The pathway to profit is a slow one, but the highway to bankruptcy is fast, well paved, and comes with zero percent interest. There is an old saying: “You’ve got to spend money to make money.” What no one tells you is that you don’t have to spend much money to make money.
There are a few things you should never cheap out on: namely anything that will maximize and multiply you. Those will typically fall into three categories: computers, education, and employees.
Reliable computers with properly licensed software will give you the ability to be 2-5 times more productive than cheap, inexpensive computers with the wrong software. It doesn’t matter what you standardize on. Whether it is Microsoft Office, or open source products like Open Office. Whatever you use, make sure you and your staff know, understand, and can use the software to it’s fullest extent. Otherwise, you’re wasting your money, their time, and producing an inferior product.
Proper software tools that track information, increase productivity, and make your business operate smoother are indispensable.
Fast computers are for high earners. Executive positions like CEO, CFO, President, Chairman, etc… need fast computers because they make dollars by the second (or should be doing such). Small Business owners who “wear many hats” need fast, reliable computers because they are the bread and butter of the business. Giving these people slow computers actually causes you to lose money consistently over time because of poor productivity.
Never cheap out on your education. Take continuing education. Take classes. Stay cutting edge. Use your library card to save some money, but go to seminars, get a business or life coach, and go to events and trade shows.
Not only will continue to learn about your trade or profession, but you’ll also learn what does and does not work to increase your revenue from people you meet at those events. Just make sure you’re talking business, not shop. There is a difference.
Take it from someone who hired cheap and paid the price. Don’t hire cheap employees. You get what you pay for. Moreover, don’t let a college degree dictate whether or not you hire someone. Sure, a college degree is a great plus. But I have hired college graduates with degrees in business from reputable universities whose greatest accomplishment at our company was finally getting the coffee brewed correctly. Hire the hard worker. Hire the street smart one. Hire the one that won’t quit. Pay them well. If you pay bottom feeder wages, you’ll get bottom feeders who will devour your bottom line.
The Borrower is a Slave to the Lender. Period. When you borrow money from a bank, a friend, or a relative, you now serve them. You’re paying interest, and you will subsequently start making decisions based not only what should be good for the business, but what will ensure you can pay the note.
Cash injections and loans tend to make business owners take ill-planned risks. They will get lazy with their research, and cease to be dilligent. If you think that won’t happen to you, then tell me: have you ever had a big check burning a hole in your pocket? Do you blow your tax refunds on lifestyle items like TV’s, cell phones, or other non-necessities? Do you carry a credit card balance? If you said yes to any of these, then you are no exception to the rule.
There is a certain divine motivation and diligence that comes when the money you’re investing is your own. You know that when it is gone, it’s gone, and so is your opportunity. That kind of imminent consequence is the pressure required to turn a good decision into a diamond-good decision.
Are you a fool or are you wise? How can you tell the difference? You know the old saying that when you need money the bank doesn’t care, and when you don’t need it they beat down your door? That’s the fool test. If the banks aren’t beating down your door, you have not yet become wise in the ways of money. Here’s the secret you’re probably missing:
Even though cash is king, a pile of cash will always dwindle to nothing because you eat three meals a day, drive a car, and consume other resources on a daily and consistent basis. So, while cash may be king, cash flow is the royal high emperor to whom the king bows his head every time.
Establish cash flow. Concentrate on multiple recurring revenue sources. Sell memberships. Create programs. Issue service contracts. Create auto-fulfillment for your product so it ships every 3rd Monday to your customers. Modify your business model so that you have a steady, predictable stream of income flowing into your bank account every month.
Then… the banks will come running to loan you money. But you won’t need it. Why pay someone else the interest when you can make all the profit?
You don’t need to spend a whole lot of money to make a whole lot of money. In fact, not having much money is not a barrier to becoming a millionaire. Great wealth is rarely acquired all at once. In fact, great wealth is gathered little by little. It is built up over time.
Spend your marketing dollars wisely and test everything on a small scale. If you have $1,000, it is better to spend $300 on three separate mailings to test which sales letter actually produces results. Then, re-mail that same list another six times using the effective sales letter instead of blasting out an un-tested letter to 1,000 people one time. The former will produce results. The later will just drain your bank account in support of the United States Postal service.
The key to lowering your risk is testing everything you do as inexpensively as possible. Be rigorous. Be stringent. Keep a notebook of all your marketing and sales activities. A composition notebook and a pack of ball point pens will not exceed $5.00, but the rewards will come in thousands.
Test everything. Keep copious notes. A friend of mine recently sent me a message on Facebook that rang true the moment I read it: “I’ve noticed over the years that all the fat cats with the nice cars and the big bank rolls are always obsessed with numbers. They love reports, graphs, and spreadsheets…”
Obsessing over numbers will bring you wealth. Period.
Eventually, you will have a healthy, debt-free business, which produces a consistent product or service with or without you being at the office. You consistently turn a profit every single month. At this stage, there are three times when you can legitimately borrow money:
In 2008, the markets crashed and the Great Recession began. On the day the banks went south many businesses amassed losses in the hundreds of thousands or millions.
When you have a well run business, which makes a consistent profit, but you lose a significant amount of customers to an external, random event such as a recession, war, or some other fiscal anomoly, then it is perfectly fine to cash in that line of credit to span the gap.
Borrowing money to save a good business is a no-brainer. Plus, the banks in this position, will be dying to have a good customer like you sign on the dotted line.
TO FUND A LARGE DEAL
A successful business will eventually land a big fish. You’ll land one that is bigger than all your nets and all your boats combined. It will happen, I promise. When that day comes, you probably won’t have the funds to cover the costs let alone the labor and expenses that go with servicing the contract, but do not worry. Since you have no debt, securing loans should be no problem.
Sign the papers first. Once a contract is signed, you can not only use your good credit to get a loan to fund the deal, but also the credit of your customer.
Borrow all you need for the deal, with a little cushion to handle the “what if’s”. You need to be able to fix problems seamlessly with a big customer so that you can increase the life-time value of that customer by getting repeat business from them. Especially if they are handing you million dollar deals.
TO FRANCHISE AND EXPAND
If you’ve got a well oiled machine, you’ve got an asset that you can sell. When you reach a point where franchising is a real possibility, the risks are more than balanced out by the reward. Franchising done properly is a license to print money, so it is only logical that it would be OK to borrow a little bit to create a cash flow machine.
Expansion is another area where it is OK to borrow some money, but not copious amounts. If your company is bursting at the seems, and your lack of space is actually hindering your ability to sell or service existing customers, you run the risk of losing part of your customer base because you cannot service it. Under these conditions, it makes sense to borrow some money to purchase a larger building. In the case of expansion, the only real good way to invest your money is to purchase a building because it becomes an appreciating asset for your company.
Never borrow to rent.
TO BUILD CREDIT
There is one last reason to borrow money, and you should be doing it now as long as you can remain diligent and honest. Use a line of credit for all your purchases, and pay them off at the end of each month or prior to the billing cycle ending. There is just one rule here: never spend money you don’t have. If you cannot write a check to pay off the line of credit “on demand” then you’ve spent too much on your line of credit.
Your company’s use of revolving credit and its credit score are indispensable over time. Build your credit because some day, you might need it.
These are simple facts about money. Use them wisely, and you will find yourself in a nice home, without a house payment. You’ll be driving a nice car, with no car payment. You will vacation more. You will work less. Your business will grow. You will thrive.
Ignore them at your own peril.