you for another 60 days. That will just eat-up for your cash flow and may even put you out of business if you are growing rapidly, so make sure that the payment terms that you give to your customers matches the paymetn terms that you give to your vendors. If you have 30 days to pay your vendors, make sure that your clients are paying you in 30 days as well.
So, those are the three tips. If you have other ideas, I’d love to hear them. Please share any additional ideas you have about protecting your margins in the comments below.