Today’s episode features the Founder of Profit Factory and financial expert, Tim Francis! A common challenge for Entrepreneurs is knowing where their money went. You sold $1M last year, and your financials say you had $300,000 in profit, but you’ve barely got enough cash to cover your next inventory order. So where’d your money go? In this episode we find out the fake metrics that don’t matter (despite what so many say), the true metrics that do in your pursuit of truly getting ahead, and where your money has really gone.
To get your discount of $500 off the Know Your Numbers Workshop (original price of $995) use promo code is CASHISKING (must be all caps) at:
Date: September 30, 2020
Episode: 44
Title: Norman Farrar Introduces Tim Francis, Founder of Profit Factory and the Creator of a Course called Know Your Numbers.
Subtitle: Revenue is vanity, Profit is sanity, Cash is reality
Final Show Link: https://lunchwithnorm.com/episodes/episode-44-whered-your-monday-go-understanding-finances-w-time-francis/
In this episode of Lunch With Norm…, Norman Farrar introduces Tim Francis, founder of Profit Factory and the creator of a course called Know Your Numbers.
Tim Francis is a financial expert. He discussed the true metrics that do in your pursuit of truly getting ahead, and where your money has really gone.
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Norman 0:02
Hey everyone is Norman Farrar, a.k.a. The Beard Guy and welcome to another Lunch With Norm, the rise of the micro brands.
Norman 0:21
Alright, well, we’re broadcasting to you live from Facebook, YouTube and LinkedIn. If you are watching this on a replay, just skip ahead and for those watching on my personal profile page, you can always head over to Norman Farrar, a.k.a. The Beard Guy, and check out the whole episodes, all the episodes that we’ve done, as well as video clips and other content. So Kelsey, where the heck are you, son?
Kelsey 0:46
I’m here. How are you?
Norman 0:48
Good. How are you?
Kelsey 0:49
I’m doing fantastic. Good. Alright, so you guys know what to do. Like this video right now. If you can share it, that would be great. Get as many eyes on this podcast as possible. We are an official podcast. So you can subscribe to us on Apple and Spotify. Hit that subscribe button, leave a review. Let’s see. We are taking names for our community that we’re building. So we’ve got a couple good entries already. We’ve got The Normies, The Narmy, The Bearded ones. So if you guys have any cover names you guys want to add, throw them in the comments and just let us know where you’re watching from today. Put it in the comments, are you from Canada, America? Where or we’d love to know and yeah, that’s it for me.
Norman 1:42
Perfect. So before we get started, I just wanted to mention a different podcast, one that’s really not about Amazon or e-commerce, although there might be some Amazon people or e commerce people. But it’s I Know this Guy, which basically just started over a cigar one day when three people called and I said, I know this guy to each of them and anyways, I kind of looked at what the kids at the time they were all home because of COVID said, we should do a podcast or something about that and it started I Know this Guy. What’s really cool about the podcast, it’s just about interesting people, there are ups, there’s downs and everything in between and the cool part is that they refer us to the most interesting people they know and some of the people that we’ve got to talk to over the last few months are it’s just incredible and it’s just building. It’s gone from once a week to twice a week now on Tuesdays and Thursdays are released. So if you want to check it out, just, check it out. I Know this Guy. Again, it’s not about Amazon, but you’ll see some familiar faces. Alright, so today, well, first of all, if there’s any comments, just shoot them over to the comment box, and we’ll get to them right away and today’s guest is joining me from Austin, Texas. He’s a financial expert, Tim Francis, I’m not sure if you know him, you should. I met Tim, I had the pleasure of meeting Tim at the Empowery summit in Seattle last year and just an incredible, interesting guy. He makes financial numbers look extremely easy. So a lot of people and this is kind of my pet peeve. I didn’t talk to Tim about this before the podcast today. But it’s hard for me to talk to find it out. Like when I take a look at people’s financial records when they come on board as a client of ours and you just feel so bad that if they would have done just little things differently, they could have done so much better and so we thought that was important. I talked to Tim, Tims gonna come on today. He’s also got a course by the way, just it’s called a course called I Know your Numbers workshop and that’s what we’re going to touch on today. It’s so important and at the end of it, and at the end of his workshop, by the way, you’ll learn that you don’t have to take a university course. It’s not boring. But it’s so easy to turn your business around or make it from a success or from a failure. Or take you from red to black into the black in a few easy steps. So again, I’m long winded, but Tim’s going to explain it all. Alright, so let’s sit back, relax, grab a cup of coffee and enjoy the show. Tim.
Norman 4:39
There’s the man.
Tim 4:40
Good day. How are you Norm?
Norman 4:42
Good. It’s nice seeing you again.
Tim 4:44
Yeah, nice seeing you again. You’re such a gentle soul and such a wealth of wisdom for all of us. So thank you for sharing yourself with us.
Norman 4:50
Hey, no problem. It’s been I guess, oh, almost a year since we met, I think.
Tim 4:56
Yeah, yep. That sounds about right.
Norman 4:59
Yeah. That’s crazy and I think Empowery, that was one of the last few events we went to. So, I might have gone to four or five after that, but that was it. Wow, this COVID thing. It’s crazy. But anyways, let’s get into what we’re talking about. I mean, I know, this is one of your pet peeves as well, people just not understanding simple numbers and the length of time it takes to understand your numbers is not years. It’s weeks, it could be days, depending if they take your course or not.
Tim 5:37
Yeah, I totally agree and I already see we have some comments coming in. Cy had said, can he please make finances fun? Well, I’ll tell you what, when folks come to our course, we have a great time. I mean, when I talk about finance, I talked about how it relates to what I was a touring drummer, I talked about when I hosted a TV show, I mean, it’s a really, really, really good time and I think a lot of people arrive at my course, concerned that they’re going to be bored to tears with stuff about tax accounting, and all this accounting and bookkeeping speak when in fact, yeah, we touch on it. But the reality is that there’s actually different worlds of accounting out there. There is what’s called tax accounting and then there’s something called entrepreneurial accounting, or managerial accounting and tax accounting is the boring stuff, you got to learn the tax code, it’s this big, and that is what our accountants go to school for and that is what they have to kind of banging their heads against the wall to learn and stay on top of all the time. Here’s the good news. We don’t need to know that. That’s why we have accountants. Now what we do need to know though, is just a few things that allow us to stay on top of our business to know our numbers, and look like I actually never got to business school, I’ll just be totally honest and I could not finish calculus, and therefore I couldn’t get into business school. So I’m someone who has no, like, predisposition for numbers. In fact, my aversion to numbers prevented me from even getting in the school, right and insert a bunch of drummer jokes if you want but up in, I was a touring drummer for six years right to drums, I was ripped on for being the idiots in the band. So for me, like, I hated numbers to at one point myself, and I hated accounting as well and I think like, there was just this really powerful turning point experience for me that really changed everything and what had happened was, I was, I was not big in Amazon, but I was really big into the real estate world in 2006 7,8,9. Right, and it had a huge surge, just like cryptocurrency did a few years ago, kind of 2018, 19. Right and it was like, everyone is making money in real estate and I’d read Rich Dad, Poor Dad and I was all about the Lamborghinis and bikinis, which is so much a part of Amazon advertising, from people selling courses on Amazon and Lamborghinis and bikinis. I was all that I was just like, so pumped up, and I absolutely wanted to crush it and I absolutely wanted to live the dream like success as advertised, as we see in the movies, and in rap videos, and whatever and I work myself to the bone trying to make all that true and I actually, on December the 26th of 2010 developed a crippling illness. So up until that point, I had lost approximately $200,000, mostly other people’s money. One of my mentors had been one of the two leaders in a $12 million Ponzi scheme and his business partner was convicted in court in Canada.
Tim 8:50
The band I was in we’d made it to Western Canadian Music Awards. However, we broke up 20 minutes before going on stage at the Western Canadian Music Awards. So all of all these efforts, I had to become rich and famous, right like literally rich with real estate and literally famous with my band. I had it all dialed in and air quotes. I really just hit this point where stress from failing and losing so much and exhaustion of working like 80 to 100 hour work weeks, every single week and all that culminated on December the 26th 2010. So on Boxing Day of 2010, I developed an illness called Erythema nodosum and Erythema nodosum is swelling. It starts in your ankles, it moves up in your shins. For me, it moved into my hips, moved to my elbows, and it was so uncomfortable. I literally couldn’t walk and so I went from winning a Top 20 to 30 award my city and being a touring drummer and all the rest to being unable to walk in and move back in with my parents for full time care and I’ll tell you, Norman and Kelsey, that like one of the worst feelings of my whole life was when I realized that I was $200,000 in debt, and I had no way to make money because I couldn’t walk and I couldn’t leave the house. Now maybe that seems like Oh, just start an Amazon business. But remember, this was 2010. So that’s a decade ago and Amazon was not what it is today, like, people were just starting to learn what is PPC, right? Pay per what? Right? So and it was actually thankfully, because of PPC. A friend of mine had an e-commerce store selling supplements in Canada and as I’m laying in bed day after day, unable to walk, unable to work, and really like going through this rollercoaster, like there’s some days I was angry, there was some days I felt like an idiot and I was humiliated. Other days I was embarrassed and this one day, I just heard this voice, it said, it’s said Tim, entrepreneurship, is that is this really what you want and guys, like in that moment, it was like, I don’t know if a second went by or a minute went by or an hour. It’s like one of those surreal moments of life where it just time stood still and then I heard another voice, it was quiet. It was weak, it was distant, but it was clear.
Tim 11:14
It said, Yes.
Tim 11:18
In that moment, all these dominoes started to fall all the like this cascade of realizations, one after the other, that I’d been chasing fame and fortune, when what I needed to be chasing was truth and mastery and that if all I got to do for the rest of my life was pursue truth and mastery, every single week of my entrepreneurial journey and truly in my life journey, that that would actually be a life well lived, even if I never was rich, even if I never was famous and as soon thereafter, what I was confronted with was the reality that, well, if I’m going to understand the truth of a situation, I better get pretty clear on what the situation is. Now, let’s just take a little bit of a side tour here, just very briefly to say, could you imagine going into a Doctor’s office, you say Doctor not feeling well and they say, well, let’s take the appendix out. I mean, you can well, I’ve been here for 38 seconds. Appendix, you can take it out right now. Says yep, that’s it and then you leave, no bloodwork, no x-ray. No imaging, no analysis. Nope. Nope. Very, very few questions. Just yep. Appendix gotta go. Goodness gracious. I mean, that would be insanity. Right and that’s what I realized was like, wow, a doctor gets to know the numbers of your situation. They’ll look for bloodwork, what’s your hemoglobin level? Right? How much iron do you have? I mean, there’s all these things doctors look for in your blood dependent to try and diagnose your situation before they just say Oh, Appendix has got to come out. They also use imaging, right? They’re using imaging like x-rays, right, like MRIs to be able to see through and be able to understand what’s really going on beneath the surface. If a doctor didn’t do that for you before recommending this, like major surgery that you actually have to go under for. He said, It’s insane. Yet we as entrepreneurs, we have only one solution, that’s just sell more, Oh, you got a problem, sell more, get a problem, sell more, get a problem, sell more. The problem is, that’s the same as the doctor who only has one one prescription, which is remove the appendix doesn’t matter if you’ve got a headache. Or if you rolled your ankle playing basketball, that same doctor is just gonna say well take out the appendix. It is once you understand a little bit about your numbers, you understand how absolutely insane it is to just treat all of your problems by just trying to sell more. So getting back to my journey, a friend of mine had some success online and I knew nothing about how to do PPC or how to do internet businesses at all. So I was so broke, I was so broke, I couldn’t even afford the $97 to buy Perry Marshalls ebook, the Definitive Guide to Google AdWords. So my friend actually gave me a pirated copy. I’ve since shared the stage with Perry many times and I’ve apologized too many times like it’s so sorry, still your book Perry and he’s since forgiven me. I’ve purchased many other programs for him. So, it all worked out but I just focused on doing the skills, there’s a great book I read, it’s called So Good They can’t ignore you. I had previously been so hyped up on The 4-Hour Workweek and the vision that painted that I needed a balancing book. I think everyone reads The 4-Hour Workweek, which maybe gives you wings, should read so good. They can’t ignore you, which gives you roots and it’s between the two that you’re going to build a healthy tree. If all we have is wings, or let’s say the canopy of the tree, but no roots, the first wind blows, that tree is gonna get knocked over. Likewise, if all we have is a big tree above the surface, but no roots, I’m sorry, if we have no a tree above the surface, and all we have is roots, then we’re never catching the sunshine, right, and we’re never catching the important nutrient. So both matter and for me, as my business started taking off, I started a marketing company, doing PPC and building websites and other lead generation. I started becoming confronted with new problems, the new problems were like, hey, I’ve got a six figure business, but my bank account doesn’t have anything in it. Where’d the money go? Then I had a multiple six figure business and I was even more frustrated, because I thought all I had to do was just sell more and then I would get my financials from my accountant and the revenue number would say one thing and I kind of got that like, well, I don’t keep all my revenue except expenses. So what’s the profit number, so I would look at that, look at the profit number, I don’t look at my bank account, they’re different numbers. Now I’m getting even more frustrated, because I’m like, not only do I not have as much money as I thought, now my financials and my bank can see two different things. So I don’t even know what to believe anymore and then all of a sudden, I get these surprise expenses, like tax bills and now I have to scramble to even just like come up with the money to even just like, keep the government happy, and like make them go away and the roller coaster, and the bigger my business got, the higher the peaks of money in the bank account and the lower the valleys of disappointment and literally out of just like self survival. I said, like, I don’t care if I can’t get into calculus, if I can’t get to business school, this is insanity, I must understand what’s going on with money in my business and so I spent $100,000, I traveled all over North America, I attended workshops from some of the brightest entrepreneur legends in America, and train privately with with a couple of them and at the end of all, that I still did actually go to the University of Alberta night school, they wouldn’t give me they wouldn’t let me do a four credit course because I couldn’t get in. But they’d let me pay the money to do the night school to do the audited version, where they don’t actually give you credits, but you can sit in the room and listen and after all of that I realized accounting is way simpler than anyone ever makes it out to be when you know how to look at it from the entrepreneur view and so I put together a three day course called Knowing your Numbers. It’s for entrepreneurs who hate accounting, but want to get the financials under control and I’ve since used those methodologies to help dozens and dozens of companies. I’ve now set in the board meetings of 141 times for probably 70 different companies, including some Amazon businesses that were looking at selling for between 50 to 100 million dollars, like that was the sale the enterprise of the Amazon business and then obviously all the way down to Amazon businesses doing a couple hundred thousand dollars in revenue. So it’s been a wild ride, gentlemen and all I got to say is it’s easier than you think and it’s more essential than anyone else, I think, is willing to admit, because the sexy thing is to say, Oh, I make $30,000 a month on Amazon. But that does not say anything to the profitability. The amount of cash we’ve got, how much free cash we’ve got is actually a different number than what’s in your bank account. Nor does it speak to the level of debt that we have. So I’m now on a mission to just help spread the tools that allow us to see the true progress of our business, not just the Lamborghinis and bikinis kind of as advertised version, if that makes sense.
Norman 18:30
So that drives me crazy, by the way, when we go to these events, and it’s, oh, I made $250,000 Well, that’s gross revenue, what did you really make and tell us your gross profit or your net profit. Don’t go to gross, but you don’t hear that and the other thing that’s kind of interesting, you’re talking about, you’ll hear about selling more. Well, what usually accompanies sell more is lower the price and there goes more money. If you do it properly, you probably could increase the price, we talked about perceived value quite a bit. But then understanding your numbers is going to give you so much more. So let’s dig into that. First question I have is, what’s the least amount of information should somebody know?
Tim 19:21
I think the least I could do is maybe switch the question a little bit to say, if I could only do one thing coming out of this learning from this podcast or the workshop, what’s the one thing I can do to maybe avoid stepping on a landmine? Could we make that the question? Yeah, let’s do it. So this is not a complete financial solution. I’m being very, very, very just want to be very clear about that. I’ll tell you though, that knowing what your cash flow forecast is, is the single most important thing that will prevent you from going out of business.
Tim 19:58
I’ve had multiple Amazon and other e-commerce platform business owners learn about this one tool and I’ve received like tearful messages, including video messages saying, Tim, I had no idea I was just a few weeks away from going out of business, wow, your one tool saved my multimillion dollar company and we’ve been able to completely fix the issues that we had, not saying to fix everyone’s issues, but in their instances, it fixed the issues that they had to get back to health and so I think that, when we have the view of just sell more, we don’t, we’re not acknowledging that there’s actually strings attached to all revenue. So I always say, all revenue has strings attached to it. It’s up to you to decide which strings are willing to live with, right. So for example, I know people who sell on Walmart, for example, sometimes they’re faced with never terms, kind of a funny way to say that, right? So meaning you could sell in Walmart, but they take 190 days to send you your cash. So congratulations, maybe you sold $50,000, or $100,000, or whatever the number amount is. But if you don’t actually get the cash for six months, or even three months, that’s a string that’s attached to that sale is very slow terms and if you don’t have the cash in your bank, you can’t turn around and buy your next inventory order or pay for inventory or pay for advertising or whatever it is you need to pay for, righ?. Another string that might be attached is there’s a lot of revenue that has no margin, or in fact, negative margin. Like a lot of people don’t realize that you can actually for every dollar that you sell have like $1.20 in costs. That’s between your manufacturing costs. That’s your shipping costs. I mean, there’s all like your advertising cost to acquire the customer. Right? There’s a huge long list and it blows people’s mind when they think about well, wow, if I had a negative 20% margin, and I sold $10 million in my business, that means I would actually lose $2 million in the year, like I’d be up 10. But down $12 million, right and that’s also true. If you just have $100,000 business, if you have $100,000 of negative 20% margins, you’re actually spending 120 and you’re upside down by the end of the year. What’s crazy about that, what’s crazy about that is you are literally in a better financial position, if you would have just sat in your mom’s basement and played Call of Duty right the entire year. Yeah, like, I was walking down the street after I lost 200 G’s and I saw I saw, like, homeless people’s like, wow, that person, that homeless person right there, their net worth is $200,000 better than me and presuming they have nothing in the bank. Maybe they do? I don’t know. But that’s a pretty crazy experience and thought and so how do we make sure that we actually keep not just make a million millionaires, not someone who makes a million somebody keeps a nine very different ballgame and it drives me crazy when I see people saying, oh, here’s my millionaire club or my millionaire program and all it does is help someone sell seven figures. That doesn’t mean that you’ve kept a million, let alone that your net worth is a million because maybe you kept a million but you’ve got a million in debt, which means you have zero, right? Zero net worth a millionaire, someone with a million dollars of net worth, not revenue, not even cash, but net worth. So the cash flow forecast what it does is it allows you to say here’s the cash coming in, here’s the cash leaving my business in the next 13 weeks and here’s a little secret few people will ever tell you is that no business ever went out of business because of a lack of revenue. Right? No business ever mathematically, scientifically, in the history of mankind. Never ever, ever has a business gone out of business because of lack of revenue. Now hold on, if you’re sitting at home or in your car you’re working out or wherever you’re listening to this or watching this you’re going well hold on. Mark Cuban says sales cures all, well consider this simple, simple question. How much revenue did Google have for its first 5,6,7,8 years of existence? They had hundreds of millions of searches performed on Google. They had Trumped, Lycos, and AltaVista and AOL and all the other search engines they were the king. How much revenue did they have? The answer is zero because they had no ads and had no way to monetize. Facebook, Facebook had hundreds of millions of users around the world and this is not that long ago. This is like what, five six years ago? They were the dominant social media platform, had trumped MySpace, had trumped everyone else. They were the dominant social media platform. How much revenue do they have? Zero, YouTube. YouTube had hundreds of millions of views on YouTube, had become the dominant, threatening force to all the major cable networks, right and had become the de facto champion kingpin in the space of video sharing. How much revenue do they have? Zero? How can that be? It’s because it’s not revenue that keeps the business alive or not. It’s cash and cash can come from revenue, but not all revenue is cash, right? Cash can come from investors, right and the three examples I just shared, its investors who put who pumped in 100 million dollars, or depending on the company, which one we’re talking about it which timeframe are the ones that pay for all the overhead and expenses and the big glossy buildings and the hammocks that you could sleep in at Google and lunch, staffroom and the free lunch and other investors who paid for it. Now, what’s true is that can’t go on forever. Like at some point, investors are going to expect to get their money back and more. I think though, it really really really underscores the fact that it’s not revenue, that is the life or death metric of a business. Now, as small business owners, we oftentimes are bootstrapping and we may not have investors, right? Maybe we will, because we’ll like get a line of credit from the bank to start our businesses. Or maybe we’ll sell equipment that we’ve got, or an extra vehicle we’re not using or something like that. So cash can also come from, like selling assets that we’ve got, right? So if it’s not revenue, that is the life or death of the business, what is it, it’s cash, and therefore, it’s essential that we’re tracking, not just revenue revenues, the easy thing to track, just open up your online account, and you say, Oh, $30,000 this month is how much Amazon tells me I’ve been revenue. That’s the easy number two, see, cash is not much harder to see. But we have to pay attention to it in cash flow forecasting, is extremely simple, you do not need to know anything else than addition and subtraction and you don’t even need like, the difference between entrepreneur accounting and tax accounting, is in tax accounting, you gotta file paperwork with the IRS, or if you’re in Canada, the CRA or whatever country your authority is, and you got to be down to the penny, right? Everything’s got to balance is gonna match up. It’s, you risk being audited if you ever get investigated and that’s kind of scary. The good news, when it comes to entrepreneur accounting, I always teach that you only and this is a Tim Francis original, you only need enough precision to make the right decision. You only need enough precision to make the right decision and oftentimes, if you are getting down to the point of splitting pennies and dollars, it’s too close of a call to be safe, we need a different decision. So a cash flow forecast is the single most like if someone never took my course, never read anything that I’ve put out, never watched anything I’ve done and they only did one thing it would be that, because if your cash flow forecast is always in the green, like always healthy are always in the black and if you use accounting terms, then you’ll always be okay. I don’t think it’s enough to create a thriving business, but at least we won’t we won’t die in the process.
Norman 28:14
Are you able to provide that cash flow formula?
Tim 28:19
The cash flow forecasts? Yes, indeed. Yes, indeed. So I will actually share. I think I can even give you a link to it.
Norman 28:28
Yeah, perfect.
Tim 28:30
Perfect. So what you see on the screen here, I’ll share my screen in three, sharing screen and three, two and let’s see, are we going to get the right?
Norman 28:45
Anybody who’s watching the video will be sharing a screen for those of us that are on audio, We’ll be providing a screenshot of this.
Tim 28:55
Great. So if we go to knowyournumbersworkshop.com/promo. So again, that’s Know your Numbers with an S workshop.com/promo. This is the page if you wanted to learn about the new numbers workshop. We can talk more about that in a minute. But most importantly for right now if you scroll to the bottom of the page, there is a green button that says free resource just for you and it says cash flow forecast and bloat calculator. So if you click that, it’s going to give you an opportunity for us to email you the cash flow forecast. The cash flow forecast is and there’s a little bit of a training there as well to teach you how to use it. The cash flow forecast is a simple Google Doc. It’s a simple Google Doc and it takes maybe 30 minutes to learn how to use but staying on top of it will change how you view the safety of your business, let’s just say so I’m going to pull it up on the screen so you can see what it looks like now. There’s, possibly a lot to look at on the screen here. But it’s actually just if you can, if you can look at the bottom, it’s row 23 here. In cash, your only job when it comes to cash flow forecast is to make sure that the crisis line, which is the first appearance of a red box. So in this sample example, it’s the week of August, the eighth is our first red box. That’s our crisis line and we just need to make sure that this crisis line gets pushed out far enough that we can buy ourselves time. This is absolutely essential, especially if we’re in a crisis situation like we have been in at different times in 2020, because of the pandemic or a couple years ago, the Long Beach dockworkers strike that affected a lot of Amazon sellers, whatever the curveball is, you can start building in what if this, what if that type scenarios into this forecast. So for example, if my cash, if I think I’m going to run out of cash in week three of the coming 13 weeks, I can adjust the spreadsheet, like here, I’ll do it right now, let’s say this goes to zero and we see that everything about this little spreadsheet automatically updates, and I can see that I got a lot of trouble in this business, because our crisis lines in eight days from now since , in one week and so as I continue to to adjust my plans moving forward, so let’s say I’m going to create a smaller inventory order, so I have less cash outflow, let’s say I’m going to decide that Amazon Prime Day I’m going to, I believe, based on last year’s performance, that this year performance, it’s going to be bigger than before, I might be looking at Wow, I have some inventory that’s not moving. So I’m just going to fire sale it get the cash back, even though there’s not a lot of profit, at least I’ll break even and I can redeploy the cash into products that are generating not just revenue, but also profit, right and so I can map out where I believe I’m gonna have cash inflows into my business and cash outflows out of my business and this right here will tell you where your crisis line is and you can start manipulating your plans for the future to see what is your path to success and safety. So that’s a quick view of what it is and it’s available at the knowingnumbersworkshop.com/slash promo and it is the tool that helped multiple multi million dollar companies avoid bankruptcy, and also some students of mine, who not only some of them are in the seven figure, but some are in the six figure territory to be able to get a grip on like, hey, okay, now I understand kind of the life and death of my business, which is my cash.
Norman 32:42
We always talk about having a home run and people think when they’re, when they’re buying inventory, they think about inventory. They don’t think about anything else associated with it and we warn people time and time again, is that you have to make sure that you have available cash properly capitalized, that if you have first base, a second base, a home run that look, you can go under with a home run, you’ll be selling off at either you won’t get anything or you’ll be selling off at pennies on the dollar, because you don’t have proper cash flow. The other thing other example I want to give is that just a quick example, you were talking about being paid 180 days, and the difference between paid out every 30 days or every 45 days makes a huge difference and one of the things, this is a story from one of our clients, by changing the intervals and the payment that they got paid or had to pay their clients or their suppliers. We actually changed their cash flow by $800,000 a year just by changing the intervals that they got paid.
Tim 34:04
I absolutely love that. Absolutely love that and to me, I think it’s really about understanding that in our personal finance, if you’ve ever had a job, even if it was a long time ago for some of us. We don’t realize, but there’s actually three tracks, there’s sales sold, earnings earned, cash collected, and that’s whether personal finance or in business. What are in our personal finance, we would convince our employer to hire us. So we made the sale right and then by doing a good job each day, we’re kind of re convincing them each day to continue keeping us higher, right. So that’s the sale sold. The earnings earned is I’m going to work for two weeks and at the end of each week, I’ve earned my weekends. The cash collected comes in the form of a paycheck and that comes every two weeks or in some businesses once a month.
Tim 35:07
All of that is invisible, even though that’s what happens, it’s more or less invisible to us. We don’t see ourselves actually sitting and having a sales meeting with our employer every day saying, Hey, this is why you should hire me, bring me back tomorrow, right? It’s invisible to us that there’s actually like earnings happening. We’re not actually shipping 500 units out the door, we’re just showing up every day for work, right and so the earnings can seem somewhat invisible, it’s just the nine to five grand. Like it doesn’t seem like anything, particularly significance happening each and every day and in terms of cash collected, we don’t it’s kind of invisible as well, because the cash just shows up in our bank account as an auto deposit every two weeks or every month and so there isn’t a lot of consciousness about those three tracks. As soon as you become a business owner, we start realizing, oh, whoa, whoa, whoa, whoa, hold the phone here. I sold a million. But I have only 100 in my bank, what happened and it’s because there’s this separate, it’s because now we’re starting to see the three different tracks and just because we sold it doesn’t mean that there’s profit, doesn’t mean we can touch the cash that came from it, or that we’ve even collected the cash at all and that’s a mind bend for a lot of people. I could have a big purchase order. Let’s say, I’m doing really well on Amazon and let’s say now I want to go and sell off my own independent website. Someone I know from years ago, he actually sells solid color neckties, and solid colored neckties.Hhe discovered he could sell like 500 red neckties. I don’t know if he did this exactly. But to a company like Coca Cola, right for their corporate annual retreat or their all hands, C suite leadership retreat, 500 red neckties, then maybe IBM wants to do some kind of celebration and they get 500 blue neckties and right, so so he discovered you could start selling to corporate as well and sell like a lot of neckties all at once. Well, if you’ve got, he might have I don’t know if that’s like a $20,000 order? I don’t know what 500 collared neckties look like. But let’s say it’s 20,000 or $30,000. He made the sale today and signed a contract. But he hasn’t earned the money yet, nor has he collected the cash, because he hasn’t actually shipped the product, nor has he actually been paid. So then after that, he would have to ship the product for him to actually earn the money, right and only once he then got paid, would he then actually click the cash. So there’s actually three tracks there and as entrepreneurs, we have to separate in our minds what those tracks are, or else we risk believing that Oh, because I made the sale, I got the cash and I’m good to go. So that’s why the Cash Flow Forecast Tool becomes so vital, because even if I sold a million dollars today, it really clarifies for me, when is the cash actually going to show up and it also clarifies what are the expenses that have to go out the door and when are those going out the door? Because, if I have to buy another inventory order, maybe I’m putting in especially inventory just to sell the block of 500 neckties, I may have to put that cash out next week, to place an order with the factory to get those neckties in and I may have to put that cash out before I get paid by Coca Cola or whoever’s buying the neckties from me and so I might be in this cash deficit and I better know how long that deficits going to be, and how deep it’s going to be. So I don’t have any nasty surprises. If I need to get a short term loan from someone, maybe even like a friend or a family member to cover that inventory purchase, then I better know what that is, or else I’m going to end up at the end of the month going, Oh my god, I can’t afford to rent, I can’t afford my mortgage, I can’t afford my utilities and now you’re losing sleep at night and it becomes a very, very uncomfortable position. When I was listening to the shoe dog, a book, which is by Phil Knight, the founder of Nike about the journey of Nike and the journey Phil Knight. I don’t remember the exact number. In fact, I should probably go back and double check. But Nike was doing something like 100 million dollars a year in revenue and was teetering on the and still teetering on the edge of bankruptcy. Why? Because they would put in say $50,000 to buy a bunch of shoes, they would sell $50,000 they get the cash. Great. I’ve now got the 50,000 backand and now it’s actually 60,000 because there’s a little bit of margin there. Right so they paid 50 to get the shoes, sold them for 60. I made a little bit of money. What do they do with the 60? Invest it all back in inventory. The 60 comes back there we’ll sell it and now they’ve got 80 what do you do with the 80 put it back and inventory, so they’re broke again, right and the money comes back now that turns into 100, which turns into down the road becomes a million becomes 10,20,50 hundred and because they’re putting your chips on the on the on the table every single time, it’s just like, oh my god, we’re still teetering on bankruptcy and we’re a nine figure business and this is how businesses can go out of business. Like he’s lucky that there wasn’t some black swan event like a pandemic or some ship dock workers strike or something like that, because Nike did not have any cushion for any kind of curve balls and we as entrepreneurs, even if we just have a six figure business, I don’t say just to make it sound small, because it can be a great achievement for us to hit that for the first time. Like, we are super, super sensitive, to the world around us, not to the degree that we have revenue, but to the degree we have cash and if we’re constantly riding that Razor’s Edge of having no cash available, and no idea what it’s going to show up. That can be a horrific experience for us to feel that amount of fear of losing sleep every single night, and maybe, therefore creating stress for us and our loved ones. Maybe we then become snarky with our significant other. It’s just not good luck.
Norman 41:13
Hey Tim, before we go any further, I just wanted to give a couple shout outs here to Mohammed and Yarrow and we’ve got Dr. Koz. So thanks a lot, guys for listening.
Kelsey 41:27
Oh, can we answer some of the questions or Dr. Koz has a question. Sure. I think just about your workflow, is your repeating cash means your revenue?
Tim 41:39
Great question. So it could mean revenue. But it could mean other things as well. Right? So repeating cash and this is actually this is a little I don’t know, there’s a dirty secret of the Amazon game. But there’s a lot of people, there’s a lot of people out there who realize everything I just taught, right, everything I just taught you here in today’s session, about cash, and they go, Oh, my goodness, I keep putting all my cash into inventory. I’ve got nothing left. So what do they do, they start teaching Amazon and guess what, because they teach Amazon. Now they have a different kind of revenue, not from their physical products, but from their information business and their information business kind of runs parallel to their Amazon business, in the information business is what keeps the lights on, which is which can be good, and it can even fund some of their inventory orders. Let’s be clear, though, it is a separate business, it’s a different business than their Amazon business, two completely different tracks. It’s kind of, it’s the same thing in real estate investing, you see people who teach real estate investing, because they’re not actually really keeping much cash into their real estate portfolio, but they teach real estate investing, so they can make kind of operating cash day in day out. Look, there’s nothing wrong with that model. But let’s just be very clear about what’s really going on because for someone to sit and not really have much of an Amazon business, but they make all their money teaching Amazon and then they self anoint themselves as some kind of success. Oh, boy, I am not okay with that. I am not okay with that. If someone says I’ve got a seven figure business, but 90% of it comes from teaching and only 10% comes from actually doing the thing that they’re teaching. So Dr. Koz repeating cash probably means revenue. It could also mean for example, let’s say I’m selling, let’s say I’ve got a vehicle, and I’ve sell that vehicle to a family member, and they’re gonna pay me $1,000 a month for 12 straight months, that would be repeating cash coming in every single month for 12 months, right? So, usually repeating cash does mean it’s the regular typical amount of revenue, not just revenue, but cash that’s coming in from your revenue every single month. Usually, that’s what it is. But I just wanna be careful to draw that distinction that it doesn’t have to come just from selling your products. , it could be services you sell, or it could be even, like stuff around your house you’re selling that has payment plans coming in or something like that.
Norman 44:08
I got to tell you, I was at an event and this is you can’t make this up. Right. So it was at an event not gonna say the event, not gonna say the presenter said this. But they got up on stage and they said, Look, the course that we were teaching, we were talking that you’re going to be profitable. Now, if you’re a new Amazon seller, you’ve got to listen to this. Because they said, Well, if you take the course you do this, and you do this, this, this, this, you will be profitable in three months and then they went up on stage and they said, Well, this is months later, right? Maybe a year later, maybe two years later, but the course has already been out there. Well, I told you three months. I wasn’t lying. But you wouldn’t be in the black until six or nine months and they didn’t tell you about what you needed to reinvest into your company to make sure that you were profitable in the end and the other thing, that exact at that exact time, they said, Look, this might not be the right formula for you, you might be having struggles, we’re going to be introducing our next speaker, who’s going to talk to you about becoming an Amazon consultant and I’m hitting my head against the ground going, Oh my God, afterwards, I’m listing let’s say it’s a, it’s a group of about 10 people, six or seven of those people said, Oh, yeah, I got to buy this course, I am going to be an Amazon consultant, they were not even doing I know this for a fact, the most they were doing on Amazon at the time, the highest they were getting per month, revenue was $5,000 a month, out of this group of 10 people, and now they’re gonna go, and they’re gonna teach Amazon, I get this all the time, people will contact me and say, Hey, what do you do for this as a consultant? I’ll show them how to do it, I got no problems with sharing this. But when I see people that have known nothing about business, that are going to take on a brand, and give them poor advice, that scares the hell out of me and again, I’m not one that I’m going to slam them, I’ll give them the advice to succeed. I mean, they’re gonna have enough rope to hang themselves, we know what’s going to happen, the brand that and this is what’s happening out there, right now, with our business. It’s like SEO, it’s like search engine optimization. It’s like web design, you’ve got really good people that start off and then you have all the fake people, all of a sudden, you’ve got people like an SEO, everybody and I’ll just say, India, so you’ve got all these Asian people that there are some really great companies, and I work with some of these companies. But then you’ve got 1000 that are using techniques that were done 10 years ago, and they’re doing nothing and brings down everybody and that’s the same thing with Amazon consulting, when I see this and go, Oh, an Amazon consultant, it, I have to wonder whether they’re going to treat my brand or what I’m doing? The trust factor is gone and when you have to do that, you have to read that to build a reestablish trust, all because of what exactly you said. So anyways, I just wanted to do that. I mean, that’s just state that because I see this all the time, and especially around the experts.
Tim 47:39
Well, and so here’s the thing, like first of all, so maybe two or three things are all which are really quick. Number one is, on one hand, if someone is telling you to just sell more, they either are ignorant of how business works or they do know how business works, but they’re so irresponsible with their time on stage, that they’re consciously spouting lies. So it’s gonna be on it’s gonna be one of those two, right, and I actually give more grace to the person who didn’t know any better, they’re ignorant and I can see how people might be passionate about sharing the message, because maybe they did have an Amazon win, they did hit six figures that did hit half a million or something like that, and they’re excited to help other people, I can see that I can see that and it still doesn’t make it accurate. So like, I’m not here to make them wrong, you’re like to shame them or anything like that. What I will say though, is it’s confused, or like there’s a misunderstanding and for anyone who’s out there saying just sell more. They’re missing some education and like a roundedness to their knowledge of being an entrepreneur of any stripe, whether it’s Amazon or not and so how do we, as the individual business owner, start to tease apart the wheat from the chaff? Right. So I think like one of the unfortunate truths, contrary to what a lot of hype people will tell you, there actually is a lot to learn about a lot of different things in business and that’s just how it goes. Right? There’s a reason people spend their whole lives mastering the art and science of business, and if I wanted to know how to do all of HTML, and PHP and CSS to code, a website, that probably would take me 10,000 hours to master being a website builder. If I wanted to learn how to play the drums, that would also take me 10,000 hours to get really good at right and all the parts of it, writing, recording, performing all of it. So whatever it is, and this is why I suggested, got to read the book so good, they can’t ignore you, if you’re all super, if you’re actually if you’re feeling a little disillusioned by The Four Hour Workweek, go read So good, they can’t ignore you and I think that would put you in a great mindset to really embrace the Craftsman approach and what I learned what I learned very early on in my entrepreneur journey, which started over 12 years ago, is, if I want, there’s a few areas I’m going to have to master to get really, really good at, and everything else I may not need to master, but I am going to need to know the first like one or two, maybe 3%. So that I can at least be in the conversation and that’s where I feel accounting actually falls for a lot of accounting and finance, bookkeeping, accounting and finance numbers. In general, for entrepreneurs, I feel that’s where it falls, you don’t have to spend 10,000 hours to become a CPA, you don’t. You do however need to know the first one or 2%, so that you can have a conversation with your CPA. Just like if I know the first one or 2% about web design, then if I’m talking to a web developer, I can tell if they’re feeding me a steaming pile of fecal matter, right. So and furthermore, by knowing one to 2%, I can now describe a vision. Like if I know how to play one or 2% of the guitar, or the piano, I can say, oh, here’s my song idea and I can say it’s this chord with this key and it’s this chord progression and like, that doesn’t take years and years and years and years learning how to do. It does however, get me in the game off the sidelines and into the game, to at least be able to communicate what I’m looking for and to be able to understand what I’m being told and even if we, we don’t have to master the French language, to go to Paris and to be able to navigate turn left turn right, find the bathroom, what, where’s the money? Where’s the bank, like, where’s the hotel like, you like you need to know, like less than 1% of French to be able to move around in France and have a great time. You don’t need to master the language and that’s really what accounting and really all of financial knowledge and education for entrepreneurs is just like getting in the game by knowing the knowledge, I’m sure by by knowing the language makes all the difference and once you can do that, we can leave the other 99% to the pros, and we can get in the game and that 1% of being able to speak the language is our ability to understand what’s going on with my bank account, what’s going on with cash, where’s the disconnect between revenue and profit, profit and cash, cash and free cash, free cash is actually different than what you see in your bank account, free cash you can actually spend, for example, I’ll just give you a quick example. If I’ve got $50,000 in my bank account, and I’ve got an inventory order of $40,000 that I have to cut a check for next week to send a wired transfer, I should say update my examples to 2020. Here. If I have to send a wired transfer $40,000 overseas to my manufacturer, then is all $50,000 in my bank account, even though it’s cash, is it all free cash? Absolutely not. Because 40,000 is already spoken for next week, it’s going out the door. Oh, PS I also have a tax bill coming in for $20,000. Right and that’s coming in next month. Ooh, interesting, right? Oh, and I also have staff to pay. Right? I’ve got $10,000 in payables to staff with that extra external contractors, internal teammates, right. So even though I’ve got 50 G’s in the bank, 40 is going to the inventory order next week. 20 is going to taxes next month and 10 is going to this month’s payables. So I think I’ve got 50, but I’m actually upside down by 20. If I did my quick math right there. So that’s the difference between cash and free cash. Free cash is what can actually touch and in this example, actually have negative free cash of $20,000 and being able to understand the difference between revenue, profit, cash, and free cash is essential for us to stay sane in this game of business to be able to map out where we are and where we need to go.
Norman 54:16
We’ve really, I’ve taken a detailed look into cash flow, and I thought we were going to be doing a whole bunch of other like, going down a whole bunch of different paths, but that way, and I’m so glad that we did hit on this cash flow, and we got right into it. We’re gonna have to have you back too, to get into a few other things. So this is fascinating. But I do want to answer a couple more questions before we end the podcast today and one of the ones, are there fake metrics out there that we have to be aware of as a business entrepreneur?
Tim 54:54
Love this question. Okay, so I wouldn’t call anything Fake metrics, okay. But I, but I would. So first of all, there’s this time this old, old, old, old old expression that’s really related and it’s pithy and it’s fun. It’s Revenue is vanity, Profit is sanity, cash is reality. So I’ll say it again. Revenue is vanity, profit is sanity, cash is reality. I don’t even I don’t think that expression goes far enough, I think we have to talk about free cash as well, and not just profit, but actually earned earnings, which is a whole other conversation, but there is a huge suite of vanity metrics that not just Amazon business owners, but all of entrepreneurship is like hyper addicted to. The Inc 500, now, The Inc 5000 Awards, literally only looks at your revenue. Like if you were to go to the Inc 500 help desk article and look at how the Inc 500 Awards are calculated, it literally is just the last few years of revenue and in their FAQ, it says Do I have to post a profit and the answer is no, it just, you don’t have to be profitable, you don’t have to have cash in the bank, you don’t have to have any free cash, you don’t even need to have happy customers. You don’t even have a happy staff, your culture could be crap, nothing matters. If you have one of the top 500 or it’s now 5000, fastest growing revenue lines over the last three years, you get an award and get celebrated as one of the best in America. It is an absolute joke and those of us who know that about 505,000 words. I haven’t done this myself, but some some entrepreneurs, I know they will purposefully game the system, because they understand it’s a joke and they’ll get on the listand after that they’ve got the award which looks good for PR, they get more marketing and now they’re in a better position in terms of like some of the other marketing metrics. So, and like all these awards that you see about Oh, I’ve got a six figure business or six figure launch or a six figure Prime Day, seven figure business, seven figure launch, seven figure Prime Day, whatever that like, I’ve got no problem with celebrating that if we are putting it in the proper place. So one of my longtime friends, Jimmy Jays, has such a great expression. He says, If you tell me which metrics you want to be accountable for, I will tell you your appropriate place in the org chart of your business. So I compare this always to a football team. If all you care about is scoring touchdowns, then great focus on being the offensive coordinator of the team. If you’re not thinking about preventing points, don’t call yourself the head coach. Because that would mean that you have to think about scoring points and defending against points. But if all you care about scoring is scoring touchdowns, be the offensive coordinator. If you want to be the coach, you have to think about scoring touchdowns, preventing points and also like who’s my staff, the athletic trainer, the assistant coaches are going to make sure that my coaching team is good. Now wait, hold on, you don’t want to be just a coach, you want to be the general manager of the team? Well, great. So you got to worry about scoring touchdowns defending against points that the coaching staff and you also have to worry about things like the salary cap and in negotiating with all the agents of all the players, you got to think about injuries, you got to think about all this away, you don’t want to be the general manager, you want to be the team president or the CEO, then you got to worry about everything I just described. Plus, you also have to worry about what kind of merchandise deals do we have? What kind of TV deals do we have? What kind of stadium do we have that’s being built for us? Or where are we going to play? Including a whole host of different issues? Oh, wait, you don’t want to be just the CEO, you want to be the owner of the team. Now we got to worry about, think about like the Washington Redskins have to change their team name. That’s the owner’s issue because it’s racially insensitive, we got to think about what is the value of the franchise, right? They got to think about negotiating with the city, the state or province and country about the next stadium deal. Like you have to think about the whole business. You can’t just think about scoring touchdowns. So if you want to run your business, and all you’re thinking about is scoring touchdowns, fine, but get yourself a CEO and don’t call yourself anything other than the Chief Revenue Officer for goodness sakes. Right. So if we’re going to think about the whole business, and especially we’re going to think about it from the owners perspective, there’s only four metrics that matter in my opinion, this is my opinion, you can disagree if you want and I didn’t read the center, this is my opinion. There’s only four metrics that really matter from the owners position and that is free cash, not cash, not profit, not revenue, but free cash. Second is market value equity. So not what’s the book value of my business, but if I were to sell my Amazon business on the open market, what would it be worth? Third is what is my internal fulfillment from doing this business, and what is my external contribution to my teammates, to my customers, to my vendors and to the community at large. Everything else, any other metric you could possibly think of clicks, followers, numbers of products, number of businesses, etc, etc, etc, is all what I call a process metric. It’s not true progress, you only have four true progress metrics, everything else is a process metric. The problem is when we treat a process metric, like a true progress metric, then it becomes vanity and then it becomes very confused and we’ve got people building businesses thinking they’re doing great when in fact, they’re dying.
Norman 1:00:35
I know of one of my students growing up, he worked in a bankruptcy liquidation company run by his dad and he was always blown away when he’d go to a business and I mean, we’re not talking Amazon business, we’re talking physical brick and mortar businesses, he’d go to the business and they’d be liquidating because it’s out of business and so they got to sell off as many assets to recoup whatever money they could to give that to the creditors, like the people that were owed money and he could, he was like, blown away how often he would see a dusty plaque on the wall. That was an Inc 500 Award and it was only two years old. So they went from being one of the most celebrated companies in the world in x year, to two years later, they’re being liquidated because they’re out of business. So, I see so many award ceremonies and training programs and masterminds and all the rest, that gets so worked up and back slapping, high fiving, chest bumping, award giving, for hitting a certain revenue level and as if they’ve won the Superbowl, or they’ve made it to the Hall of Fame, or otherwise won an Academy Award or something like that and it’s for revenue and I’ll just, I’ll wrap up this point, just to say that someone I know, personally, was caught up in the revenue game. This is years ago, he won one of the fast growth awards, it wasn’t the Inc 500. There’s another fast growth award. He went to the photoshoot in the morning, to get his picture taken for the magazine. That same day, the exact same day in the afternoon, he went to his lawyer’s office to discuss his options around bankruptcy. This is real life and here’s the thing, everyone wants to talk about the look good metrics, like revenue, number of businesses, number of listings, number of products, etc, etc. Nobody wants to talk about how much cash they’ve gotten the bank, what their margins are, a few people will talk about margins, they will not talk about how much debt they’ve got, because it’s like the, the ugly, shameful thing that’s in the closet and the fact is, is we may have people living large lives on the front stage, but dying, a very, very, very desperate, breathless existence behind the scenes. I don’t know if I could live with myself, if there was such a dissonance between who I was to the public versus what was really going on behind the scenes and so I am not against growing revenue. I am not against growing multiple products or whatnot, we just have to do it sitting on a foundation of granite, rather than a foundation of sand that may slip away. When I hear people with their chest puffed out and their eyes to the horizon saying, Well, I have 10 businesses and if they can’t talk numbers with me, and they don’t have a management team in place, and they don’t have these other pieces of the puzzle that are crucial for sustainability. I hear I’ve got 10 businesses, they think they’re proud and excited about it. I’m like that is an absolute ticking time bomb. That is a tick. It terrifies me. I used to be proud of how many businesses I own. That’s another vanity metric. When in fact, it is possibly one of the worst ideas possible because I haven’t made sure that my host is strong on the very first business and I got too busy building the second, third, fourth, fifth business, and they’re all great. They’re all products that have revenue. The marketing is good, the sales are good. Maybe even maybe maybe even some of the sourcing is good. Okay. But because everything else is so shaky in terms of the financial position and maybe some of the backstage like operational management structures. All it takes is one little breeze to come through the economy. One breeze that comes through their industry, one change of a terms of service, or Amazon decided to launch a competing product or something like that and now not just one but all 10 are falling because we just didn’t have the guts and the foundation underneath to separate it. Also anything that is not those four key true progress metrics. I’ll say them again, free cash, not cash, but free cash. Market Value equity, not book value equity. Okay, but market value equity, internal fulfillment and external contribution to our teammates to our clients and customers and to our vendors and our community at large. Anything that isn’t those four is not true progress.
Norman 1:05:14
Fantastic. So Kels, just gonna wrap this up fairly quickly. But do we have any other questions? Oh, I see. Victor, Victor’s on again. So how’s it going Victor? Glad you could join us and Michele.
Kesley 1:05:29
Yeah, so, let’s see. Let’s start with this one. Yep. From Norman, what do you think of Profit First by Mike Michalowicz?
Tim 1:05:41
Mike Michalowicz? Yes. Oh, yeah, I’ve read the book. I know, profit first consultants.
Tim 1:05:48
So I think there’s two parts to my review. First of all, I think Mike does an extraordinary job of kind of like brain hacking us in a good way, in a good way brain hacking us in a good way to get us thinking about cash. His profit first system is a very cash based system. It’s kind of like the modern 21st century version of the envelope system. Norm, you may remember the envelope system, I barely remember the envelope system, but it’s just this where the jars right where it’s like, when I get my paycheck, as a worker, I’m going to take my paycheck 15% goes over here into household expenses. 30% goes into the next category, 20% is into savings and 5% is tithing to the church and this is this Richest Man in Babylon, I think, was the first book that really popularized that. But it’s a very old system and so Mike’s modernized that to say we should have different bank accounts and as cash comes in, right off the top, a certain amount should go to owner profit, a certain amount should go to operating expenses, certain amount should go to taxes, right and so like, I’ll tell you what that’s like in terms of managing cash, if you’re going to do nothing else, if you’re like, if you’re going to do nothing, then implement Mike system and it’s going to get you thinking about cat like, if you do only one thing, do my cash flow forecast, if you have only like a couple hours and do only one thing, do my cash flow forecast. If you want to go just a notch up in complexity from that, then put Mike’s system in place, go put the profit first system in place, and it will do it is a massive leap forward compared to not doing anything at all. Right. So I think that’s true. I think it said, so that’s my positive review on profit first. My drawback review of profit first is it completely falls shortand I actually don’t even think it was designed to do this. So this isn’t even maybe a criticism as much as just a rounding out of what it’s meant to do. Profit first does not allow us like it does not really get into something like margin analysis. It does not get into forecasting very much at all. It does not get into how do I lead my team by the numbers? Like what would my team’s management numbers like? What’s the scorecard I should have for different team members? It does not get into the differences between tax accounting and entrepreneur accounting, it doesn’t get into I’m going to get just slightly technical for second year is the difference between cash accounting and accrual accounting, which is so important for us to be able to analyze the performance of our business and when we’re a solo, we are touching every product and dealing with every customer service requests, and we’re dealing with every cash transaction and so we can get away with not having like dashboards and a larger view of our business. If our business is getting more complex, though, especially if other teammates starting to get involved, we start removing ourselves from the front line of certain functions of the business and we absolutely have to start getting the ability to lead our business by the numbers and yes, that means the financial numbers, but it also means our performance numbers, right, like what’s our click through rate, right? Or what’s our conversion, right? That’s not a financial metric. That’s a marketing metric. So getting a clear sense of all the, like I said, the process metrics that lead up to our true progress, that we have to keep an eye on and profit first doesn’t do that. So my other what I also feel is a bit of a shortcoming in the book, and this is maybe a philosophical point, Mike and I just may never agree on is, he talks about we have to give, we have to take profit off the top and hold that to the side. So that’s, I like the sentiment of that and I like how it really shines a light on us being able to say, Well hold on my industry average and in the book, he actually gives you tables. He gives you tables of like if you have a service business that does this, your profit margins should be that. So he did a great job of looking. He did a bunch of research on accounting to say, if you own a shoe store, you fall into this category, you should have a proxy system. amount of net income at the end of the year, if you have a website design company, you’re a professional service business, you should be this right and so he gives you a table, I think it’s amazing. He gives you a kind of a template that you can work towards, which I think is really fantastic. Here’s the thing, though. Here’s the thing, though and one of my mentors, Keith Cunningham, he says is so powerful. He says, Look, if the baby is crying, you have to feed it. If the baby is crying, you have to feed it. Like we don’t get it. I’m not a parent myself. But a parent can’t say I don’t feel like it tonight, or Oh, well, I need a certain number of hours of sleep sorry, baby like you don’t, I’m not going to wake up and go take care of you. Our businesses have needs, and sometimes it comes at the cost of the entrepreneur stepping up and having to deal with less income for themselves and so I think that as long as we have a balanced approach that looks sometimes we can’t take profit first, then that is, I think that’s operating in the reality of the day to day. So now what I’ll say about how profit first compares to the new numbers course, I think profit first is it’s not a three day workshop, right? It’s your standard six hour audiobook, right, or your standard six or eight hour read. That’s not a workshop for three days, it’s simpler, right? It also just gives you less horsepower than what the know you numbers course give, Know your Numbers course is three days, it’s a three day intensive, there’s exercises to do and because we just have more runway, we can do more and share more and and create a higher level of sophistication for entrepreneurs to be able to actually look at a set of financials and to be able to actually understand get get at least the fundamentals of knowing what they’re looking at and that’s not something that comes from profit first. So in my view, the jump from nothing to cash flow forecasts is is a really great bump like and it’s really worth taking like an hour to do the cash flow forecast, we’re going to take six hours, do Profit First, if you’re willing to spend three days, it’s another quantum leap from each one of those steps in terms of ability and candidly, it’s not that much more time, when we talk about going from one hour to three days, I don’t think three days is too long to spend for us to really get our first sense of confidence and competence around what’s going on with the financials of our business.
Norman 1:12:21
Very good. So we’ve got to wrap it up.
Norman 1:12:25
Let’s go back and talk about where we can get a hold of you, Tim, and where we can get more information about your course?
Tim 1:12:35
You betcha. So the URL, which I can put into the chat box here, the URL is a Oh, I don’t know if I’m Oh, am I allowed to speak in the chat box? I’ll put in the private chat and then you guys as hosts can maybe throw it in there.
Kelsey 1:12:49
Yeah. Yeah, I’ll just throw it in. Well, I’m just clarifying, someone had a question about internal fulfilment, what exactly that means being?
Tim 1:13:02
Sure. Yeah. So internal fulfillment and external contribution? Like, there’s no single metric, that like, I mean, that’s more like self assessing, do I hate my life every single day doing this business? Or do I feel like I have purpose, I have passion and I’m on course, with my life, right external contribution is, am I making the difference I want to make in the world today? This week, this month, this week, this quarter. There’s no one number in your financials that tells you either those two. That’s more of a self assessment. It’s more qualitative, not quantitative. But that’s what I mean by that. So Know your Numbers workshop is, I’ll share my screen again here. You can learn about it by going to knowyournumbersworkshop.com/slash promo. Norm, are you able to see my screen if yes, maybe just you can. Okay, great. Awesome. So the numbers workshop is three days. Ever since COVID-19 hit we started, we’re no longer teaching it live in Austin. Instead, it’s now streaming and so it’s three days live. I’m here on camera, live your last few questions and get the real live experience. For three days, we understand some people can’t deal with the timezone difference if you’re overseas. We also understand some people maybe just can’t make the next three days work and so we also have the recordings of the live experience and so when you register for Know your Numbers workshop, you get both, you get both the live 3d stream plus you’ll to get the recordings if you can’t make it to the live stream for any reason. So if you’d like to know what people are saying with Know your Numbers workshop, we’ve got a quick minute 15 second video testimonial sort of video here and this is the live event, me teaching and so obviously, we’re not just doing the internet version of that. So we’ve got different feedback. Our next Know your Numbers stream is going to be October 19, 2020. We do the course every two months, more or less every two months and so if you can’t make this one, you could attend the next one. If you can’t make this one, but you want the live experience, but you don’t want to wait till like January, December, January, then just send us an email, we can get you the recordings right away of this one, and then we can bump you forward to do the next live event. That way, you don’t have to wait two months to get the information you can start studying right away. So what we cover is three days, the first day, I’d say the theme is really what I’d call entrepreneur accounting. Why just sell more is misleading? What exactly the 2% of accounting as we entrepreneurs need to know in the 98%, we can leave to accountants, also. Where’d your money go? Where’d your money go? We also take a look at how can you look at your, we begin to explore how can you look at your financials and actually see them as a treasure map. We also talk about how you can talk to your accountant or bookkeeper and how you can begin making executive level decisions by your numbers that help you improve your financial position, no more investment pray for the best. So that sets us up for data where we go deeper in this idea of your financials as a treasure map. So we look at our three core financial documents and income statements and a balance sheet. Most entrepreneurs only ever get an income statement and balance sheet. They don’t ask their accountant also for statements of cash flows. Now, just to be clear, the statement of cash flows is different than our cash flow forecast. The cash flow forecast is this the spreadsheet that I’m giving to you Statement of Cash Flows is a financial document that your account would give to you, two different documents. Yeah, go ahead.
Norman 1:16:30
Sorry. This is crazy. This has never happened before. But I am doing a Helium 10 workshop in about 15 minutes, and I got to be on at 10 and for those of you who want to learn about Amazon posts, please join me at the Helium 10 workshop. But anyways, I’ve got to close it out. So I can get on and make sure every all the levels are right, and my presentation is available.
Tim 1:16:59
Great. So then all people need to know to wrap it up then is I’ll actually give you $500 off this course. So that’s not an affiliate to Norm, he doesn’t get anything for this. He just asked me, could I do a special deal for you guys and so all you need to do, and I put this in the chat box is when you get to the checkout page, put in CASH IS KING, make sure it’s in all caps, you’re hit the Apply button, it’ll take $500 off and it’ll be only 495 USD. Oh, that’s great. So we’ll make sure that everyone gets taken care of that way. So thank you for the opportunity to be here in Norm and I hope that everyone, even if you don’t come and participate to Know your Numbers that you still go grab the worksheet knowyournumbersworkshop.com/promo at the very bottom, the green button will get you that cash flow forecast so that you can start running your business with more financial clarity, confidence and competence. So you can make true progress rather than building a ladder to nowhere.
Norman 1:17:49
Perfect. So let me see. We’ve got to get you back on because I’ve had about 10 other questions I wanted to get to, but that’s not going to happen today. Anyways, Tim, thanks a lot for coming on Lunch With Norm. It was a pleasure having you on and it was just great information.
Tim 1:18:08
Thank you for the opportunity.
Norman 1:18:10
My pleasure. Okay, so that’s it for today’s show. As I said I’m heading over to Helium 10 for the workshop. If you’d like to join me, check it out and I’ll be talking about Amazon posts and public relations. But anyways, if you want to check out the whole episode of Lunch With Norm. You can always check it out on Norman Farrar, a.k.a. The Beard Guy. If you want to see just strictly video over to YouTube, Norman Farrar is our channel and Kelsey makes sure that there are new updates every single day, even more than every once a day. So that’s it for today. Kelsey, is there anything else?
Kelsey 1:18:48
No, if you enjoyed the episode today, like and share it. Follow us on social media and we’ve got a podcast so you can find us on Apple and Spotify. Just search for Lunch With Norm and thank you for everyone. All your comments today. There’s great Dr. Koz, Simon, Norman, Victor Angela, Tony, we have Michele, all you guys. That’s awesome. We love to see you guys enjoying the content. So yeah. Thanks for joining us, everyone and yeah.
Norman 1:19:17
Who’s on our next podcast Kels?
Kelsey 1:19:20
Kevin King.
Norman 1:19:22
It’s Kevin. Right.
Kelsey 1:19:24
Yeah, q&a with Kevin King. So again, if you guys have any questions, you can go to the event page and throw your questions in there and I’ll add them to the scripts.
Norman 1:19:31
For some reasons, I thought it was Tony Sagar. I just saw a comment in the comments. Yeah, he’ll be coming on shortly. But so it is Kevin and I can’t wait. Kevin always comes in and he talks about so many amazing new updates and we just kind of sit back and have a cup of coffee and we have, it’s a real user experience. So if you do have questions, just feel free to post them in advance if you can, because with Kevin and I we just go nothing specific just anything. Basically on Yeah, online, anything online. Okay, so that’s it. I gotta run. Thank you for joining us today and we’ll see all on, I guess it’s Friday
Kelsey 1:20:14
Friday. Alright. Thanks, guys.
