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Cash Flow Case Study

Most people understand the importance of cash flow in their financial life. As a business owner, entrepreneur, or sales professional, you understand that it's THE most important aspect of your finances.

Cash flow is everything to your business. Without it, nothing gets paid, nothing gets saved, nothing gets built, and stress compounds. When I begin to take my clients through my planning process, one of the first areas I address is around cash flow.

Cash flow is the foundation to everything you are building, today and in the future. Most people don't have a well thought out system. They usually have the same thing everyone else has...

  1. Pay check, salary, distributions, bonuses, revenue, all sources of income hit their checking account (hopefully you have a business account that it goes to first).
  2. That account pays their bills, funds their lifestyle, pays for vacations, pays off the credit card, and all of that fun stuff (again, hopefully you have your business account that pays the business related expenses).
  3. For many business owners, their main savings is actually in their business (because that's their biggest asset and they want to be able to invest in their business to continue to grow it). For others, they often have a savings account at the same bank as their main checking.
  4. And then what I see so often is that many people are funneling as much money as they can into retirement accounts and investment accounts to chase returns, OR because their accountant told them to fund a retirement account so it helps with their taxes today. Right?

Here's the thing. That may work ok, you may feel "good" about your finances, but it very rarely works great. I have yet to meet a successful business owner that loves the way they are currently managing their cash flow. There are always inefficiencies, always ways to improve, always wasted dollars that we could recapture by just having a better system and putting a priority on each dollar. NOT a budget - I despise budgets - a SYSTEM.

Every advisor out there can teach you a budget. I learned about budgeting in middle school. Your kids can show you a budget. Very few, if any, advisors actually teach you a system.

Here's what my system hopes to allow my clients to achieve over time:

  1. My clients save more money than they have ever thought possible, while continuing to live a lifestyle that they are proud of.
  2. My clients feel more freedom when they spend money. They take better trips, they do more for others, and they live a guilt-free lifestyle.
  3. My clients understand delayed gratification and they can see their results over time. We have ways to measure their progress, and guardrails to stay on track.
  4. My clients see more opportunities. When your finances are positioned to take advantage of opportunities when they arise, more opportunities conveniently come up. It's the law of attraction. Your money wants to grow, don't hold it back. 

The next big thing could be the next time you pick up your phone! Are you ready for it?

Entrepreneur Case Study

Let's use a hypothetical example of a client who is in a sales role where the majority of income is variable. Like many of my clients, let's say this person is in their 30s, so in the working world for some time, and income is really starting to take off. Let's also assume that this person wants to think outside of the box, and wants to own "entrepreneurial assets" like a business, franchise, rental real estate, etc. We will also assume that this person is making north of $200,000, however like I said, that isn't a consistent paycheck from month to month.

What I am going to share here is just around managing cash flow. There are 15 other areas I address with clients throughout my planning process like asset protection, retirement, tax diversification, debt repayment, estate planning, wealth building, etc.

A little bit of history to get us started. Going back to 1959, the average savings rate in this country is 8.9%, but since 2000 that average has dropped to 6.2%*. That means people are typically spending 91-94% of the money they make. What percent of your gross income are you saving? How much better than the average are you?

What makes saving money difficult for sales professionals and entrepreneurs is that income varies from month to month. Maybe you have a base salary that you get paid or that you pay yourself, but that typically just covers your basic expenses on a month to month basis. What get people in trouble are the random things that pop up throughout the year, either unscheduled or planned in the future. These events cause people to dip into their savings account to cover those non-regular monthly expenses.

The other thing that works against folks is "lifestyle creep", meaning as you make more money you spend more money. It happens to everyone, don't worry, but we need to have a system to also achieve higher savings goals as income rises as well.

As people let the system described work them, unless a huge commission check or sale goes through, it makes it tough to boost up your savings to try and get ahead. If you live on too thin margins, then when things get tight (i.e. 2020 COVID recession) many people don't have a cushion (hence why the PPP money was so oversubscribed) and businesses can be forced to shut down.

Let's be different.

My cash flow system is fluid, it's not set in stone (nothing about your finances should be set in stone). One of the most important things about finances is the ability to build flexibility, to have options, and to pivot when we need to. As we lay the foundation with cash flow, and discuss how we build off of this to accumulate wealth, that's when we start going through what my clients want life to look like down the road and how they envision building their wealth. Fortunately, there are many different ways to build wealth, and what the financial industry often neglects to tell people is in many cases it's by investing into yourself and your business (they don't get paid when you invest in those places). When we set the cash flow system in motion, automate it, and get out of the way, many people find that it has changed their life.


After 8 months, these are some examples of what my clients can expect:

  1. Your personal savings rate should gradually increase over time. By being more intentional with your money, and setting a priority for each of your dollars, many people find they are just able to save more money than they ever thought possible. This is a marathon, not a sprint. 
  2. In order for someone to save more, that money has to come from somewhere, right? These new found dollars often don't come from someone's lifestyle. Many people feel there is a black hole in their checking account, that money just gets sucked into throughout the month. Random things that we don't even see.
  3. Many people start to view their household like their business. You pay your employees a salary, you pay yourself a salary, I want you to pay your family a salary too. When we set this up, we pay our family a salary each month to cover expenses. This way, if we decide to increase it, that then becomes a conscious decision to do so. Expenses gets paid, life gets lived, but saving money happens off the top.
  4. Vacations get better and lifestyle improves. When you feel good about your savings, and you proactively plan for expenses in the future, trips get bigger and better. And, when you spend money, you do so guilt-free. You have the confidence to know everything is done right on the front end.
  5. Everything is now automated. There is no thinking about the flow of money from month to month because it all happens automatically. When there's a big revenue month, more gets automatically saved. When there's a low revenue month, all the bills and expenses still get paid. Wealth continues to be built over time because it's automatic. The only decision point becomes weighing the pros and cons of your next big opportunity!
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