Cash Flow – Are You Aware Of Business Costs?
Wendi Kelly from Life’s Little Inspirations left a great comment on my last post The World Is Still Turning. It was actually her comment that inspired this post, so thank you Wendi. I’ve been meaning to talk about business costs and how they can affect you a while back but somehow lost the idea amongst many (didn’t have my Moleskin back then yet).
Business costs can take a huge slice off your bottom line. Many home entrepreneurs seem to forget this fact conveniently. You might see a great income statement on a particular website and be drawn to that method of monetization, but unless there is an equal listing of associated business costs, the figure is actually very distorted. Mind you, I’ve been guilty to do that myself when I started out.
Convenient lack of information and how the brain can simply forget
I’ve had to learn this back when I was in network marketing. As required, I traveled to a company meeting pretty much every month’. Successful leaders were pouncing around the stage, proclaiming their awesome income for us to get sucked into the whole “hype”. I believed it was possible to earn $5,000/month after being two years in that business.
After all, they have done it. So why couldn’t I? Plus the figure wasn’t so unrealistic anyway. Little did I know that they conveniently “forgot” to tell us that they were spending $2,000/month in advertising. This of course brought their “real” income to $3,000/month instead.
As you can see, it is easy to overlook that part, because we so want to believe that we can do the same. The mind works in mysterious ways and blinds us to the obvious.
I might add that I don’t just take things at face value either. I usually question things and always double check, but in that case I simply overlooked the obvious and allowed myself to be brainwashed.
I suspect many of you do the same.
To run a successful business upfront, you need to follow one tip. This tip is what turned my freelance writing business to success, from previously failing in network marketing.
Spend less than you make! Generate Cash Flow.
I’m all for spending money to make money. But in my previous business I went to the extreme and spent big because it was required for “serious business builders”. Today, I can say this was a simple means to feed the pockets of my upline. No hard feelings. It was my own fault to have been so dumb.
Plus, I guess once again I learned a very valuable lesson.
Back then I spent at least $1500/month for websites, an autoresponder system, travel, advertising, flyers, marketing and more. As you can imagine, I was draining our savings account rather fast, because my income was along the lines of maybe $300-500/month if I was lucky.
Now multiply that for 30 months. Yep, serious money issues and an even more serious depression. In all that time (or at least for two years) I believed that next month is going to be the one I was going to crack the code and see some good income.
I suppose there was one good thing that came out of all that. At least I won’t have to pay huge tax bills for a while, since my profit and loss statement is very much in favor of the losses. At least until I’m even.
Provoked change
Once I realized that nothing would ever change, I knew I needed to get out – fast. Plus by then I had lost the belief and my passion in the network marketing business model.
I realized that the key to success in any business is to spend less than we earn to generate immediate cash flow. If I had done that back then rather than playing business builder, I might still be around, who knows.
So when I remodeled my business and became a freelance writer and pro-blogger, I knew that there was no way I would ever spend more than I was making again.
I can honestly say that my income has grown from that knowledge and practically alone. These days I hardly spend more than $100/month but make a generous full time income. I’ve had cash flow ever since I started this business, even in my first month when I only had a couple of clients.
This is the key you need to hold close to your heart.
Analyze your business costs and only spend after you earn. Especially the big dollars. I realize you might need to pay for hosting and a domain name before you can find clients, but then you need to work it to rope your first client in your first month to cover that cost.
I managed to do that and it was fairly easy. I’m confident, you can too.
If you remember just the one thing from this post, then remember this:
Always spend less than you earn!
Hope this helped some of you.
Monika
About the Author: I'm a passionate freelance writer and problogger. To further build my business I'm also in the process of building my own niche empire which pays me residual income.
Writer Dad | Sep 10, 2008 | Reply
“This is the key you hold close to your heart.”
Well said. I can’t wait to spend less than I generate, but I’ve yet to generate enough to cover my theme. (I’m sticking out my bottom lip in an empty room).
Also, and I’m sorry if this is the second time because I think I already mentioned it, but I love your word count, estimated reading time thingy. It’s boss.
Brett Legree | Sep 10, 2008 | Reply
Wiser words were never spoken. We’ve had our share of this too, and my answer is always “either we have to cut back on our spending, or spend the same and make more money – what is easier to do, right now?”
(Of course, having 4 kids doesn’t make it easy… as they more closely resemble a plague of locusts at feeding time than little humans!)
I like the estimated reading time thing too – although because I like your writing so much, I read it two or three times, so the reading time has to be multiplied!
-Brett
Monika | Sep 10, 2008 | Reply
@ WD: I can just picture you with that bottom lippy thing.
BTW, just went and checked out the Bloggess. She is seriously – retardedly funny. Subscribed. 
Thanks for the heads up on the word count thingy. It’s kind of nifty for sure. If you like i can check out which plugin it is and you can use it on your blog. Let me know please.
Monika | Sep 10, 2008 | Reply
@ Brett: Get out…. are you for real? Reading my posts three times. Wow. I’m impressed, or is because I ramble on so much and you have to find the real meaning? Hehehehe….:-)
Kids and locusts, LOL, I can imagine. Mind you, birds aren’t cheap either, especially if they are of the garden kind and get feed with prime beef mince and cashew nuts.
Writer Dad | Sep 10, 2008 | Reply
I’d love to check it out. Thanks.
Retardedly funny is the perfect way to describe the Bloggess.
Wendi Kelly-Life's Little Inspirations | Sep 10, 2008 | Reply
Monika,
how nice of you to mention my Comment, thanks!( but really you were already thinking of it or I couldn’t have commented on it!)
Its so sad to see people who are working so hard fall into this trap unwittingly.Your post will help them to do much better and understand the pitfalls. Rainy days ALWAYS happen in business. ( good days happen too)and if you want paid sick days, paid vacation days, retirement funds and portfolios, marketing plans, budgets and investments, guess where that money has to come from?
Thats right, the budget, the same one your paycheck comes from. Once an independent contractor or single business owner begins to understand that the income isn’t the paycheck, thinks start to click!
Bas | Sep 10, 2008 | Reply
I have tested a lot of online money earning systems, but it doesnt really pay of. You put a lot of time in there without getting fast results. But if you combine some of the systems, you can earn quite a few bucks on the side.
Since im a big fan of online generating systems i can say lots of those systems only bring money in the pocket of the owner. Still there are some websites where you do get paid. one of them is work for 3 dollars (link removed by admin), where you have to actually pay to get signed up (3 dollar) but you get this money back real fast (after 2 referrals). The first good thing about this system is that the owner does pay. you receive your money automaticly every time you earned 3 dollars. I already got my 3 dollar signup fee back within the next day!
The second good part about (link removed by admin) this matrix is that you dont have to do alot of work. Just get your downline filled up with some referrals and the money will start coming in. This goes faster than you think.
Its a sort of matrix, in wich each player gets its part. check out the table on their website, and you will see how much you can earn how fast.
Its one of my favourite systems i found so far on the internet. With this system alone i am earning around 250 $ a month right now (signed up 3 months ago).
Alex Fayle | Someday Syndrome | Sep 10, 2008 | Reply
In my last business, I spent too much in a poor advertising decision and in too much working “on” the business (ie, business planners).
This time around I’ve invested a certain amount in development of the business and will find free or inexpensive ways to build the business until I pay off the investment and build up a bit more income.
Great topic!
Cheers,
Alex
Bcarter | Sep 10, 2008 | Reply
Good points for any small business owner starting out, not just freelance writers.
I do believe that you have to spend some money to make money, but the costs have to stay down or eventually you’ll just be working to dig out of a hole. Once you start digging out of a hole, you may fall into desperation mode. Desperation mode is not the mode you want to be running a business in.
Brett Legree | Sep 10, 2008 | Reply
@Monika,
I do, really, and often. No rambling, don’t worry about that. I honestly have PDF’d your post about going out on your own and following your dream, and I read it often.
You’d have laughed today – one of the triplets (Ian, the cook) – today’s the first full day of school, and all he’s talking about is what he’ll be eating from his lunch bag!
-Brett
Monika | Sep 10, 2008 | Reply
@ WD: The Plugin is called post teaser. Here is the link for you http://wordpress.org/extend/plugins/post-teaser/ It hasn’t been updated in a while but does work with the newest version of WP.
Hope this helps.
Monika | Sep 10, 2008 | Reply
@ Bas: Welcome to my site and thank you for the information about the matrix system you are using. Maybe it is helpful to some readers here.
A note on all the links you inserted in your comment. I deleted them as you can see. I don’t appreciate comments peppered with affiliate links. If the link is related to information, no worries but since you already use this as your signature link there is no need to repeat it three times.
Thank you.
Monika | Sep 10, 2008 | Reply
@ Brett: Oh, this is cute. A little chef in the making then. Did you get him to watch Ramsey yet? That should scare him off for life, even though it is probably x-rated for kids anyway.
I’m seriously flattered to have been printed in PDF. Wow, thank you.
Monika | Sep 10, 2008 | Reply
@ Wendi: You are very smart with cash flow predictions by the sounds of it. Are you an accountant in any way? Sorry maybe I should know this but I don’t. Oops.
Your comments are value packed with all kinds of monetary meanings. I wish I’d knew that a few years ago.
As for your comment, that was the least I could do since you DID inspire me to write this post.
Monika | Sep 10, 2008 | Reply
@ Alex: I suppose we learn best by making mistakes. It just hurts even more when they affect the bottom line. In the end though, we can always make back money but our health can’t be manipulated.
I also built this business entirely free of cost. I haven’t paid a single cent for any marketing. The one thing though I have invested in truckloads is time. In hindsight I have to say it was worth the effort and cost nothing.
Talking about poor advertising decisions, my, you name it, I’ve done it.
Monika | Sep 10, 2008 | Reply
@ Bcarter: Exactly. I found that out the hard way. Definitely not a pretty situation to be in.
I also have to tell you how impressed I am by your guts to fight your hubby’s addiction. Wow, you go lady. Many people in the same situation would have done a runner. Even more respect to you Brenda!
steph | Sep 11, 2008 | Reply
Very good topic and post! Because we need every penny right now, my insufficient income gets absorbed quickly and is spent on groceries, bills, etc. Thus it’s hard for me to think of spending less than I make. I have few overhead costs in general as a freelance editor, but I did have to pay – am still paying – what I consider an arm and a leg for EditQuest. And I just had to buy a new computer since my other one gave up the ghost.
So definitely my aim is gain clients enough to keep me busy but also help us gain a leg up so we have more money than we need. I would like to have my EQ setup expenses covered within the first two or three jobs alone, but how does that work when your money goes straight to covering other stuff?
Writer Dad | Sep 11, 2008 | Reply
Thanks. I’m sure it will.
Monika | Sep 11, 2008 | Reply
Monika,
Great post! Certainly a situation that most of us are in, have been in, or – will find ourselves in.
But, I must say, IT IS SO GOOD TO HAVE YOU BACK!
Thanks,
Rita
Cath Lawson | Sep 11, 2008 | Reply
Hi Monika – I can see how you got burned in MLM. A lot of these companies are keen to tell you how much you sell, but they don’t tell you about net profits.
I had someone comment on my blog yesterday that they were the biggest online jeweller in the UK. I did some research and out of £1.6 million turnover they only made £3400 profit.
Kelly | Sep 11, 2008 | Reply
I think a freelance writer is good business as it needs less cost. Too bad I am not good at writing. I’m now looking for a good business which doe not need big money at initial stage.
Wendi Kelly-Life's Little Inspirations | Sep 12, 2008 | Reply
Monika,
For some reason I must not have been subscribed to comments on this. No, I am not an accountant. I have been the owner/manager of two succesful small businesses for well over 25 years. One in the hairdressing business for our family ( still ongoing) and one in real estate that was extremely successful to the extent that I incorporated and hired employees to take it over and then retired when I got married last year. Although not an accountant, I learned a lot about running a business profitably, marketing, making sound business choices, and the difficulties involved in working for yourself as a business owner. An accountant specializes in numbers. I specialized in people and how to best leverage your talents, skill and time to best save your money and make money in the shortest time possible.
Monika | Sep 12, 2008 | Reply
@ Wendi: Wow, you certainly have built some professional clout over the years! Good on you. I never knew this. It’s great to get to know you some more Wendi, I appreciate your are sharing this with me and my readers.