How cash flow influences your business choices

I have a friend who is a freelance writer. He jumped into freelancing with both feet by quitting his job before he had any real clients. And in starting his work as a freelancer he realized he had two distinct choices:

1. He could do web writing, which tended not to pay so well (for people who were as new as he was)
2. He could write for magazines, which tended to pay considerably better.

The choice seemed easy, right? But consider this: Writing for the web meant getting paid the same week via Paypal while writing for magazines meant waiting up to 6 months before a check was mailed (because magazines pay after publishing and usually take a couple of months to publish an article).

That changed his thinking: A small amount of cash today versus a large amount of cash in the future. Given his circumstances – jumping right in with no safety net of alternate income – he started with web writing to pay the bills. Slowly he incorporated more and more magazine writing into his work but in the early days, he told me, it was nearly 100% web writing.

Although things might be different for whatever you do, the reality of cash flow opportunities is probably similar. You may have to accept smaller projects on an ongoing basis in order to keep the cash flow coming in, even if it’s not the gigantic windfall that you could have in months or years to come.

I’m a big believer in cash flow. Cash flow is huge and often under-appreciated by small business owners. In my opinion, cash flow with a little bit of profit margin is far superior to larger, slower, and irregular payments that have larger profit margins.

In thinking about increasing your cash flow, think of it like a hose. Let’s say you want to water your garden but when you turn on the hose, only a trickle comes out. You want to not only increase the amount of water coming out of the hose but also the pressure with which it comes out.

With your cash flow, it’s the same thing: You want to increase the amount of cash coming into your business but also the amount of times it comes into your business (the “pressure”). You can do this by increasing the number of clients you have, increasing your prices, getting paid in installments, creating passive income opportunities like ebooks, creating membership sites that accept regular payments, keeping on top of your receivables, and accepting advanced payment for discounted service.

Your business will be healthier when you turn up the faucet and increase the amount of cash and pressure which with it shoots out of your sales pipeline and into your business.

(And as an added tip, do what my freelancing friend did: While you may have to accept those smaller, faster-paying jobs early on, slowly try to increase the number of higher-paying, slower projects so that you’ll eventually replace your cash flow entirely with those higher payments).

Jessica Routier, IAC-EZ

Do you have that sinking feeling?

Let me tell you about an all-too-common scenario: You have a great idea for a project. A fabulous idea. An idea that keeps you awake at night. Even in the light of day it sounds good so you pour your time and money and effort into it. You produce it. You market it like crazy.

And no one buys. Do you keep marketing it? Many do. After all, they’ve put so much into it.

In his book “The Dip”, Seth Godin talks about how the modern myth is that winners don’t quit. He says that’s not true. In fact, winners quit all the time. They just quit the things that don’t make sense to continue.

Godin’s book is okay and I did find it thought provoking but I wanted some more practical advice. And I found it in this article by Jason Cohen who has a blog on ASmartBear.com. You can read the blog here. In the blog, Jason talks about how projects we own are more difficult to quit after we’ve invested time and money and effort into them.

After we’ve sunk money into something, if it doesn’t pan out, we should kill it and move on. But that is so difficult to do. I’m realistic enough to know that you can’t always do that. And, I’m optimistic, so I like to think that with a slight change you enjoy success from it (or, at least win back your investment). So, if you have sunk money into a project and you know you should kill it but don’t want to, here’s what I suggest doing first:

1. Check out the metrics that you’ve been using in your sales. (Note: If you haven’t been using metrics to track sales, that’s mistake number 1. Go back and add metrics and wait to see what they tell you). Make some minor modifications to see if those changes help.
2. Pass it off to a friend or mentor or coach who has some insight. Perhaps they can look at the project and they may immediately see if there are specific parts that are holding you back.
3. Convert the project into a joint venture and ask someone else to fill in some gaps. Perhaps their value add or their network or even just the addition of their name on the project can make all the difference.
4. Look at selling the project. Depending on what it is, you might be able to sell it as a complete package (like a turnkey business, for example) or break it up and sell the URL on a domain auction and sell the product to a private label rights reseller.
5. Give it away for free. Perhaps the project itself will still be valuable for you as a marketing tool. Give it away for free (or at least a portion of it) to generate some positioning equity.

If those 5 things don’t work, then you might consider killing the project and walking away, but try those things first and see what happens.

Jessica Routier, IAC-EZ

Who wants to save money… wisely?

Lowering expenses, saving money, reducing costs. Those are magical words in the ears of business owners and entrepreneurs! Who among us doesn’t want to cut back a bit on our spending and see our profit rise a bit as a result!?!

I think saving money is an art more than it’s a science. I say this because I see lots of businesses trying to save money on the wrong things. Sure, the dollars make sense but there are other factors to consider! One example I see this in is marketing: Lots of businesses will hire low-cost marketers who may not be fully qualified to do the work, but they hire them instead of a more qualified person who costs more. Consider, however, that the more qualified marketer can create returns that not just higher but proportionally higher than the under-qualified marketer. (Clarification: I’m not a marketer so it doesn’t matter to me what you do, but that’s just an observation I’ve made).

So, how can you save money wisely? I don’t think we can simply ask the question “Can I get the same thing for a lower price?” even though that’s often the question asked. Instead, I think we need to ask the question “Can I get the same results for a lower price?”

That’s a big difference. To use the marketing example: The answer is “Yes” to the first question but (in my opinion) a resounding “No” to the second question.

Other considerations need to be made, too: For example, which of your choices is going to scale with your business as it grows? It may be that neither your more expensive or your cheaper option will scale appropriately and you need to find a third alternative. And consider the non-dollar cost to you in terms of time and effort: Lots of entrepreneurs accept a lower-cost solution which requires them to do more of the work. That’s not necessarily a bad thing if you have the time but you need to make sure if you have the time!

I’ve started to collect some money-saving ideas here. Not all of these ideas will be right for your situation, but they may give you some ideas to start. Check them out and if you have your own great money-saving ideas, feel free to add them to the comments.

How to Cut Costs In Business
Five Tips for Beating Inflation
Money-Saving Tips Anyone Can Follow
10 Easy Ways to Save Money In your Business
Cut Costs Without Cutting Muscle and Brain

Jessica Routier, IAC-EZ

Why Polygamy is Good… When it Comes to Your Banking Relationships

Traditional viewpoints about banking were that a monogamous relationship is the best: Way back in the day when neighborhood banks leant to people they knew and trusted, and bank managers would lend money to people based solely on a handshake, it made sense to build up a trusted relationship with just one banker.

But today, things are a bit different. And when I say “a bit different” I mean “way, way different”. You’re a number, in spite of what the feel-good banking commercials tell you. You’re a customer number to the minimum-wage bank employee and you’re a credit rating number to the lending manager who has never met you and has no power to make lending decisions.

As banks consolidate and evolve, as they drop bad credit customers and good-credit-but-non-profitable customers, it makes sense for business owners to branch out and hook up with more than one bank.

In doing some research on this, I found a short but insightful article on exactly this topic in BusinessWeek.  They suggested that customers have a depository relationship with one bank and a long-term lending relationship with another. This is not a bad idea.

It seems counterintuitive because you would think that we should have one good business relationship with one financial institution, and banks market to current customers to convince them of that. However, if your lending habits aren’t in their best interest, they won’t think twice about cutting you out. And when it comes to your credit rating, it doesn’t matter how many financial institutions you’re with. What matters is your debt load, so spread it around!

Take it upon yourself to proactively diversify your banking relationships so that, should one of your banks fold or cut you loose, you’ll be inconvenienced but not down for the count.

Jessica Routier, IAC-EZ